Sprint’s Net Neutrality Reversal Shows How Bad Things Are for ISPs

© ANDREW KELLY/Reuters/Corbis

When Federal Communications Commission Chairman Tom Wheeler hinted that he might support Title II—meaning his agency could end up treating internet service providers much like “common carrier” telephone companies—we knew that Google and Netflix were pleased. Title II would upload “net neutrality,” the notion that ISPs must treat all content equally, and that’s what the Googles and the Netflixes want.

By the same token, most internet watchers assumed that the big internet service providers would hate the idea. After all, AT&T CEO Randall Stephenson said that he’s worried enough a out the specter of Title II to pause a 100 city fiber build-out. If ISPs are common carriers, he argued, then they have little reason to expand their operations. But as it turns out, the situation is more complicated than it might seem.

On Thursday, Sprint said that, unlike the AT&T, it’s actually ok with the Title II idea. In a FCC filing Sprint’s CTO, Stephen Bye, wrote: “Sprint does not believe that a light touch application of Title II, including appropriate forebearance, would harm the continued investment in, and deployment of, mobile broadband services.”

Sprint is a wireless carrier, so it may not exactly share the same concerns as AT&T or Verizon, both of whom have capital-intensive land-line businesses as well. Though Wireless voice is already covered under Title II, the data side of things is not. But like AT&T, Verizon has said that Title II would be bad for their mobile broadband services, and T-Mobile seems to feel that way too.

So why has Sprint taken the maverick position on Title II? For one thing, it’s an underdog, trailing far behind AT&T and Verizon in the mobile arena. So maybe its willing to take a chance, feeling that it doesn’t have quite as much to lose as the big companies.

That dovetails with one of the worrying trends we’re seeing in the ISP marketplace here in the U.S. Large carriers are starting to charge companies such as Netflix and Google in order to offer speedy content delivery for their movies and TV shows. Net neutrality advocates say this breaks the way the internet works, and they’re asking the FCC to stop it.

But from a purely economic perspective, the big guys can do this because they have so many customers. If Netflix doesn’t work properly on Sprint, that’s a problem, but not a crisis. If it’s choppy on Verizon’s much larger network, though, that can hurt their bottom line.

Because of wireless data caps, the vast majority of movie watching is happening on fixed line networks, but that could eventually change. And if it does, Sprint may find that a Title-II enforced level playing field makes it more competitive. Here’s how Dane Jasper explains things. He’s the CEO at an even smaller internet service provider, California’s Sonic.net.

“It’s just a guess, but perhaps they are in the same position we are: they’re in a distant third place, and do not have enough customers to really monetize ‘captive eyeballs,’ but extorting content sources. By assuring that neither AT&T nor Verizon do either, they can help maintain a level playing field,” Jasper says.

As Jaspar explains it, Comcast is now getting a certain amount of money per customer from Netflix, and Sonic is not. “That allows them to undercut us (in theory, and to some small degree at this point),” he says. “Continued exploitation of a double-ended market could result in the leader being able to undercut all followers, simply because the smaller carriers don’t have enough customers to lever payments out of sources of content.”