FCC Must Protect Entrepreneurs from Internet Service Providers' Unfair Practices

Cable and phone companies have been fighting proposed rules that, if adopted, would protect broadband users from Internet Service Providers’ (ISPs) anti-consumer practices. The proposed rules would give the Federal Communications Commission (FCC) the authority to step in if ISPs are unfairly blocking or downgrading some Internet traffic. These rules are needed because many ISPs want to change the way the net has operated by giving preferential treatment to the web sites of companies willing to pay more, while discriminating against others that can’t pay up.

The FCC’s proposed rules would also allow the agency to adopt policies to spur investment in deploying the Internet to rural areas, and help low-income consumers get connected.

The cable and phone companies repeat the same claim many corporations use when attempting to block public interest rules: consumer protections will hurt jobs, and deter investment. But in fact, AT&T and Verizon have cut jobs even in their most profitable years. And some of the greatest economic value of the Internet is generated from companies that use the web, such as small businesses, and e-commerce companies, which need to be protected from unfair ISP practices.

We must protect the entrepreneurs and small businesses that use the Internet – and that are vital to our economic recovery – by ensuring the web remains open to anyone with a good idea, and not controlled by just a few corporate interests.

ISPs Cut Jobs When Profitable

AT&T and Verizon want policymakers to think that consumer-friendly rules will cause them to cut jobs. But these companies are enjoying huge profit margins and cutting jobs at the same time.

• Between 2007 and 2009, AT&T reported $36.5 billion in profit, yet reduced its workforce by 20,500 employees during that same period of time (1). Why isn’t AT&T investing more of its profits in hiring workers or upgrading its network?
• Despite achieving profits of over $15.6 billion between 2007 and 2009, Verizon has 19,073 fewer employees than it did in 2006.
• Despite achieving an average of 7% profits annually between 2000 and 2009, Verizon shed 15.4% of its workforce. How many more billions of dollars in profit does the company need before it will create jobs?

ISPs Are Riding High, Even in the Recession

It’s good for our economy when companies make money and hire workers. But while small businesses continue to struggle in this economy, the cable and phone companies achieved extremely healthy profit margins. If the Great Recession didn’t stop these ISPs from making big profits, how could they be hurt by sensible consumer protections to keep the net operating just like it always has?

• AT&T saw revenues of more than $123 billion in both 2008 and 2009, and reported 10% in profits in both years. Only ExxonMobil did slightly better with 10.21% in profits in 2009. Even Wal-Mart only earned 3.3% profits.

• Comcast achieved 10% in profits in 2009, but the company wants more of your money. It’s pushing to block rules that would prevent ISPs from charging consumers and small businesses discriminatory rates for web content shared over its network. In other words, the more money its business customers make on-line, the more Comcast wants a piece of it.

• It would take just 38.7% of the profits earned by Comcast, AT&T and Verizon during 2007 – 2009 to connect every single home in the U.S. that is currently un-served to basic broadband infrastructure (2). We are unaware of any plans by any of these three ISPs to build new networks in any part of the U.S. that is currently without access to broadband.

Countless Companies Rely on the Open Internet to Survive

There’s no question the Internet is vital to our economy. We need ISPs like Comcast, AT&T and Verizon to earn revenue to build out their networks, and judging from the company’s own reports, they’re earning significant capital. But the Internet is only economically valuable if other businesses have equal access to them to sell their products and services. That’s why we need to make sure companies that use the Internet can build their businesses knowing the Internet will also be open to their ideas and entrepreneurship.

• Companies are generating significant amounts of revenue through e-commerce. In fact, 9 of the top 10 retailers (3) generated over $36.6 billion in on-line sales in 2009, and employed an estimated 12,228 (4) workers as a result of their on-line activity. These companies and their employees could suffer if ISPs are permitted to pick and choose which get preferential treatment to reach customers on line, and which will be forced to operate on an un-even playing field on the web.
   
• Just 20 on-line only companies generated over $89 billion in revenue in 2009, and employed more than 121,300 workers. That’s more than 2.5 times more revenue than Comcast generated, and approximately 20% more workers than the ISP giant employs. This includes small companies like BlueFly.com, with just 83 employees, and big firms like Amazon with more than 24,000 employees (5). This is just a tiny fraction of the companies and their employees that could be harmed if ISPs changed the rules on how firms use the Internet to build their businesses and reach consumers.

• Facebook alone reportedly generated over $800 million in revenue in 2009, anticipated profit “in the tens of millions of dollars” and employs an estimated 1,000 workers (6). If ISPs were allowed to block Facebook, downgrade the quality of its applications, or charge the company big on-line access fees when it was a start-up, would a company like Facebook ever have grown to be so successful? U.S. policy should protect on-line entrepreneurs by making sure they have equal, non-discriminatory access to the web.

Those that use the Internet to create new companies, reach new markets, and launch innovative new products and services generate the web’s greatest value to our economy. The economic value of the Internet would be harmed if just a few companies stood in the way of the countless other businesses that rely on the net to survive. The FCC must adopt strong rules to protect Internet users from unfair treatment by Internet Service Providers, as well as ensure all U.S. residents have access to high quality, affordable broadband.

Notes

1.  Unless noted otherwise, all revenue, profit and employment data were obtained from the company’s 2009 filings with the Securities and Exchange Commission.

2. The Federal Communications Commission estimated in its April 2010 technical paper, “The Broadband Availability Gap,” that it would cost $23.5 billion to connect 7 million homes that currently lack access to any broadband to basic infrastructure.  The combined profit of the three ISPs for 2007, 2008 and 2009 was $60.7 billion.

3. The Top 10 On-Line retailers according to Internet Retailer magazine are Amazon, Staples, Dell, Apple, Office Depot, Wal-Mart, OfficeMax, Sears, CDW and Best Buy.  We excluded Amazon from our estimates (and thus listed the top 9) because we included Amazon in the list of on-line only retailers in the bullet following.

4.  To estimate the number of employees at each company that are employed as a result of revenue generated on-line, we assumed that if X% of a company’s revenue was generated on-line, then X% of its employees are attributable to that on-line activity.  Total revenue and total number of employees were pulled from each company’s 2009 reports filed with the Securities and Exchange Commission, with the exception of CDW, which is the only firm out of the top 9 that was not publicly traded in 2009.  In this case, we assumed the number of CDW’s workers attributed to on-line sales was comparable to Best Buy, since both companies earned a similar amount of revenue on-line (according to Internet Retailer magazine, CDW earned $2.47 billion in revenue, Best Buy earned $2.46 billion that same year). 

5. We selected 20 publicly traded companies at random, and included companies that, as far as we are aware, operate exclusively on-line and do not operate storefronts, or whose businesses model depends almost entirely on the Internet. Information on their revenue and employment was obtained from each company’s 2009 annual filings with the Securities and Exchange Commission.

6. Alexei Oreskovic, “Facebook ’09 Revenue Neared $800 million,” Reuters, Jun 17, 2010; Kara Swisher, “Chatty Zuckerberg Talks All About Facebook Finances,” All Things Digital, January 31 2008