What Is Net Neutrality and How Could It Affect Your Middle Market Business?

Net neutrality became a buzz phrase when comic John Oliver took on the topic, inspiring so many people to visit the FCC's website that it crashed. But this is more than the latest Internet chatter du jour.

Without net neutrality, midsized firms may have trouble finding the funds to keep up with Internet giants

A typical description of net neutrality details how it prevents Internet service providers (ISPs) from creating fast and slow traffic lanes, which would allow them to charge companies a premium for fast speeds while leaving those firms that can't pay in a less competitive position. That explanation is somewhat missing the point. Big companies such as Google, Facebook, and Netflix already do get their operations connected at a very deep level and high speed to the Internet though big ISPs, which is something that smaller companies, including those in the middle market, likely won't be able to afford.

Unless all your Internet communications are concentrated within the bounds of one ISP, then you're probably dealing with multiple telecommunications companies. Nothing says that these service providers have to be cooperative or even reasonable. If you want to deliver or receive services and information at the same speed as your competitor, then you'll have to pay, either directly or indirectly.

The real problem is fivefold:

  1. Internet traffic often must pass between ISPs to go from the original sender of a signal, message, email, or activity to its destination.
  2. Both the sender and the recipient already pay for the traffic.
  3. When an ISP has to transmit traffic from a company that is not currently paying for a primary connection, it sees an opportunity to make more money.
  4. A small number of big ISPs such as Time Warner Cable, Comcast, or Verizon own an increasing amount of connections that consumers use.
  5. Because of technicalities and past decisions, the FCC does not have legal authority to regulate ISPs.

The result: Large ISPs want big companies to pay money to get the fastest possible access to consumers, and the FCC is now considering a rule that would allow ISPs to create two-tiered commercial services.

In a world so often driven and enabled by technology, net neutrality — also known as open Internet — has become a key issue for middle market companies that use online innovation to be competitive and foster growth. An elimination or reduction of net neutrality could affect your company in a number of ways.

Cost of Doing Business

There's no denying the bottom line: whether directly or indirectly, the costs for Internet services could very well increase. Even if your company's own ISP doesn't raise its prices, some other vendor (say, a vendor that provides services to one of your important clients) might have to jack up costs; this would in turn lead to additional payments on your end that are essentially passed on by these other vendors.

Available Services

With the likelihood of more financial pressure being heaped on Internet-related companies, fewer of those companies will be able to stay in business. When there are fewer companies, chances are that the range of services available will shrink. Unless everything you need is of broad commercial interest, certain features or abilities that you've come to rely on could disappear.

Speed of Business Innovation

If ISP prices go up, it greatly dampens the ability of younger, smaller companies to make innovations of their own. It's important to note that some of today's biggest tech companies used to be start-ups that didn't possess the wealth of services and flexibility (not to mention deep bank accounts) that they currently have. Any new Internet-based service in development by a smaller firm would have a lot more trouble getting off the ground if the costs of proliferating this service across the Web were too high for them to sustain.

Even if the discussion of net neutrality seems terminally boring, as Oliver mocks, the potential impact on middle market companies is deadly serious. Now, not later, is the time to investigate the issue and make your opinions known to the FCC, Congress, and the Obama administration.

How can a midsized firm make its voice heard in this debate? Let us know what you think by commenting below.

Erik Sherman is an NCMM contributor and author whose work has appeared in such publications as The Wall Street Journal The New York Times Magazine Newsweek, the Financial Times Chief Executive Inc., and Fortune. He also blogs for CBS MoneyWatch. Sherman has extensive experience in corporate communications consulting and is the author or co-author of 10 books. Follow him on Twitter and circle him on Google+.

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