Will the decision to block net neutrality rules in the US constrict digital advertising?

The concept of net neutrality dates back to the Communications Act of 1934, which established rules requiring telephone companies to provide fair pricing and access. ISPs then became subject to major net neutrality rules established by the FCC in 2015, before being scrapped by the FCC during the first Trump administration and then reinstated under Biden’s presidency.

But this week, a three-judge panel on the Sixth Circuit Court of Appeals has determined that, while “the workings of the Internet are complicated and dynamic, and that the FCC has significant expertise in overseeing ‘this technical and complex area,’” the FCC’s original decision to treat ISPs like telecommunications carries was ultimately based on an “inconsistent” reading of the Communications Act of 1934.

The judges also cited the July 2024 repeal of the Chevron doctrine, a legal standard that forced courts to defer to the decision-making of government agencies in many cases. In the absence of Chevron, the court was able to overrule the FCC’s decision.

Now, the move to block federal net neutrality rules is raising concerns among some leaders in the digital space.

Without net neutrality, ISPs won’t be legally required to grant equal access to internet services to all users. Nor will they be forbidden from slowing broadband speeds or jacking up costs of specific content or services discriminately.

So, will they self-regulate? Some aren’t convinced.

“I foresee a risk of innovation being stifled as ISPs prioritize larger platforms willing to pay for premium access, creating an uneven playing field,” says Chris Sorensen, CEO of PhoneBurner, a sales software firm.

This dynamic, Sorensen predicts, could create a ripple effect in the media landscape, potentially forcing smaller adtech players “to either merge or exit the market,” ultimately accelerating consolidation.

It’s a notion shared by Tony Gonzalez, co-founder and CEO of contextual advertising firm Mundial Media. “This is definitely going to be a tug-of-war. Without net neutrality, some platforms may gain a competitive edge, and smaller players might get squeezed out, which isn’t great for the long-term health of the market,” he says.

Furthermore, should ISPs choose to deprioritize certain kinds of content or bottleneck access to specific platforms, programmatic advertising could see major disruptions to viewability rates and ad delivery speeds.

“This could skew campaign performance,” Sorensen says, and may “force advertisers to invest more heavily in ‘fast lanes,’ [or pay-to-play deals with ISPs]. Advertisers will need to weigh these increased costs against their ROI, which may not always justify the expense.”

The biggest players to be impacted may be Google and Meta who, according to adtech veteran and former Index Exchange executive Matt Barash, have disproportionately benefited from federal net neutrality rules, guaranteeing their content is delivered to users without interference or additional fees. “We have to wonder if this will snowball into the biggest hurdle that both have had to face,” Barash says.

Of course, potential restrictions on Meta and Google imposed by ISPs would undoubtedly yield negative downstream impacts on advertisers who buy media from these platforms.

But some are more optimistic about the prospects that ISPs will treat users and data fairly – which would translate to a more level playing field for advertisers, too.

One such thinker is James Czerniawski, senior policy analyst at leading libertarian think tank Americans for Prosperity. Czerniawski argues that existing regulatory frameworks, combined with market-driven innovation, are sufficient to ensure fair internet access without federal net neutrality rules.

He points to falling internet prices, faster speeds and advancements like Starlink and other satellite providers as evidence that the digital divide is narrowing thanks to efforts advanced by the private sector. “We are in an era where innovation is playing a driving force to ensure fairness in internet access,” he says.

Outside of private sector efforts, the US has a handful of state-level net neutrality laws. Among the most comprehensive is California’s, which prohibits ISPs from blocking, throttling or prioritizing traffic, restricts practices that favor specific content and applies broadly to all internet traffic within the state.

But in Czerniawski’s view, the country’s varied state-level laws complicate the business of advertising far more than rollbacks on net neutrality protections do. In his words: “The approach of patchwork regulations… ultimately threatens the profitability and reach of advertisers and undermines the ability of media companies to bring content to more users,” he says. In his telling, many net neutrality laws impose significant costs to enable internet access, which are ultimately passed on to players in the digital ecosystem, including advertisers.

A fragmented approach to net neutrality regulation, he suggests, only hinders the digital advertising industry’s efficiency and profitability by establishing uneven obligations across jurisdictions.

He goes so far to argue that net neutrality “proponents made fools of themselves with their misguided rhetoric, screaming about ‘the end of the internet as we know it’... Turns out, the internet didn’t end as we know it because of the repeal of net neutrality [in 2017].”

Czerniawski advocates for a free market approach, which he sees as a way to alleviate some of the legal, operational and financial burdens faced by platforms, advertisers, media companies and other players within the ecosystem.

But some industry stakeholders, like Mundial Media’s Gonzalez, reject Czerniawski’s conviction. While Gonzalez acknowledges that the mashup of state privacy laws dictating net neutrality rules in the US “introduces a lot of complexity” and compliance requirements in the world of publishing and digital advertising, he insists that a federal standard – like the one torn down this week – would prove a more effective solution for adland in the long run.

For now, Gonzalez suggests, it’s all a big question mark for digital advertisers and publishers. “For advertisers, this could change the game entirely,” he says. “They’ll have to rethink their role in funding free content and maybe get creative with new ways to partner with publishers and create value for users.”