Competition

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!

Google made news recently by adopting new privacy measures, which puts a spotlight on a real big public policy disconnect.

What I find most interesting about Google and the subject of privacy, is the glaring incongruity of these facts:

1. Google, as the dominant search engine with ~50% of the market, arguably has more and deeper private and intimate information on American consumers than any other company in America;
2. Google has among the weakest privacy policies of any major corporation in America;
3. Google is not subject to any specific privacy regulations or regulator like other similarly situated major corporations that have lots of sensitive consumer information -- like financial services firms and communications companies.

Let me put that more simply:

Only 40% of European Union homes have Internet access and only 16% have broadband, according to EC Consumer Protection Commissioner Meglena Kuneva who spoke yesterday at the Digital World Conference in Berlin.

• Those lagging numbers are in stark contrast to America's performance where 70+% of American homes have Internet access and 45+% have broadband according to FCC data.

NN proponents have tried to manufacture that there is a broadband crisis in the U.S. and that we are falling behind the rest of the world. It just isn't true.

• That's why I wrote the commentary "America's Unique Internet success" in the Washington Times a couple of weeks ago, in order to debunk this fabrication designed to create a reason for the Government to intervene in the broadband marketplace.
• America has a great broadband policy and strategy -- its called competition and deregulation!
• And it works!
• The Internet is the single greatest deregulation success of all time.
• And the U.S. has substantially more facilities-based broadband competition than any other nation in the world.

Net neutrality is not only a domestic issue but also a policy weapon some Eurocrats see as a way to undermine American competitiveness to Europe's advantage.

• Make no mistake, NN has a powerful competitiveness, trade and foreign policy dimension.
• Keeping the Internet free of regulation and promoting competition and the deployment of new technologies are critical to maintaining America's competitiveness.
• Other nations are begining to see the NN concept as a clever way to slow down U.S. innovation and "level the playing field" through regulation to improve their competitive position relative to the U.S.
• Some of the more socialist-minded nations like France are beginning to see that they can advance relatively, if they can slow U.S. innnovation down -- with "competition" restrictions that favor the EC and relatively disadvantage the U.S.

Why I wrote my commentary, "America's Unique Internet success" in the Washington Times a couple of weeks ago," was to drive home this important insight that America truly is unique when it comes to the Internet!