Amazon

While at first glance it may not be obvious how the public policy debate over "net neutrality" affects the advertising sector -- it does -- and big time. 

Let me explain "net neutrality" in the context of advertiser interests. 

• In simple terms, net neutrality is the politics of convergence.
• As "convergence" makes the tech and communications sectors collide, and creates more direct competition between the sectors than ever before, the big question is: will this new techcom sector be sorted out by: 
• Competition/market forces? or
• A new law where Congress dictates which sector is competitively advantaged over the other?  
• In "brand" terms, the main opposing "brand" players in this public policy fight are:
• The online giants like: Google, Yahoo, Ebay, Amazon, and IAC -- that want net neutrality regulation of broadband companies; versus
• The broadband companies like: AT&T, Verizon, Comcast, Time Warner,  Sprint, which obviously don't want to be regulated.

So why should advertisers care who wins? There are three big reasons why that cut right to the advertising sector's bottom-line and future.

First, companies that advertise very little want to regulate some of the advertising sector's absolutely best corporate clients.

I had to flag for folks a seminal quote on net neutrality in the Washington Post article today "Neutrality on the Net gets high '08 Profile."

• "A veteran Democratic consultant who spoke on condition of anonymity was more blunt. Among Democratic candidates, "if you are not for net neutrality, then the blogs will kick your" rear. The grass roots groups that strongly favor it are relatively small but very noisy, she said "and you just don't want to have to deal with that."

This obviously very sharp Democratic operative understands what's really going on. 

The common theme of net neutrality supporters is that there is not enough competition or competitive forces to prevent discrimination.

They assert a broadband duopoly even though the evidence and data don't support their assertions. This is one of the main reasons net neutrality has had so little success in forums where substance, evidence and proof matter.  

Last week at the FTC workshop, Amazon and eBay took this competitive discussion to a whole new level of la la land.

• Both Paul Misener of Amazon and Tod Cohen of eBay agreed on their second day panel that competition won't solve this potential problem.
• Tod Cohen of eBay said that even if their were 4-5 competitors in the broadband market there would still be an incentive to discriminate. 
• Wow. Now we really know what we are up against.
• Supposed capitalists, Amazon and eBay don't believe in or trust free markets any more!
• They are saying that Congress should pass a law regardless of how much broadband competition there is or will be. 
• This is classic industrial policy think, which is defeat your future competitors in Washington, while they are still in the crib.  
• It is also more predatory than anything any broadband provider has done.
• Under their logic all duopolies should be regulated preemptively before they do the things that all businesses have deep lurking in their hearts -- make profits...
• Then the government should rugulate the Intel-AMD chip duopoly, the Microsoft operating system monopoly, the Cisco-Juniper router duopoly, the Google-Yahoo search duopoly, the Giant Foods- Safeway grocery duopoly and while they are at it they could preemptively regulate the eBay-Amazon retail ecommerce duopoly!

Amazon and eBay are no longer for free markets, but for Big Government industrial policy and European style socialism with them as the designated online national champions.  

It looks like some national net neutrality proponents groups have suckered some well-intentioned, but unsuspecting Maryland delegates into sacraficing Maryland consumers as pawns in their national chess strategy over net neutrality. Maryland consumers deserve much better.

• Twenty three Maryland delegates have proposed bill HB 1069, a bill which would regulate the Internet access of DSL, cable modems, wireless broadband, and BPL; would impose net neutrality only in Maryland; and would require detailed quarterly reporting of broadband deployment in Maryland.  

I'll bet the national activists that sold this fraudulent bill of goods to the unsuspecting state delegates, only told their unsubstantiated side of the story -- ill serving Maryland consumers and lawmakers in the process.

Qualcomm's MediaFlo subsidiary has a network innovation and will soon have a commercial offering that will make it  easier to broadcast TV content to mobile phones.

• Investors Business Daily reported February 13, in an article "Qualcomm's Mobile TV Network wins AT&T's Nod," that both AT&T and Verizon plan to use the MediaFlo service for their subscribers rather than the competitive offerings of Crown Castle or Aloha Systems.

Qualcomm reportedly is spending about $800m in risk capital to gain spectrum and build a mobile broadcast network for cellphones that will be able to reach about 100 million potential users in the U.S. by mid-year.

The Wall Street Journal's lead editorial today: "Broadband Breakout" once again proves that they have a very knowlegable and sophisitcated understanding of the successes of broadband competition, deregulation, and competition and of the risks of "net neutrality" or Internet regulation 

The Journal also picked up the point I made here in a previous blog that you have to look at the trajectory of competition, is it increasing?

Tim Karr, the campaign director of Free Press that runs much of the SaveTheInternet effort, blogged a personal attack on me today, that I responded to on his blog.

• I include the full text of my response below in case Mr. Karr is not willing to post my comment on his blog.

Tim,

It's not the first time I've been called names by people who wanted to discredit me and my analysis. Among others, you share the august company of the now-imprisoned Bernie Ebbers, who routinely derided me as the "idiot analyst" because I had his number in calling WorldCom "dead model walking" before anyone else in the country figured it out. He too was mistaken that name calling and intimidation could muzzle my views.

The highlight of the FTC Broadband connectivity workshop was Phoenix' George Ford's evisceration of Tim Wu's Wireless net neutralty paper.

• George ably cut through the abject nonsense of Mr. Wu's paper by pointing out:
• The fact that you don't like the result, and can't get whatever product you want at whatever price you want, isn't market failure.
• Kudos to George for clarity of thought and seeing through Mr. Wu's vacuous logic.
• Mr. Wu's paper was essentially a datatopian wishlist of how Mr. Wu thinks business, markets and capitalism "should" work, not as they do in the real world or as FTC competition experts all understand it to be.
• Mr Ford was appropriately very tough on Mr. Wu's total lack of economic intellectual rigor in his paper which I called intellectual rigor mortis is my blog a couple of days ago.

Mr. Ford also eviscerated Mr. Wu's recommendation to apply the monopoly Carterfone decision to the competitive wireless industry.

• Mr. Ford said it was ridiculous to apply a concept to such a non-analogous situation.
• He pointed out how they were completely different factual circumstances:
• AT&T was a vertically regulated vertical monopoly, wireless is competitive and not vertically integrated.
• Consumers had no phone choice with AT&T monopoly, consumers have over 800 choices of cellphones today from competing wireless carriers.
• There was very little innovation vibrancy in phones in the AT&T monopoly while there is vibrant innovation in cellphones of today used by 230 million Americans.

Mr. Wu's biggest mistake was submitting this paper before the FTC an organization well-known for its analytical rigor and expertise in the subject of competition.

Overall I think the FTC has done a pretty good job of presenting a balanced view of the net neutrality issue.  I commend them for calling the workshop "broadband connectivity competition policy." That is what the issue is all about-- in generic non-loaded terminology.

To be brief, I will highlight just what I thought was most noteworthy.

The distinguished practioner and academic, Fred Kahn, is always a joy to learn from. Besides making his main point that government should resist its propensity to meddle he was particularly critical of many people's use of the term "discrimination." As an economist, he was frustrated that people were using the term discriminatory just if it was differential. For those that don't know or understand economics or competition policy, Mr. Kahn stated simply -- if there is opportunity cost involved, its not discriminatory. What he reminded people of is that there are lots of legitimate economic, functional, and consumer welfare reasons why service and prices can and should be different.

Alan Davidson of Google clearly took a different tack than usual. He further retreated trying to respin Google's grandiose vision of net neutrality to be more "reasonable." He gave Google's blessing to the Internet continuing like it is -- charging differently for different speeds. He also gave America Google's permission to continuing caching and stopping denial of service attacks on the Internet. Thank you Google for your permission, it means so much.

Alan Davidson of Google then went on to say that Google only has a very "small" problem with just "one type" of router discrimination -- trying to appear reasonable. Unfortunately, to anyone that uderstands networks and competiton, his "reasonable" approach is about as "reasonable" as a doctor telling a patient that all the parts of their body are healthy but that he just needs to remove their "small" cerebellum.

My core problems with Professor Tim Wu's white paper for the FTC on wireless net neutrality are with his disguised core assumptions.

First, it is clear from  Mr. Wu's top two recommendations that Mr. Wu rejects U.S. competition policy and wireless competition policy as abject failures.

• He recommends caterfone for wireless!
• The simple translation of his oxymoronic recommendation is: foster a competitive market by regulating it like a monopoly. 
• He then doubles down on his Government-knows-best view and recommends monopoly non-discrimination regulations for competitive wireless carriers.
• What he is really saying is abandon competition policy and let he and his brethren decide what's best for everyone.

Mr. Wu should come clean and just say in a straightforward language what his White Paper strongly implies.

• Its obvious that Mr. Wu does not think that competition works in communications or in wireless.
• He does not think competition best serves consumers, and has the datatopian view  that "benevolent all knowing" regulators need to decide what technologies should succeed, who can innovate and who can't, who can make money and who can't.

Second, Professor Wu analysis suffers from what I call the "perfection fallacy."