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How repealing net neutrality could hurt small Texas businesses

Net neutrality, an Obama-era policy that requires internet service providers to treat all traffic that flows through their networks equally, could be repealed next week. Some fear that repealing it would disproportionately impact small business owners.

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*Correction appended

When PDQ Resharpening opened in 1999, it had just one customer. In the years since, co-owner Shane Killingsworth said, the Houston-based drill-bit sharpening business has expanded tenfold. He credits that successful growth largely to one resource: fast internet access.

For Killingsworth, fast internet is critical for attracting new customers and processing company payments. Without speedy access, he said, much of the company’s business would be stalled.

Like many other small business owners across Texas, Killingsworth is worried his livelihood could be in jeopardy if the Federal Communications Commission follows through on Chairman Ajit Pai’s plan to repeal net neutrality, an Obama-era policy that requires internet service providers like AT&T and Comcast to treat all traffic that flows through their networks equally, regardless of the content’s source. The FCC is set to vote Dec. 14 on whether to reverse the net neutrality rule — a step that could raise internet costs to prohibitive levels for small businesses like PDQ Resharpening.

“Our major problem is that other businesses won’t be able to access our website — which I think every small business would be worried about,” Killingsworth said. “We rely on our website in order to be accessible to the general public in order to get new customers.”

Without net neutrality regulations, internet service providers could prioritize access to certain websites over others, charging consumers or companies more to guarantee fast access to certain pages and slowing access to others. Providers could, in a variety of ways, steer traffic to friendly websites and render others effectively invisible. That could amount to censorship, if, for example, a provider made it untenably slow to access the website of a competitor, or even its own grievance page.  

Internet service providers have said they will not take unfair advantage of the rules change; Comcast, for example, pledged to not “block, throttle, or discriminate against lawful content.” But some business owners are skeptical. And it’s this potential for market manipulation that has entrepreneurs like Killingsworth worried.

"Will it hurt innovation?"

Small businesses could be disproportionately hurt by a net neutrality reversal, experts say, because they could be priced out if service providers charge businesses higher fees for access. While online titans like Netflix and Amazon could afford to pay higher rates for fast consumer access to their sites, businesses with smaller profit margins could struggle with newly exorbitant fees — “and that’s what scares a lot of companies,” explained Prabhudev Konana, a professor of information management at the University of Texas at Austin.

“A lot of things run on the internet,” Konana said. “Are you going to stop [startups] from running? Slow it down? There is a fear about that — will it hurt innovation?”

Service providers could create a tiered system for internet access, forcing small businesses into a higher bracket for essentially the same product they already receive, explained Roger L. Kay, an independent technology analyst.

Texas is home to more than 2.2 million small businesses, including more than 725,000 owned by women and minorities. The state boasts one of the country's largest economies and leads the nation in job creation.

Erin Young, an Austin-based entrepreneur, founded Slide UX, a design consulting company with more than 50 clients.

Young founded her company in 2009, and the business has expanded to nearly 15 employees. But now she worries that reversing net neutrality could bear a cost for her employees. 

“Net neutrality protects our company. We are all-remote, so we rely on residential internet service for open access to the internet,” Young said. “If residential service providers start to charge more for the open access we use today, our business will bear that cost for each employee. And if they ever cut residential options for open access, we’d be looking at big changes to our model.”

The broader net neutrality debate

Proponents of net neutrality say it creates a level playing field that allows startups to compete with established industry leaders. Opponents — including several prominent Texas Republicans — characterize the policy as government overreach. The five-member FCC has a Republican majority — suggesting net neutrality will likely be repealed, experts said.

Several Texas Republican officials have endorsed Pai’s proposal. In a tweet this month, U.S. Sen. Ted Cruz referred to net neutrality as “Obamacare for the internet.” And both Texas senators partnered with Republican U.S. Sen. Mike Lee of Utah in May on the Restoring Internet Freedom Act, which would’ve reversed net neutrality.

“I am proud to work with my friend Mike Lee on the Restoring Internet Freedom Act, a bill that rolls back former President Obama’s power grab, protects open internet principles, and recognizes the transformative effect that the internet has had on our lives,” Cruz said at the time.  

Neither the Texas Association of Business nor the Texas Municipal League has taken a stance on the issue.

Many Democrats and several large tech companies argue that net neutrality fosters job growth, drives innovation and protects consumers from paying higher internet fees. And the likely reversal leaves some Texas business owners wondering why their elected officials — so quick to tout Texas as the country’s most business-friendly state — aren’t standing up for them.

“I think our current legislators are pro-big business and pro-big donors. Entrepreneurship to them means a million-dollar business with plenty of working capital,” said Robin Dillard, a web developer and programmer who consults for Texas startups. “They don’t seem to care about the cool little boutique shop in Canadian, Texas. How can mom-and-pop shops compete against Amazon if they can’t pay to be in the ‘fast’ lane?”

When his stepdad founded PDQ Resharpening, Killingsworth said, he had $1,500 to his name. He was one of many small business owners who had the hope of one day competing in the larger market. Repealing net neutrality would stifle that dream, he said.

“If you think about it, what would stop a big company from paying a service provider to choke down the speeds of its small competitors? Which in turn would put those people out of business, or damn near,” Killingsworth said. “I’d rather not rely on a ‘pinky promise’ from companies like Verizon or Comcast.”

Ultimately, Konana said, it’s not clear exactly what the impact of the repeal would be — there is a long list of disaster scenarios that may well never materialize. But it’s the uncertainty that has some business owners worried.

“What happens when internet service providers take a political stance: you can only see certain types of information?” Konana said. “It’s a fear of the unknown. They can do it. Will they?”

Disclosure: AT&T, Verizon, Comcast, the Texas Association of Business, the Texas Municipal League and the University of Texas at Austin have been financial supporters of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.

Correction: An earlier version of this story misstated the number of employees in Erin Young's company. This story was also updated to clarify Young's concerns about the impact of repealing net neutrality. 

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