By Brandon Matthews
If you blinked, you missed it. I’m talking about possibly the biggest news to hit Satellite Radio news wires in more than a year. In a surprise move, the U.S. Court of Appeals for the District of Columbia has ruled unanimously against the FCC’s net neutrality rules. The three judge panel determined that the FCC did not have the authority to mandate that Internet Service Providers give equal treatment to all Internet traffic flowing over their networks.
Hidden below the usual fluff that is commonplace with anything in Washington, is that these rules began due to one specific issue in which Comcast (Nasdaq: CMCSA) interfered with a data hogging service called BitTorrent. The service caused severe strains on Comcast’s network. The FCC then banned Comcast from blocking the video file sharing service, and maintained that all ISPs must provide whatever content people may want, no matter what the cost to the ISP. This was great news for all data hogs – including Pandora.
Over the last year, a lot has been made regarding the potential of Pandora to take market share from Sirius XM Radio (Nasdaq: SIRI). Despite being an inferior service to Sirius XM, there are still some elements of inhumanity that would like to create an environment of fear and doubt. News that Ford (NYSE:F) was introducing a new Sync system that included the ability to stream Pandora did not go unnoticed by Sirius XM bears, and has been their one and only talking point for some time. Claims have been running rampant that Internet based radio would be the death knell of Sirius XM.
The move by the federal court paves the way for ISPs to now more effectively manage their bandwidth, up to and including putting limitations on data-gorging services such as Pandora. In fact, service providers are now free to halt or suspend high data usage applications as necessary, to protect the quality of service they provide. Although this is unlikely, it is probable that wireless carriers will soon require fees for specific applications such as Pandora from consumers, as their infrastructure needs increase over time. The Huffington Post writes:
But broadband providers such as Comcast, AT&T Inc. (T) and Verizon Communications Inc. (VZ) argue that after spending billions of dollars on their networks, they should be able to sell premium services and manage their systems to prevent certain applications from hogging capacity.
AT&T already charges its users an extra fee on top of their data plan to stream the “free” Internet Radio service. It is likely that others will now quickly institute similar policies, just as airlines are charging not only for luggage, but now carry-on luggage as well. The death knell it seems is now tolling for Pandora.
Realistically, it is unfair to require the data service providers to spend billions of dollars of their own money, so that services such as Pandora can freely flourish. Why should an ISP be ordered to provide the content delivery system for another company? Sirius XM pays subsidies to the radio manufacturers, and has revenue-sharing arrangements with its OEM partners. There is no government mandate that orders radio manufacturers or car makers to include Satellite Radio. The company built its entire content delivery system from the ground up.
It will now take years of legal wranglings for this issue to resolve itself. Unfortunately for Pandora, time is running out and it just may be too late to change their business model. The idea of unlimited free Internet Radio is now dead. “Pandora…there WAS an app for that.”
Disclosure: Long SIRI
