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Net Neutrality (continued)
I posted my thoughts on the debate raging in congress several months ago.
And I still largely think that whatever congress does on this issue is going to be irrelevant because entrepreneurs and market forces are so much more powerful than government regulation in terms of what actually transpires in the marketplace.
But I got an education on Net Neutrality from some really smart and knoweldgeable people at our Union Square Sessions event last week. And I've received a bunch of emails from readers requesting my views on the subject. So hear goes.
We have four companies that largely control the last mile into our homes in this country, two telcos and two cable companies each control significant market share. Some of their CEOs have gone on record that they want to use tiered pricing to fund new development on their networks. Sounds good, but its crap.
First because the telcos and the cable companies have not done much to improve their networks here in the US. At best, we have 6mpbs service into our homes in the US. There are countries in other parts of the world that think that 6mpbs is so slow they don't even offer it anymore. 25mpbs is the standard and they are headed to 100mbps while we are trying to figure out how to get to 6mbps.
So putting more money into the telco and and cable pockets is not likely to result in higher bandwidth networks. It's more likely to result in more golf courses and G5s for their CEOs.
In our country, all the innovation has happened in the startup world. The startup ISPs and CLECs are the ones who first rolled out the services that the telcos and cable operators are now making money with. But would they have rolled them out if they hadn't been put at competitive risk by the startups? I think not.
So first and foremost, we need a competitive network. That was what we were supposed to get with the telecom deregulation act in the 90s. But somehow we didn't get competition. We got effective duopolies in telcom and cable. So the fight I'd be fighting is not Net Neutrality, it would be getting telecom deregulation right. The funny thing is that our deregulation formula was copied in other parts of the world, most notably in the UK. And they made it work there. But we didn't.
And if we are not going to get a competitive network, then should we settle for some kind of Net Neutrality regime? I have my doubts that we'd get what we want because our congress is in the pocket of the telcos and cable companies. The companies we love and use all day long; Google, Yahoo!, eBay, Amazon, Skype, etc aren't spending any time or money in Washington.
That's why they build great services we love. They focus on the product and the customer instead of the corrupt politician. After we posted about our Sessions event, I got an email from a friend who has spent the past 5+ years inside a large corporation and he said, "you'd be amazed at how much time is spent on these issues in large corporations". No I am not surprised at how much time is spent on these issues. And I hope they keep spending time on them and ignoring their customers.
Because I will fund entrepreneurs all day long to take their customers from them while they are wining and dining corrupt politicians on their golf courses and G5s.
But there is one thing that I think we *must* protect with regulation. We cannot allow the telcos and cable operators to discriminate traffic on the basis of what is in the packet. That is the central issue in Net Neutrality in my mind. My friend John Mahoney makes that point in this excellent post on the subject.
I can live with the telcos and cable operators being able to price based on services offered. They do that today and nobody gets hurt. But if they start saying "for filesharing you must pay another $10/month" or "for porn you must pay another $20/month", the Internet is screwed in this country. I am no fan of illegal file sharing or porn, but the fact is that our current network architecture is "dumb". It doesn't care what application runs on top of it. And if we change that simple fact, the Internet in our country will cease to be a viable platform for innovation. The action will move to Estonia, India, China, Israel, Korea, or wherever else they understand the power of a dumb network.
It's pretty clear that our government doesn't.
For more reading on the subject, including two awesome posts by Tom Evslin, go to my delicious tag on the subject.
Comments (12) | Posted June 23, 2006 in Venture Capital and Technology
Comments
Well, actually, Verizon has been rolling out higher speeds for a while now, all fiber, and it's fast, but the overhead for them isn't cheap.
As well, just a reminder of scale: Unless you're talking about Canada/Russia/China/India/Brazil/Mexico/Austrailia, rolling out nationwide high speed in France/England is NOT the same as doing it here. There's just a *bit* more ground to cover.
Posted by: John C. Welch | Jun 23, 2006 8:05:10 AM
Regardless of what the solution is, it's needed quickly. I know for sure that the telcos are already re-building their infrastructure to be end-to-end QoS and MPLS. The official explanation is that they want to give higher priority to voice and IPTV traffic, but the understanding is that the services that are "partnered" and "native" will get the highest priority.
At this point, it's really just a flip of a switch and suddenly your Skype starts sucking wind to make room for Microsoft's IPTV and MSN Voice Messenger.
Posted by: scott | Jun 23, 2006 9:40:56 AM
I don't deny all that you say with regard to the duopolies focused on flatfooted politicains vs. customers, but upgraded the United States with fiber to the house will take a significant investment for anybody including the big fat dinosaurs (including the one Iâm currently in the belly of so to speak). I think they want to do it, but haven't quite figured out a business plan to guarantee big bottom lines for all the IP delivered services that will surely usurp all their current offerings.
I also think you're trying to have it both ways with dereg. I'm no opponent of dereg that's for sure, but I've watched the wireless world go from many carriers to just a few during my career and was not surprised by any of the consolidation. The telecom marketâs dark truth is, when it comes down to it, that in order to remain competitive HUGE sums of money are required to keep your network current. Startups and the little guys have no chance. They have to be absorbed; thereâs really no choice from a stockholderâs perspective. I should know, since it the reason my beloved company threw in the towel as the last pure play wireless company out there. Isnât consolidation market forces in action? Is the alternative (SEC denial) nothing but government paternalism (donât know, just asking) and would that satisfy shareholders of the goobleeâs?
I do agree strongly with you that innovation comes from the little guys and startups. Could not be a more factual statement, but itâs going to take some ballsy VCâs and banks to take the risks and fund them when they make a run at stealing business from the big boys. I donât know if itâll happen (nobody was offer us huge sums at bargain prices to keep us from being gobbled up and we had an enviable customer base and differentiated product), but Iâll root for their success just the same. It's no secret that I absolutely detest the telecom convention. If VCâs and bankers can help some aspiring provider out there destroy it with creativity and innovation there I laud their efforts. I also want to know where I can sign up.
Posted by: Tony Alva | Jun 23, 2006 9:50:47 AM
Fred,
Many thanks for cutting through all the bs on the net neutrality debate with one of the first cant-free writings I've read about it. I completely agree with you.
Posted by: Larry | Jun 23, 2006 10:00:35 AM
Fred;
Thanks for posting on this. I blogged about it myself earlier, and I am fairly sure this has more to do with protecting the land-line paradigm and squashing any attempt at community based wi-fi before it can even get off the ground.
Posted by: Jamie | Jun 23, 2006 11:42:37 AM
* a few months ago you spoke of innovation. I interpreted this as 3 types of Innovation - Product, Financial, and Legal/Regulatory.
* Most large corporations do in order 1)Financial innovation, 2) Legal/Regulatory, 3) Product innovation ... And this becomes the pecking order in those companies.
* I think this is another reason why startups do well with product innovation.
* much more can be said on this thread.
Posted by: iain | Jun 23, 2006 1:39:29 PM
I'm pretty torn on this issue. On the one hand, I certainly don't want to see the telcos do to the Internet what they've done to the mobile Web - create a tiered system with those that are on deck, and those that are out in the wilderness.
Yet at the same time, I shudder to think of the government getting involved in telling companies what they can and can't charge for. What if someone decides that the content provided by my Web site is best left as free, in order to foster innovation from companies that want to build stuff on top? Screw that. The markets should decide what companies can and can't charge for.
If the telcos price this stuff too high, it will create an opportunity for Fred and folks to go in with a rival network / service. It will be painful, but sometimes capitalism is.
We need to be very careful about asking the government to come in to control pricing - what will we do when they come to control our pricing?
Posted by: lawrence coburn | Jun 23, 2006 2:26:13 PM
Nice work Fred. Not only was your post well thought out and interesting, but the comments took it to another level in bringing in both sides well. If this issue was discussed with such thoughtfulness in the halls of government I would be much less worried about how this is going to end up playing out.
Posted by: Zach Coelius | Jun 23, 2006 6:37:05 PM
Hmm.. Not that I disagree, but the duopolists already discriminate on some services. E.g., I get something like 45k/sec upload bandwidth but more like 500k/sec download bandwidth, typically, on my cable modem connection. And my service agreement essentially bans me from running any kind of server from my home machine (with the consequence that I'm paying for three different hosting arrangements with three different sites for different websites I provide... four, come to think of it).
Net neutrality doesn't really exist now, and I'm not necessarily averse to permitting something other than pure "net neutrality" if it's the consumer that pays directly (because otherwise the consumer will be screwed indirectly). E.g., I might well pay a little extra each month if data traffic from first person shooter clients on my machine gets priority over people streaming podcasts or some damn thing. Their audio can jitter, I want to pwn those bastards.
But I'd prefer to make that decision myself, rather than find that Skype winds up sending me inexplicable bills because they only way they can stay in business is to pay Time Warner under the table.
Posted by: Greg | Jun 24, 2006 12:02:49 AM
you know, this would be one thing if the carriers could get their collective $hit in gear and give us QoS to the house but show me one of their SLA agreements that doesn't say "suggested" speed or something like that - they won't guarantee speeds to our house unless you pay through the nose for a T1 or something like that. Verizon's FiOS doesn't *guarantee* speeds (at least when I read the offering a few months back) and that's as sophisticated of an IP distribution platform as there is out there.
Go ahead, let the telco's do their two tier internet and it will only speed the deployment of things like WiMax and other broadband wireless offerings that don't have that same onerous overhead of digging trenches to everyones front door.
The telco's are shaking in their boots because they know that broadband is fast becoming a commodity product, just like local and long distance. The worst thing about it is that they LET that happen! If they wouldn't have had their collective heads up their you know what's since deregulation, getting fat and happy feeding off the monopolistic/duopolistic profits then maybe some innovation would have happened and they wouldn't be stuck here now. How many of us struggled through the early days of DSL where everyone would blame each other when they couldn't get it installed in 6 or 8 weeks with countless appointments and phone calls in between...telco foot dragging to starve the innovator out till they could get their house in order.
This time, footdragging won't work. The change is hear and it's called wireless. Much lower capex + much lower opex = lower prices and customers fleeing the legacy telco land.
yeah, their screwed.....
r.
Posted by: rob | Jun 24, 2006 11:06:38 AM
Fred, I'm a little late in commenting here but as I started reading your net neutrality (NN) post, I wondered again what Lessig is thinking right now about this topic. I've been saying that a lot lately as interest in this builds up again, from Tim Berners-Lee's recent video post to Rocketboom's recent NN episode.
So I'm in awe again of your connections as Mr. Lessig himself was at the most recent Union Square Sessions event. Now I'm definitely eager/hoping to see a video or transcript from the event. Thanks.
And have you started reading The Wealth of Networks by Yochai Benkler yet? Truly amazing.
Posted by: chris h. | Jun 26, 2006 3:58:38 AM
Some very good points are made here but there may be one more hidden danger. Net Neutrality is violated when the network provider charges you the consumer for fast access to certain sites. Think $10 for basic internet plus $10 for premium internet with “faster” Google and MySpace. I donât object to this so much because it is at least visible to the consumer. I know what I am paying for. But the other more insidious model for a two-tiered internet is where the content provider pays to get access to the consumer. In this case the consumer pays $10 for high speed internet but what they donât know is that some content is being slowed down because the content provider is not paying the network provider for their top speed. This makes a lie of the network providers speed claims and the consumer has very little way of knowing this.
Posted by: Pat Ferrel | Jun 28, 2006 3:47:05 PM
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