This week, the US Supreme Court struck down the FCC’s ruling on network neutrality, which defines telco companies as common carriers, who are therefore forced to treat all network traffic equally. In theory, this opens the door to things like tiered network access (where certain kinds of traffic get higher priority), or even attempting to bill large web media properties (i.e. YouTube and Netflix) for the traffic which they carry over their network.

I believe that the telcos are unlikely to move quickly on this, and will likely initially do some small (and very quiet) experimentation on a local basis.

The reasons are three-fold – firstly, the FCC may yet respond with an updated ruling that complies with the Supreme Court (this is apparently well within their power); secondly, large experiments run the risk of a massive consumer backlash; thirdly, the ultimate strategic outcome is actually quite hard to predict.

The third item on this list is most interesting from a business strategy perspective. Let’s try to game out some possible longer-term outcomes, shall we?

Ding. Ding. Ding.

Telcos Move 1: A series of small, regional tests to see if anyone notices that particular sorts of traffic (P2P sharing, say) are running more slowly than usual. This may temporarily be halted (and likely openly denied) if there is consumer outrage. There’s some evidence that this has already happened, by the way.

Counter Move 2: Probably not too much of a counter-move by anyone at this point. Possibly another round of the anti-SOPA activity that we’ve seen in the past few years (not sure if there’s enough rage right now for that to gain traction), and possibly some early attempts by the internet giants to get the FCC to clarify its stance.

Telcos Move 3: Start bugging some initial candidates to pony up for preferential status, or even to avoid having traffic downgraded. Look for individual telcos to send legal letterhead to individual companies like Google or Netflix. Because this is going to be piecemeal, and because (theoretically) the telcos won’t be allowed to compare notes on pricing, there will be a wide range of different suggest deals.

Counter Move 4: Firstly, any company receiving an unsolicited bill of this nature from a telco is likely to scream blue murder in a public way, in the hopes of creating a consumer backlash. Secondly, look for these companies to quietly compare notes to see what the amounts are. This may lead to:

Counter Move 5: Public dickering about pricing. Google says Telco ‘X’ gave them a different price for bandwidth to Netflix. Netflix waves letterhead from half a dozen different telcos with different suggestions, and lets everyone know that this is making life difficult for them, and if it goes on they’re not going to be able to compete.

Telco Move 6: The telcos quietly get together and come up with a standard for exactly what it is that they want from the big internet companies.

Counter Move 7: The US Justice Department files price fixing and anti-competitive suits against the telcos. Almost inevitable if you think about it. No way of knowing if it will stick though.

Counter Move 8: Worst case scenario: Everybody starts looking for ways to go around the telcos. T-Mobile continues selling themselves as the open alternative. Google buys more fiber and opens experimental last-mile operations in more towns. Some kids claim to have a working real-world solution to ad-hoc wireless mesh networks. Consumers get annoyed as their service quality continues to decline.

Round 9: Whose move? I have no idea at this point. I’d love to hear what you think though.

Conclusions:

• Telcos are highly aware of the above potential for cans full of worms. They obviously like having the ability to potentially tier their traffic, but will probably hopefully want to dip their toes first to see if the outcomes are this bad.
• On the other hand, all it takes is one desperate telco (and yes, there’s a level of desperation in that industry; the competitive landscape for them is brutal) to push for their finger in the pie, and the rest will likely be forced down the same road in order to keep their share price up (and layoffs to a minimum).
• Tiered network access – from a strategic perspective – is like a nuclear weapon. It is most valuable if held in reserve. Once used, it loses most of its strategic value, there’s unpredictable fallout, and it is awfully hard to put the genie back in the bottle.
• It isn’t clear at all who wins or loses ultimately. In the short term, small piggy-back ISPs may feel the heat. Consumers may have to deal with slower internet speed. The big players have a long runway to maneuver though; this process will likely continue for years before we see clarity.