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What would two-tiered Internet mean for MSPs?

ISPs want a tiered Internet model, following a U.S. Court of Appeals' strikedown of the FCC's net neutrality rule. What would the impact be on MSPs?

Since its inception, the Internet has been an open medium. Net neutrality states that Internet service providers are not allowed to discriminate between different types of content or applications (so long as they're legal) based on the amount of bandwidth they consume or any other factor. However, within the U.S., that could all change with the involvement of the federal government, and there are concerns about how that change could impact IT channel companies.

According to WhatIs.com, "Net neutrality is the principle that data packets on the Internet should be moved impartially, without regard to content, destination or source." In 2010 the U.S. Federal Communications Commission (FCC) extended carrier network rules to Internet service providers (ISPs), requiring them to offer fair and equal access to the Internet for all legal content. However, earlier this year a U.S. Court of Appeals ruled that the FCC does not have the authority to extend carrier network rules to ISPs. The FCC could reclassify Internet service as a telecommunications service, thus giving itself power to legally enforce net neutrality and the government power to regulate the Internet. While the industry as a whole holds its breath awaiting the FCC's next move, high-speed Internet carriers are seeking support for a two-tiered Internet service model that would allow them to charge content providers a premium fee for faster speed across their pipes.

Charles Weaver, CEO of MSPAlliance, a Chico, California-based organization for managed service providers and cloud providers, says that net neutrality and the two-tiered Internet service model present two primary concerns for MSPs. One concern is that the arbitrary manipulation of bandwidth by ISPs or carriers could impact the performance of a service that MSPs find valuable. Weaver cited cloud storage and MSP and cloud management tools as examples of such services.

Weaver acknowledged that a two-tiered service model could be applied to specific bandwidth-heavy traffic, like video. But this, too, causes concern. "A lot of MSPs rely on and deliver video conferencing. The medical field and other industries use video conferencing. End users who rely on video traffic could be significantly harmed. A lot of different sectors would be negatively impacted if that were to happen," he said.

From a channel point of view, it's a question of, Do you want to be a low-margin reseller or a high-margin custom solutions provider?

Ryan Morris, principal consultant, Morris Management Partners

Then there is the issue of the FCC's involvement. "It's more a free-market argument of, Do we want the federal government making those types of policy changes or rules?" Weaver said. "The FCC is really behind the times. They are still looking at an analog world, where the rest is digital. Will they be fast enough to adapt and adopt principles that will be relevant, or will they still be playing catch-up five years down the road?"

Kevin McDonald, executive vice president and director of compliance practices at Alvaka Networks Inc., an MSP based in Irvine, California, and a contributor to SearchITChannel.com, shared a similar sentiment. "The politicians don't have a clue because they don't know how to run a business," he said.

Ryan Morris, principal consultant at Boulder, Colorado-based Morris Management Partners, cited yet another concern that net neutrality presents for the IT channel. "If we have a fast lane, the most predictable consequence is that it would stymie the beginning of any startup offerings that depend on Internet speed as a core component of their service," he said.

Morris explained further: "Think about the way margin is distributed in a value chain. Where the margin lands is defined by where the customer perceives differentiated value. … If the Net is not neutral, then by definition the value goes to the service provider because they are the point of differentiator. If it is neutral, then the value can move down to the service provider, who can make drastically higher margins."

He continued: "From a channel point of view, it's a question of, Do you want to be a low-margin reseller or a high-margin custom solutions provider?" The only way to be a high-margin custom solutions provider, he said, "is to leverage up-and-coming, currently nondominant vendors to provide me components that I build into my own solution. If, by definition, those vendors are inherently slower, [I am] inherently at a disadvantage and therefore must go with a dominant provider that is going to keep the margin, and [I, as the solution provider,] will become commoditized."

Morris' concern is not shared by all. "There are a variety of different managed service provider levels," Alvaka's McDonald explained. "There are the small providers who are just a few people and might have a few tools that send [alerts] to a pager, and they respond on a 24/7 basis. Then there are those of us who have spent millions and millions of dollars on infrastructure to be a top-tier service provider; to provide the best managed service at a reasonable price to a client. We're already buying more Internet and higher-end engineers. I don't understand how this is different from any other cost factor that I have to deal with as a business."

Regardless of how IT channel companies feel about net neutrality and the potential impact of a two-tiered Internet service model, there don't seem to be any significant concerns among MSPs as a whole. "From the MSP perspective, I haven't heard of this being a huge issue. We have not heard MSPs saying we are concerned about a particular ISP or carrier throttling bandwidth," MSPAlliance's Weaver said. He added that the alliance generally hears about issues from service providers before the federal government does.

Crystal Bedell is a freelance writer specializing in B2B technology.

This was last published in June 2014

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