Look out Netflix and Google! An analyst thinks the court may allow ISPs to charge you

The FCC’s open internet rules that prevent ISPs from blocking content or otherwise discriminating against the packets that are flowing across their broadband networks are on trial today. This morning, a three-panel judge heard arguments from Verizon and the FCC, and one analyst thinks the questions and comments from the judges indicates that the court may allow ISPs to charge web providers for premium services.

Stifel Nicolas, an investment bank in Washington D.C., issued a note this afternoon that said the court might be ready to let broadband providers charge internet edge providers for improved connections to broadband customers. The firm however, thought that the court wouldn’t strip the FCC of its authority to regulate broadband.

From the note:

Such an outcome could give telcos and cable new flexibility to strike paid-prioritization deals for offering better service to Internet edge providers (e.g., GOOG, AMZN, NFLX), which could also include media companies (e.g., DIS, FOXA, CBS, VIAB, TWX). Whether it would be good or bad for edge/media providers would depend on their business plans and financial wherewithal, but it could create faster “toll” lanes that give big edge players advantages over upstarts.

The note cautions that the judges haven’t ruled yet, so any outcome is uncertain. However, if the court does indeed let the telcos and pay TV providers implement a fast lane for content it may not strip the FCC of authority, but it would do its part to kill the idea of network neutrality.

That being said, larger firms such as Google or Skype that deliver over-the-top services and have been defenders (in part) of network neutrality might not mind the results if it ensures their content can be delivered to end-users without glitches. Already Google and the backbone providers for services such as Netflix, pay fees to some ISPs for more ports to ensure enough capacity to deliver quality service to the ISPs’ end users.

This legal decision would just formalize that process. Big firms that have an established business might be inclined to pay up as a cost of doing business rather than fight to solve the legal problems though Congressional lobbying. In that case, consumers may see higher fees in the case of services they pay for and perhaps fewer startups emerge who don’t have the cash to pay such fees.

So, keep your eye on this case, it could determine the fate of innovation on the internet, while transferring some of the wealth earned by the likes of Google and Netflix over to the ISPs.