Open Internet

Google must be worried about their Doubleclick acquisition having arranged an op-ed in the Wall Street Journal today entitled Googling 'Monopoly' by PFF President Tom Lenard and Emory University professor Paul Rubin.

• While Google must be thankful for the placement in the WSJ, they have to be bummed about the unfortunate title.
  • Google loves to generously slather the "opoly" epithet on any formidable competitor who is in their way, so it must drive them crazy when it sticks to them in the WSJ.

First, let me say that I genuinely respect Mr Lenard and Mr. Rubin, and understand that on antitrust issues, analysts can honestly disagree on outcomes and impacts.

Liberal blogger Matt Stoller of OpenLeft has a post at Save the Internet that lamely tries to rewrite "the history of net neutrality" in his commentary about his interview with FCC Commisioner Michael Copps.

A couple of readers kindly pointed out that I made my own oops in my early August blog post: "Oops! Googleopolist's wife speaks out of school on pending merger."

I regret any confusion I created in mistaking that "Google product manager" Susan Wojcicki" was married to Google co-founder Sergey Brin -- in fact she is the sister-in-law of Google co-founder Sergey Brin, and also one of the earliest employees of Google.

Investors Business Daily and Pete Barlas had a super antitrust scoop today embedded in its article "Video, Cell, Display Ads get More Google Focus".

The article quoted "Google product manager" Susan Wojcicki, (who also just recently married Google co-founder Sergey Brin), candidly defining the online ad market to reporters.

• Her blunt public market defintion must have Google's antitrust lawyers absolutely cringing and muttering expletive deleteds.

During a meeting with reporters, IBD quoted Ms. Wojcicki saying:

It seems that our friends up North may also be concerned about the anti-competitive impact of the Google-Double-Click merger.

CIPPIC, the Canadian Internet Policy and Public Interest Clinic, is requesting that the Canadian authorities review the Google-Double-Click merger to determine if it is anti-competitive.

• Seems from their filing that they have similar concerns as the FTC and the EC.
• Could this be evidence of momentum in the growing concern over this merger? Yep. 

I've done a lot of work on the facts surrounding this merger case and am very confident that the more authorities learn about the facts of the case -- the more concerned and troubled they will get about the profound and broad implications this merger portends for the future of the Internet business model for accessing content.

The outrage over Google-Youtube's complicity in rampant content theft and piracy continues to spread around the world.

• As reported by the AP in "Youtube blasted over copyright issues": 
• "A coalition of Japanese television, music and film companies slammed YouTube Thursday, saying the online video sharing service was not doing enough to rid the site of cartoons and other clips that infringe copyright." ...
• "There is no middle ground," Matsutake said. "We demand that all copyrighted material be removed immediately."

Let's focus on the corporate scofflaw pattern here: American, Japanese, and European content owners accross a wide swath of content industries are all outraged and suing Google for theft.

Johna Till Johnson of Network World, has got Google's number in the article "Net Neutrality? Google, go first!"

• "Forget "don't be evil" -- Google's real motto is: "Just trust us (and pay no attention to the man behind the curtain).""

  "Sorry, fellas, I'm not the trusting sort. And I always worry about the man behind the curtain. The reality behind the propaganda is this: The "open" company's considerable fortunes are based around the world's most proprietary search engine. And as for "neutral" -- try Googling Google, and you may notice something surprising: very few negative comments on the company pop up. Odd, no?"

I wanted to commend and spotlight a critically important and completely under-reported/under-appreciated part of the FCC Chairman's statement on the 700 MHz auction released yesterday:

• "We must continue to encourage the critical investment needed to build the next generation wireless network.  Since I have been Chairman, I have advocated strongly that applying network neutrality obligations, unbundling, or mandatory wholesale requirements to networks can undermine investment incentives.  I do not support such regulations.  The Order we adopt today does not apply these regulations to this block or any other block." [bold added for emphasis]

This is very important, welcome, commendable, and strong affirmation of the FCC's broad deregulation policy -- that was completely lost in the gaggle of press coverage.

There are so many problems with the FCC's new 700 MHz auction rules that create a more regulated open access/net neutrality license -- its hard to know where to start.

• Be confident that I will get to them all over time.

Yesterday I highlighted the dirty little secret that there is very substantial risk that this will become known as the "do over auction" because it may not raise enough money to satisfy the rules and because the FCC likely overstepped its legal authority and will be overturned  in court.

Let's raise another dirty little secret behind the new rules that will increase regulatory uncertainty for broadband deployment.

A much under-reported part of the high drama behind the FCC's current 700 MHz auction rules is that there is a very substantial risk that this becomes known as the "do over" FCC auction.

First, to any outside observer, the FCC's highly-tailored auction rules appear to have a pretty obvious "set aside" for the Google camp and its proposed net neutrality/open access business model for a third of the 700 MHz spectrum.

• The FCC reportedly is "hedging its bets" on the Google set aside license -- worried that its policy experiment may fail to raise the revenue for the US Treasury that is estimated in the US Budget -- so it is imposing a "reserve price" -- in English, a price floor for this new set aside spectrum open license -- to supposedly guarantee the taxpayer 70% of what an "open" auction would deliver.
• Some could characterize this FCC-signaled minimum acceptable price for the "Google-set-aside license" as a fixed 30% discount from the price paid at the AWS auction price. However, the real discount is much larger than 30% because the AWS spectrum is no where near as robust or valuable than the 700 MHz spectrum.
• There are a lot of reasons that Google or others will not bid billions for open access spectrum.
• First, it is likely not worth it.
• It's an untested and unproven business model that offers little opportunity to earn a return on the roughly $10b it would take to build and operate such a national network.
• Most professional and independent investors will ask the blunt and pointed question: how does the 700 MHz set-aside-licensee expect to make money building a highly-capital-intensive wireless-facility model that has dramatically less business and operating flexibility than the other seven existing broadband competitors that have many years head start, and when the cost of acquiring just one new customer could easily be in the $200-400 range on average?
• What's wrong with that investment and business pitch?
• It's a money pit.
• It's dotcom bubble pixie dust.
• It's a loser.
• Net neutrality/open access, while cloaked in consumer terms, is basically an old-style industrial policy and corporate wealth transfer scheme from the risk-taking capital-intensive builders of wireless facilities to high-profit tech applications companies like Google, eBay and Amazon, companies who seek for consumers to pay for the bandwidth that they would profit the most from.
• Second Google is not getting the wholesale resale and unbundling mandates they requested, so their highly-publicized offer to bid $4.6b is moot.
• Third and most important, why would Google want to become a facilities-based, capital intensive wireless provider?
• Such a move would change their business model and virtually none of Google's existing growth shareholders would want the dilution and huge capital and operating cost spikes required for Google to become a wireless carrier.
• It's not going to happen.
• Google's promise to bid will probably go down in FCC history as one of the best "head fakes" of all time.
• In short, the FCC has chosen a new policy path that has substantial risk of not generating the revenue expected -- requiring a "do over" of the auction.

Second, there is substantial legal risk that the FCC does not have the authority to condition these licenses in a way that limits an "open" auction and substantially reduces the revenue for the US Treasury.