The FCC's reported net neutrality proposal will split the internet into two entities

Wholesale and retail internet

The US Federal Communications Commission is hoping to strike a balance between the wants and needs of consumers and the desire for internet service providers (ISPs) to charge online companies unfixed rates for faster internet speeds.

The FCC will soon announce a hybrid legal strategy that will give the government agency more control of ISP pricing, according to numerous reports.

The new approach would treat certain aspects of the internet as a public utility, thus giving the government a role in determining how pricing and usage is managed. The proposal would separate internet activity into two entities: wholesale and retail transactions.

Wholesale and retail internet

Wholesale transactions, which The New York Times defines as “the exchange of data from the content provider to the Internet service provider for passage through to the end consumer,” (think Netflix streaming) would be heavily regulated, similar to how telephone service is managed.

What the government is hoping to regulate is the ability for ISPs to cherry-pick how they provide service to digital companies, and namely, how much they charge each service.

Simply put: the government wants ISPs like AT&T to offer content providers like Amazon the same rates it would offer Netflix or Hulu. ISPs want to control pricing without government intervention.

Retail transactions, as drafted in the proposal, are defined as internet service that ISPs send directly to consumers. These transactions would be more loosely regulated by the government.

The legal battle

Although the proposal has yet to be announced, it is expected to be made public some time next month. Unfortunately, we might not get any resolution on the matter for some time - the last two proposals made by the FCC were overturned by federal courts. However, those proposals sought to treat the internet as one ecosystem, rather than as separate wholesale and retail entities.

Either way, look for ISPs to challenge whatever proposal the FCC makes as the battle continues to be waged in Washington.