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Why Startups Care About Net Neutrality

Grace Phillips Ogilby

Research Manager, 1776

From how we measure our heart rates to how we book hotel rooms, the startup revolution has drastically changed the way we live our lives and is only getting started. Forget self-driving cars; flying cars may be coming soon to an airspace near you.

None of this innovation would have happened or can continue to happen without the free flow of information through the internet. The internet is a great equalizer: it ensures that on-demand entertainment companies like Netflix can compete with media giants. It allows small, ride-sharing applications like Split can continue to compete with successful startups like Uber and Lyft.

Thanks to the internet, startups can reach customers and promote their products and services as easily as large, well established companies.

But what if the companies that control the cables and spectrum — the nuts and bolts — that make up the internet started acting as online gatekeepers? What if they could decide what information consumers can see online? Or what if established companies could pay internet service providers to make it easy to get information about incumbent products but extremely difficult to find startups’ products and services?

These are the questions that lie at the heart of the net neutrality debate for startups. Net neutrality is the idea that information should be able to flow unimpeded over the internet and that internet service providers cannot block, tamper, slow down or speed up that information on its way to its destination.

In February 2015, the Federal Communication Commission adopted a set of rules affirming net neutrality and requiring internet service providers to follow many of the same rules as telephone companies.

Just as Verizon cannot intentionally block or slow down your phone call to your grandmother, per these new rules, Verizon cannot block or slow down your email to your grandmother (or Snapchat, if grandma’s hip to the jive). Verizon also cannot prioritize the emails of others over your email to grandmother. Verizon has to treat your email the same way that it treats every other email passing through its network.

From the startup perspective, these rules are enormously important. They mean that big companies can’t edge out startups by paying internet service providers to get their content to consumers more quickly than competitors, including startups.

Startups, like many Americans, are treating the internet increasingly as a replacement for phone calls. Skype, Slack, Google Hangouts and FaceTime are just a few examples of startup products that have grown explosively by facilitating the world’s transition from phones to the internet.

As we make this transition, it makes sense to ensure that internet users have the same ability to communicate as phone users, especially since all signs point to a decreasing dependence on phones and an increasing dependence on internet-based communication. This is especially true for startups that are looking to cut costs and increase efficiency wherever possible.

For startups, internet access is a necessity, not a luxury. Barriers to speedy and efficient online communication can also be barriers to startups’ ability to succeed. Startups everywhere should rejoice that the FCC enacted rules to preserve startups’ ability to communicate as quickly and effectively as the established companies that they are challenging.

However, startups can’t take net neutrality for granted. Telecommunications companies have challenged the FCC rules in court. Fortunately for startups, on June 14, the U.S. Court of Appeals for the D.C. Circuit surprised many analysts when it upheld the FCC’s rules in a two-to-one decision.

Still, the fight isn’t over — the Supreme Court will likely weigh in on the issue and could overturn the lower court’s ruling. Telecom companies are already planning to appeal. For entrepreneurs, the stakes are high.

Grace Phillips Ogilby

Research Manager, 1776

As 1776's research analyst, Grace digs deep into 1776's proprietary data sets and pairs them with insights from the 1776 community of startups, investors, mentors, experts, policymakers and institutions. Grace…