Logo BusinessBecause - The business school voice
mobile search icon

Net Neutrality: Why US Business School Entrepreneurs Could Be At Risk

As the FCC moves to rollback legislation protecting an open internet, we ask b-school experts how no net neutrality could affect MBAs and entrepreneurship in the US

By  Robert Klecha

Wed Sep 13 2017

Back in May, the US Federal Communication Commission (FCC), led by Ajit Pai, voted to roll back Obama-era legislation enacted to protect an open internet. The FCC’s aim was to soften the regulations around internet provision, which currently defines internet as a utility and prohibits providers like AT&T, Verizon and Comcast from limiting its access.

For those of you just coming across the mundane sounding term, net neutrality describes an internet free from fast and slow lanes, one where all traffic is treated equally. Net neutrality means a level playing field for content and applications competition on the internet.

The FCC argues that net neutrality rules aren’t necessary. It says that before these rules were in place, many of the large Internet Service Providers (ISPs) voluntarily abided by a blocking rule to protect net neutrality anyway. Rolling back the rules will have little effect in their view.

However, their assurances aren’t enough for some. Nicholas Economides is an economics professor at NYU Stern and executive director of the NET Institute, a focal point for research on the economics of network and high technology industries. He's testified before Congress on the issue of net neutrality.

“I am very worried about the FCC’s move to kill net neutrality,” he says.

“Net neutrality was codified in 2015 because of the threat by AT&T to dismantle it. Without network neutrality, telecommunications and cable companies will tilt competition in favor of companies that pay them to delay content of their rivals.”

The public comment period on the FCC’s proposal concluded at the end of August with a record 22 million responses, eclipsing the previous high of 3.7 million. Many people feel strong enforcement is needed.

So, what are the potential effects of this deregulation on businesses and MBA graduates in the US?

Nicholas is not hopeful: “The Internet under net neutrality has been an engine of growth for the tech sector and more broadly for the US economy. Killing it will have a devastating effect on entrepreneurs and new small businesses.

“Telecom and cable companies will charge large fees to “prioritize” the content of whoever pays. Content and applications of non-paying companies, such as small entrepreneurial startups or non-profits will reach users with delays, adversely affecting startups and competition in general.”

However, Prabhudev Konana, professor of information, risk and operations management at The University of Texas at Austin McCombs School of Business, is more optimistic. “I don’t believe it will hurt MBAs. In fact, there may be a need for more MBAs for telecom businesses to exploit deregulation” he says.

“I don’t believe that startup culture or entrepreneurship will be affected, unless it is competing against the telecom giants controlling the network. However, there are lots of new services created on the internet leveraging new technologies like the internet of things, data hosting services, etc. Removing net neutrality may discourage innovations and entrepreneurship in these areas since barriers and cost may increase.”

As today’s business world continues to be disrupted by new technology and the digital economy grows worldwide, it’s clear that ISPs have an ever growing influence over corporate America. Their networks have become the platform that big business is carried out on as well as an invaluable part of everyday life.

“ISPs invest tens of billions of dollars and take the risk of creating the networks. AT&T invests upward of $20 billion every year on infrastructure” says Prabhudev.

“They believe they should be rewarded for the massive traffic that flows through their networks. Some of this traffic competes with the ISPs however, by providing voice, data and video services.

“They may argue that they could provide better end-to-end service if they can prioritize traffic on their network. Without that ability, new-age rivals like Google, Netflix, Apple or Amazon impact their business and generate massive profits without investing in the infrastructure.”

Perhaps the real issue underlying net neutrality is the lack of ISPs in America. If a customer could choose a different provider because an ISP only allows slow access to their desired content, then market forces would force ISPs to match their competitors.

As Prabhudev explains however, the US telecom industry’s history makes this impossible: “Telecom was regulated monopolies for so many decades that the last mile infrastructure was controlled by a player or two in each market. That legacy prevents massive competition.

“Unfortunately, we also see cable providers who could compete with traditional telecom companies merging (AT&T and TimeWarner) and limiting competition.”

Nicholas agrees, “There is no meaningful competition among these ISPs, resulting in high fees. A recent Pew study found that the average monthly fee in the US for a fixed broadband is $39.50, when, for example, the prevailing price in France is $25 per month for much faster service.”

“Evidence of implicit collusion among US ISPs is the fact that none of them is willing to accept net neutrality and win over customers of other ISPs who are against it. Instead, they’re all lobbying to kill it.”

Without legislation or significant competition ensuring net neutrality, MBAs could be about to enter an age where ISPs in America hold the keys to the digital market. It could be the end of the openness that gave birth to Silicon Valley's success stories, and many an entrepreneur innovating in the tech industry.