FCC

Business Week's cover story is: "Is Google too Powerful?" is exactly the question a major publication that thinks ahead should be asking. 

Business Week has done everyone a favor in posing this cover question because it will get folks looking at Google in a new way -- as the dominant antitrust concern of the market place in the decade ahead, like Microsoft was in the 1990's, AT&T was in the late 1970s/early 1980s and IBM was in the 1950s.

Mark my words, the words "Google" and "antitrust" will be heard much more frequently together -- in the years ahead -- as Google has gone from 35% to 50% market share today in a couple of years and is on path inexorably towards 60-70% share in the next few years.

• This means that the Google "audience" already the largest in the history of the world, at almost a half billion people, is on path towards a billion people worldwide in just the next few years.
• That unprecedented concentration of power in the "all-content" market is enough to give anyone the willies.
• Why the word antitrust will be used more and more concerning Google is also that Google is extremely aggressive and arrogant in buying market share (Dell, AOL, Myspace, YouoTube etc.) and is pursuing many market strategies that have the ancillary benefit of destroying many of their potential competitors business models.
• Google can gloss over their behavior for now, but evidence of their potentially anti-competitive strategies will grow and the already huge chorus of injured parties will grow to a deafening roar in the years ahead.    

While it is clearly debatable if Google is too powerful today...

I sincerely hope that everyone who cares substantively about the net neutrality issue, on either side of the debate, reads the new 2-1/2 page "Economists' Statement on Network Neutrality Policy" by the AEI-Brookings oint Center for Regulatory Studies.

• This joint statement is a brief and easy read,  and is among the clearest, most reasonable, and value-added statements I have seen on the subject.
• It should not be surprising then that it is written jointly by some of the best and most respected regulatory economists in the country.

We are still waiting to read a cogent, well-reasoned and supported piece of work that supports the policy of Net neutrality. All we have gotten is assertions, hypotheticals --virtually no facts or analysis from the other side.

The NYT lead business article on Google entering radio advertising, "The Ad Search, Offline" is a shining example of the theme in my recent blog "Google-YouTube: What's really going on."

• Google is not negotiating with content networks as a "friendly partner" but is a clever competitor sneaking in to disintermediate content-networks from their customers.
• Broadcasters need to realize Google is their competitor, not their ally.  

I got the "fox in the henhouse" title for this blog from the last quote in the NYT article:

Hal Singer of Criterion Economics has a very good commentary today in Canada's Financial Post called "Not Neutrality."

Hal is a very clear thinker and anyone who quotes Milton Friedman in a supportive way is alright by me.

One passage of Hal's commentary really hits the nail on the head about how insidious net neutrality is:

• "Although the idea has taken on many meanings, net neutrality is fundamentally about denying a voluntary exchange between two consenting parties for the sake of equal outcomes. The argument goes something like this: If my Web site cannot afford certain bells and whistles to make real-time applications run better, then my rivals should be prevented by law from purchasing those enhancements from any broadband service provider."

The latest research data from CTIA has some eyepopping big numbers on how much U.S. wireless providers are investing in wireless and broadband wireless competitive facilities.

• According to the CTIA latest numbers, the wireless industry invested $24.4 billion in facilities in 2006.
• That makes a cumulative investment by the industry of $224 billion in competitive wireless facilities.
• This is way more investment in competitive wireless facilities than any other nation in the world.
• This is additional evidence to bolster my thesis that America is unique in developing robust competitive broadband facility competition, which I made in my Washington Times commentary: "America's Unique Internet Success."  

Those NN proponents who dismiss that broadband is a competitive market and only getting more so, continually ignore the overwhelming facts available.

The Future of Music has created a supposed new "coalition" "Rock the Net" to promote net neutrality by banding together music groups who have been suckered into fearing that the Internet will somehow be taken away from them -- without net neutrality legislation.

This is not about policy or legislation.  

This is a cheap publicity stunt.

"Rock the net" is basically a bad "lip synching performance" by music groups singing liberal Moveon.org's pre-canned song.

• No musician at their Rock the Net press conference showed any understanding whatsoever of the net neutrality issue or how musicians might be threatened without NN legislation. 
• They just "lip synched" Moveon.org's lyrics. 

"Lip synching" is the perfect metaphor for the supposed net neutrality grass roots "movement" overall.

Google-YouTube like to spin that the billion-dollar copyright law suit from Viacom and the new online venture by NBC-Newscorp is just about "negotiating."

• Don't believe it.
• This is not simply a negotiation over "price;" it's all about video competition and the viability of video business models going forward. 
• Google-YouTube are the video networks biggest competitive long term threat, not their natural "business partner."

What's really going on is Google-YouTube is trying to disintermediate all video content and network companies.

• Google believes it has a more efficient monetization mechanism for advertising than any of the current or traditional models.
• So Google is making a play to effectively insert itself in between content players and their existing customers so that Google controls the monetization of the customer relationship -- not the content company.
• In other words, Google believes its Youtube "distribution network" as Google CEO Schmidt calls it, is superior to the content networks of NBC, CBS, Viacom, ABC-Disney, Fox-NewsCorp among others.
• What this really is about -- is competition, not negotiation.
•  Google wants to steal the video content players audience from them and in the online space they have largely succeeded to date.
• According to Nielsen/NetRatings for February, YouTube had 42m audience, Google Video had 21m audience and the next three largest, AOL video, MySpace video, and MSN video, each only  have 12-13m audience a piece.

Make no mistake. Google already has built the largest "audience" of any "network" in the world -- ever.

The most relevant part of the FCC launching a Notice of Inquiry (NOI) into the net neutality issue was FCC Bureau Chief Tom Navin testifying that no one has formally complained about blocking and no one has formally petitioned the FCC on the matter. 

• In other words, there is no there there.

The FCC is launching an NOI to cut through the hysteria and misdirection and finally get the facts on the record.

• The NOI is basically the FCC saying its "put up or shut up" time.
• Make your case or go away.

While I don't think this bogus and completely unsubstantiated issue is even worthy of an NOI, I can understand why the FCC would want to launch an NOI to ensure that no one can say the FCC is not taking this issue seriously.

An article in the Register on the first significant NN debate in the UK is a wonderful read.

It is always helpful to get the reaction of an outside perspective to cut to the quick of an issue.

• Alun Michael, the former UK trade minister "described the clamour for preemptive technical legislation as "extreme... unattractive and impractical"
• "It was, he said "an answer to problems we don't have, using a philosophy we don't share.""
• The current top UK regulator over the net neutrality issue Douglas Scott "concluded by saying neutrality wasn't an issue, so long as customers could migrate to an alternative provider quickly and easily."  

I reccommend reading the whole article.

The most important development for a free market Internet in the last several weeks was the FCC's  5-0 decision March 22nd to declare wireless broadband an unregulated information service.

• In laymans terms, the FCC officially and unanimously declared that net neutrality is NOT required for wireless broadband going forward. 

Why is this a big deal?

• The FCC legally cemented the policy precedent of regulatory parity -- for broadband de-regulation.
• The FCC applied the Supreme Court's seminal "Brand X" de-regulatory ruling that declared cable modems an unregulated info service (2002) -- to all other mainstream broadband facilities, DSL (2005), BPL (2006) and now wireless broadband (2007).      
• The legal facts of the FCC reiterating the same policy and technology parity logic repeatedly over several years creates a powerful phalanx of deregulatory legal precedent that future regulators will be hard-pressed to reverse piecemeal.
• If a future FCC Chairman, say a Commissioner Copps in a potential Democratic Administration, wanted to apply Carterfone-like regulations to only wireless, that FCC ruling would likely be ruled in court to be arbitrary and capricious because it singled out wireless and treated that broadband technology much differently than other analogous broadband technologies: cable modem, DSL and BPL.
• To be fair and legal, the FCC would have to apply new regulations in a technologically-neutral way.
• What the FCC decided is that wireless is NOT different in a policy or legal sense.
• This makes it much harder to legally and politically justify any eBay-Skype petition for Carterfone rules for wireless.
• The savy observer will appreciate that this FCC ruling effectively moots the eBay-Skype petition to apply Carterfone rules to wireless.
• I fully expect people will continue to talk about wireless Carterfone rules.
• However, when they have to talk about it in the context of the FCC's Notice of Inquiry into NN, they will find it extremely difficult to justify that wireless is different and requires special rules.

Well done FCC!  Great de-regulatory box out!