Over-the-Top Video’s Future in the Court’s Hands

Depending on which headline you believe, the internet you enjoy is either about to be liberated from onerous, innovation-strangling government regulation or surrendered into the greedy hands of monopolistic telecom firms eager to harness their oligarchic leverage to stamp out the competition.

Why such apocalyptic hysteria?

Earlier this month, the U.S. Court of Appeals for the D.C. Circuit heard oral arguments in Verizon’s challenge of the FCC’s 2010 Open Internet order, an order that gave the FCC added oversight over the country’s leading internet service providers (ISPs) to prohibit them from blocking or discriminating against traffic on their networks.

The case is being fought on a rather narrow question, albeit one with significant ramifications: whether the FCC has the statutory authority to oversee broadband ISPs in the U.S. at all. If the Court rules that they do, it’s assumed that the FCC will press ISPs to enforce net neutrality principles or, in the eyes of net neutrality critics, advance a stealth agenda to turn internet service into a heavily regulated utility, like electricity and water delivery. If the FCC lacks such authority, it will be seen, in the words of one Wall Street firm, as paving the way for ISPs “to enter into commercial agreements with content providers for specialized access and/or preferential quality of service.” Or, in the words of net neutrality advocates, it would transform ISPs into the internet’s “gatekeepers” with the power to decide which services get through to consumers’ homes, and which don’t.

This, obviously, has major ramifications for the over-the-top video market.

It would be all too easy, the theory goes, for jealous and vindictive ISPs to throttle Netflix and other rival video traffic over their networks, degrading the consumer experience and wounding key rivals. It would also be easy for these ISPs to demand premiums from OTT video providers for their oversized bandwidth consumption. (Indeed, Verizon’s attorney said the company would be exploring those very commercial agreements but for the existing FCC rules.) These premiums could likely be managed by well-established OTT players like Netflix and Hulu, but may price new entrants out of the market. If ISPs continue to lose video subscribers to OTT rivals, the financial pressure to charge “tolls” on this video traffic will only grow, changing the economic landscape of OTT competition significantly.

Still, critics of net neutrality point out that before the FCC rules were even established, the internet economy was a thriving universe of apps, streaming services and nearly limitless content. While there have been some sporadic cases of ISPs behaving badly, there’s been nothing like the systemic abuse predicted by net neutrality advocates.

It will be some months before the Court of Appeals for the D.C. Circuit issues a ruling and while it’s impossible to know just which way the Court will lean, one thing’s for certain: headline writers will have plenty of the wax hysterical about in the weeks ahead.