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Open Un-Neutrality – Will FCC Re-Distribute Internet Opportunity? For Consumers? Businesses? Investors?

In effectively reversing fifteen-year bipartisan U.S. communications policy from promoting competition and reducing regulation to promoting regulation and reducing competition, the FCC’s coming “Open Internet” regulations are anything but neutral; they pick sides and strongly skew outcomes.

  • First, the FCC is proposing new preemptive business bans mid-game, the harshest most disruptive form of economic regulation possible.
  • Second, the FCC is arbitrarily discriminating among increasingly similar and converging businesses resulting in the arbitrary punishment of some businesses for what they allegedly might do, while rewarding others with protection from competition for what they allegedly might not do.
  • Third, the FCC is arbitrarily mandating one-way technology convergence without any supportable justification, i.e. banning distribution convergence into applications/content, while encouraging application/content convergence into distribution.


FCC's concluding market power in the wrong place; See great ACI analysis: Broadband vs Internet profits

Given that the apparent justification for new formal net neutrality rules is that fifteen-year policy has failed and that the market is unable to ensure consumer choice, the FCC will need to justify with facts that broadband providers indeed have market power to exercise anti-competitively.

Kudos to Larry Darby of the American Consumer Institute for his excellent and illuminating comparative financial analysis of the market power and profits of broadband companies vs. Internet companies. From his post

The Many Vulnerabilities of an Open Internet

What an "Open Internet" does not mean is as important as what it does mean.

  • Surely an "Open Internet" is not intended to mean what it certainly can mean: un-protected, unguarded, or vulnerable to attack. 

  • Thus, it is essential for the FCC to be explicit in defining what the terms -- "Open Internet," "net neutrality," and Internet non-discrimination -- don't mean, as well as what they do mean.

The word "open" has 88 different definitions per and the word "open" has even more different connotations depending on the context. While the term "open" generally has a positive connotation to mean un-restricted, accessible and available, it can also have a negative or problematic connotation if it means unprotected, unguarded or vulnerable to attack.  

    Wireless Innovation Regulation -- "Believe it or Not!"

    With due to credit to "Ripley's Believe it or Not!®," so much odd and bizarre is happening in Washington in the "name" of "wireless innovation" and competition that the topic calls for its own collection of: "Believe it or Not!®" oddities.

    Skype co-founder Niklas Zennstom, the co-founder of illegal-music-downloading site Kazaa, who had to avoid entering the U.S. because of copyright-infringement liability... is now seeking a U.S. court injunction to shut down eBay's Skype for alleged copyright violations!

    Uneconomics and Texting

    George Ou's good post yesterday on "Being Rational on Text Pricing" rightly takes to task the complaint that text messaging should be priced at marginal costs and ignore total costs, upgrade costs, or competition. It also prompts me to join in to address the issue.

    Lets get to the quick here. 

    The folks arguing for text pricing to be based on marginal costs are trying to politically redefine traditional economics in the datatopian Chris Anderson vision of the "economics of abundance" -- that because the marginal cost of computer processing, storage, and bandwidth are getting increasingly small -- the price should be free!

    • I call this political thinking that "information wants to be free" and the "economics of abundance" school of thought -- simply -- uneconomics.
    • It ignores the real world, real economics, the reality of private property, market forces of incentives and disincentives, etc.  

    Does anyone think that the infrastructure that enables the instantaneous reliable delivery of roughly a billion text messages every day wherever one happens to be -- costs basically nothing to pull off and thus should be free?  





    "Competition in Cable TV" is working!

    The New York Times' editorial board seems stuck in a time 1992 time warp in its "Competition in Cable TV" editorial that nonsensically disagrees with the DC Appeals Court for having the good sense to see what everyone can see -- that there is very active competition for video service in the U.S.  

    The New York Times acts like it is still 1992, that since then nothing has happened, and that the 1992 Cable Act and the 1996 Telecom Act didn't succeed wildly in promoting competition.

    Thank goodness the DC Court of Appeals considers facts and is in touch with the reality of "Competition in Cable TV." 

    • 32 million Americans get video service from a cable competitor: DBS providers DirecTV and Echostar, telcos Verizon and AT&T, or overbuilder RCN.
    • Cable has earned 38 million new broadband subscribers -- a completely new service since the 1992 or 1996 Acts.
    • Cable has earned 18 million new telephony subscribers, an entirely new service for cable, since the 1992 or 1996 acts.
    • Cable also has invested in Clearwire to create a fifth national wireless broadband provider.
    • And America's cable industry is the only one in the world that has built out a nationwide fiber-coax infrastructure increasingly capable of 50 MBs of broadband speed.

    And that's not competition?!   

    It seems like The New York Times editorial board needs to get out and about more, a lot has changed since 1992 when they apparently last went outside.

    Top Ten Pitfalls of Wireless Innovation Regulation

    Analysis of the potential pitfalls of wireless innovation regulation is a necessary complement to the FCC's upcoming Notice of Inquiries into wireless competition/innovation and the DOJ's review of wireless competition, in order to ensure policymakers get a balanced view of the big picture.  

    What are the Top 10 Pitfalls of Wireless Innovation Regulation? 

    #1 Pitfall: Losing focus on universal broadband access.

    "Wireless innovation" appears to be the latest rebranding iteration of "net neutrality" and "open Internet" as the net neutrality movement searches for more mainstream support of their views. 

    Why Broadband is Not a Public Utility

    The data and evidence show that broadband is not a public utility warranting economic regulation of prices, terms and conditions; this is contrary to the assertions of net neutrality proponents: the Markey-Eshoo Bill, FreePress, the Open Internet Coalition, and Google's Internet Evangelist Vint Cerf, among others.

    Why is broadband not a public utility? 

    First, it is a competitive service, not a natural monopoly service.

    A public utility presumes "natural monopoly" economics where economies of scale and scope preclude the possibility of competitive facilities/services. 

    • The roughly $200b in private risk capital invested in financially-successful U.S. competitive broadband facilities over the last several years is incontrovertible evidence that broadband does not enjoy natural monopoly economics.

    Second, users have choice of access providers.

    Mr. Kessler's Datatopian Assumptions

    I was surprised that the Wall Street Journal editorial page printed Andy Kessler's datatopian rant today, which essentially calls for the Federal Government to economically regulate the competitive broadband Internet as a monopoly and move away from a market-driven property rights model for mobile Internet infrastructure.

    After one reads Mr. Kessler's compilation of datatopian platitutudes and selective analysis, please consider the litany of datatopian assumptions (below), which undergird Mr. Kessler's regulatory recommendations. 

    • Mr. Kessler's: "Why AT&T Killed Google Voice: Telecom operators are yesterday's business. It's time for a national data policy that encourages innovation."

    Mr. Kessler's Datatopian Assumptions:

    First, assume a broadband pipe(s).

    Second, assume broadband/Internet works, always.

    Third, assume all the billions of daily Internet transmissions just happen -- perfectly.

    Fourth, assume everyone can always use as much bandwidth as they want.

    Fifth, assume its all free.

    Sixth, assume broadband doesn't need return on investment.

    Seventh, assume that the broadband competition everyone sees everyday in TV/online/print advertising doesn't exist.

    Taking one's business elsewhere -- what a concept! TechCrunch's Arrington proves competition works

    Sometimes the simplest solution can somehow elude people for a period of time.

    • After long pushing hard for net neutrality legislation and wireless net neutrality regulation, TechCrunch's Michael Arrington, finally had an epiphany and figured out that he could become a fully satisfied consumer by simply choosing to take his business elsewhere -- from the AT&T Apple iPhone to the T-Mobile Google Android mytouch 3G phone. 

    Competitive differentiated choice -- what a concept -- why didn't anyone think of this before?

    • Consumers that value and want different things... can shop around and find what they want from different providers.
    • Amazing. People don't have to lobby Congress, petition the FCC, or instigate an antitrust review -- they can simply vote with their feet and take their business to a provider that sells what they want.
    • And even better with this competitive choice thingy going on, if a consumer decides they want something new or different in the future they can get it without having to wait for the government to figure out whether or not  they should force all providers to provide it.

    Mr. Arrington's epiphany -- that robust wireless and broadband competition not only exists, but actually works very well -- is a powerful reminder that the first and best solution for consumers is not regulation, but to simply to choose to take their business elsewhere. 


    Q&A One Pager Debunking Net Neutrality Myths