24/7 Wall St.

The document called the FEDERAL COMMUNICATIONS COMMISSION CHAIRMAN JULIUS GENACHOWSKI REMARKS ON PRESERVING INTERNET FREEDOM AND OPENNESS was released recently. Perhaps the most unexpected part of the chairman’s comments was some support for “usage based” prices by online service providers. The language about the plan was buried, but cable and telecom firms celebrated it nonetheless. All parties now face final decisions by the FCC and possible Congressional intervention.

Genachowski celebrated what the Internet has done for freedom of speech and flow of information in America, but he made it clear that the companies which build the backbone of the web and provide its bandwidth could not be expected to bear the costs of huge increases in traffic.

The proclamation is what large firms which provide online services have waited for over the last several years. They have fought for the ability to charge for bandwidth consumption. It is only a small jump from that to tiered services which will cause the consumer or the companies which send huge video files over the Internet to pay substantial fees. “The proposed open Internet framework is designed to guard against these risks (to freedom of use of the web), while recognizing the legitimate needs and interests of broadband providers.” the document said.

The recommendation about how the future of the Internet should be governed in America comes just days after a dispute between Level 3 (NASDAQ: LVLT), a huge Internet pipe provider, and Comcast (NASDAQ: CMCSA) over which company should cover the costs of the large video files that Netflix (NASDAQ: NFLX) uses to get movies to its subscribers. Comcast wants addition fees for the additional file sizes. That would seem to be a fair business practice, but up until recently, it was prohibited.

The door has been opened to  tiered services which could be the new business model for the delivery of the web to both fixed line and wireless customers. The decision comes at a critical time. Verizon Wireless and Sprint-Nextel (NYSE: S) have launched their super-fast 4G products. The wireless providers would obviously like to charge more money for the enhanced service. They now may be able to do so. The consumer will be faced with the choice between better service at a higher price or basic service for a lower fee.

As businesses usually operate in a free market, the “pay for bandwidth” model would seem to be fair game. Verizon and Sprint should not be forced to subsidize the use of “better” Internet service. But, the new world of tiered prices does undermine the notion that the Internet is a tool for the democratization of the country.

“Net neutrality,” as it was originally conceived, has essentially come to an end. It has given way to the realities of open markets with the normal price practices which accompany companies’ desire to charge more for things that cost them more to delivery. Democracy can be damned.

Douglas A. McIntyre