New startups may be bigger losers in net neutrality fight than Netflix

Net Neutrality Ruling Analysis Tech Startups

We’ve already read today about the big net neutrality ruling’s potential impact on Netflix but it turns out that there might be even bigger losers than well established tech companies. Venture capitalist Fred Wilson has written an imaginary dialog between an entrepreneur and a VC that illustrates just how much power ISPs have gained from this week’s decision to strike down the FCC’s net neutrality rules.

Essentially, Wilson has a hungry young startup founder walk into a VC’s office and pitch him on the idea of a better music streaming service than current offerings. The VC responds that “since Spotify, Beats, and Apple have paid all the telcos so that their services are free on the mobile networks, we are concerned that new music services like yours will have a hard time getting new users to use them because the data plan is so expensive.”

While this is a fictional dialog, it’s also something that’s distinctly within the realm of possibility. AT&T earlier this month announced plans to create a new “sponsored data” program that would let certain companies pay to get their services exempt from AT&T’s monthly data caps. While AT&T is still finalizing details of the program, it could certainly become a major barrier to entry for new competitors since smaller companies might not be able to pay the fees that bigger services such as Netflix and Spotify can afford to get their apps exempt from data caps.

“With yesterday’s court ruling saying that the FCC can not implement the net neutrality rules they adopted a while back, this nightmare is a likely reality,” Wilson writes. “Telcos will pick their preferred partners, subsidize the data costs for those apps, and make it much harder for new entrants to compete with the incumbents.”

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