There’s Nothing Neutral About the Internet When it Comes to Retail

Retailers are watching how the Tax Cuts and Jobs Act bills that worked their way though the Senate and the House of Representatives late last year will ultimately turn out.

It’s a drama that’s already sending retailers large and small to their accountants for strategic advice. What will take longer to determine – and what may ultimately prove to be even more economically significant in the long run – is how the FCC’s decision to end the Obama-era net neutrality regulations will impact everything from Netflix to the GDP.

Simply put – and nothing is truly simple about this far-reaching decision – removing the net neutrality regulations means that internet service goes from being classified as a regulatable public utility and becomes instead a market-based commodity. Internet service providers (ISPs) would, in theory, be able to determine the bandwidth (i.e., speed) at which online presences can move through them. AT&T or Comcast could provide more bandwidth for content from subsidiaries they own, such as DirecTV or NBC, respectively, or provide less bandwidth by comparison to competitors’ content, a process known as throttling.

Throttled content will get through, but more slowly and with all sorts of artifacts, such as buffering, which is anathema to video. Consumers will go where the experience is better, even if it means watching some content they might have viewed as second best.

This is one kind of a problem when it comes to movies and sports, but an even bigger one when it comes to retail. Remember when big box stores moved into communities and squeezed out smaller independent retailers? That’s what proponents of keeping net neutrality in place predict will happen if those guidelines go away. Without regulations to keep the online playing field even, the largest retailers could pay higher rates for favored access, elbowing their smaller competition out of the way.

Visitors who have to wait more than three seconds for a mobile site to load will abandon their search 53 percent of the time. Large retailers will have speed on their side, while smaller shops might get pushed deeper into niches that the bigger stores don’t serve .ISPs have already created “fast lanes” for their own content, as AT&T does with DirecTV, using loopholes in the existing regulations. That’s already causing consternation within the content community. Netflix ripped the decision, saying it would result in higher bandwidth costs for them, which will inevitably get passed through to their customers in the form of higher subscription rates. Now apply that to retail, where milliseconds count: online metrics company DoubleClick found that visitors who have to wait more than three seconds for a mobile site to load will abandon their search 53 percent of the time. Large retailers will have speed on their side, while smaller shops might get pushed deeper into niches that the bigger stores don’t serve. It’s a formula for more of the kind of inequality that has come to characterize the world we now live in.

In This Thing Together

Interestingly, the net neutrality issue is also a shared one for MI retailers and musicians, who in the new music industry have become retailers themselves, using the internet to sell not only their most basic wares, their music, but also concert tickets and branded merchandise. If mom-and-pop stores have to be wary of big-box stores and their pricing power, indie musicians see the same kind of bogeyman in corporations like Live Nation and AEG Live, which control performance venues from arenas and stadiums down to hundreds of local pubs across the country.

Proponents of removing net neutrality regulations assert that it will foster more innovation and competition.

As for the former, there’s been no shortage of creative invention in the last couple of years; regarding the latter, we already know what happens when the largest corporations are allowed free rein over a “free” market landscape. Scale always wins.

We’ve been through this sort of thing before, from the oil monopolies of the turn of the last century to, ironically, the disassembling of AT&T at the hands of regulators 30 years ago. That last one is within living memory and is why our mobile phone bills have been steadily decreasing over the last decade. Competition is not only good, it’s the basis for free enterprise, and a truly neutral internet is critical for that to continue into the future.