The Magazine

Give Me Bandwidth . . .

No one to root for in the net neutrality debate.

Jun 26, 2006, Vol. 11, No. 39 • By ANDY KESSLER
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FINDING IT HARD TO UNDERSTAND the "net neutrality" debate? On one side are the hip, cool, billionaire web service companies like Google, eBay, Yahoo, and even Microsoft. Net neutrality is their rallying cry. Despite the fact that they are basically schlocky ad salesmen on a grand scale, they're pushing this quaint, self-serving '60s notion that the Internet is a town square--all for one and one for them, or something like that. Everyone should be allowed to hang out in the town square and use it as they please, one low price, eat all you want at the buffet.

On the other side are the monopolist plumbers like Verizon and AT&T and Comcast. These are the folks who laid the pipe that delivers the Internet--the blogs and pirated movies and photos of Shiloh Brangelina--to your house or office. They think the Internet is more like a giant shopping mall, and they're the mall owners. You the customer can walk around as if you were in the town square, but the tenants (see billionaire web service companies above) are going to have to pay for the upkeep of the premises. If they're one of the anchor stores, they might pay a lot.

In an effort to skim their own fees off the Google crowd, lobbyists and Congress have also taken up the fight. So far, the telcos are winning--a bid to add net neutrality language to a telecommunications bill was shot down 269-152 by the House on June 8--but this is one of those bizarre issues where both sides are off their rocker.

If Congress doesn't act, does this mean Apple might pay 10 cents per iTunes download to Bellsouth? Will Google have to pay 5 percent of ad revenue to AT&T for speedy delivery of your search results? Will we pay $1 per video played in your browser to Comcast? Silly, right? Well, not so fast, and that's the problem.

Telcos and cable companies have no choice but to lobby for legislation that bars neutrality. Because without the ability to extract money from the webbies for the use of their not-so-fast Alexander Graham Bell-era wires (forget that you and I already overpay for this), AT&T or Verizon might not have any business model going forward. With no real competition, they'd rather keep U.S. telecommunications in the Flintstone era and overcharge for calls to Grandma than upgrade their networks. Since 1998, telecommunications companies have outspent computer and Internet firms on politicians $231 million to $71 million, just to keep the status quo.

Hate to break the news, but your "fast" DSL Internet access is no longer considered high speed. In parts of the world, cell phones are faster. Have you wondered why Internet video doesn't fill your computer monitor and look like a DVD, but instead is pixelated dreck in a tiny one or two inch square? Well, Comcast is dragging its heels, too. With better video over the Internet, who would want E!, let alone the Style Network? Because of this Fred and Wilma thinking, the United States is 16th in the world in broadband use (behind Liechtenstein!) with East Timor catching up fast. The French may burn Citroëns, but they get 10 megabits for 10 euros--50 times your "fast" Internet access for half the price. That's just not right.

We'll never get 10 megabits to our homes, let alone the multiples of that speed that are possible and affordable today if these telco Goliaths keep covering up their crown jewels. As Dean Wormer might put it: Fat, drunk (on profits), and stupid is no way to go through life, son.

But the answer is not regulations imposing net neutrality. You can already smell the mandates and the loopholes once Congress gets involved. Think special, high-speed priority for campaign commercials or educational videos about global warming. Or roadblocks--like requiring emergency 911 service--to try to kill off free Internet telephone services such as Skype. And who knows what else? Network neutrality won't be the laissez-faire sandbox its supporters think, but more like used kitty litter. We all know that regulations beget more lobbyists. I'd rather let the market sort these things out.

But what market? Phone lines, cable, and cellular--i.e., the means of Internet access--are all regulated; their operators are quasi-monopolies. Even if you end the monopolies, the incumbents have the advantage of a huge head start. Broadcasters own valuable spectrum and feed us cretinous shows like Wife Swap and The Bachelor. Cable has a lock on our homes via local franchise bribes, er, fees, so we get Lifetime and Animal Planet that no one watches. Satellite TV is content to charge just a hair under cable's pricing umbrella. For phone companies, too much Internet bandwidth would threaten their bread and butter--overpriced $25 per month (it's worth no more than $1) phone service and hot innovations like call waiting.

So how do we fix this? Are we stuck in telco hell? Silicon Valley can ignite a political arms race and spend more on lobbyists, but why play an old man's game? Instead, these webbies should get creative, change the rules. Bam-Bam, not Barney Rubble is the future. Take the telcos and cable companies out at the knees.

Here's an idea: Start screaming like a madman and using four letter words--like K-E-L-O. And fancier words like "eminent domain." I know, I know. This sounds wrong. These are privately owned wires hanging on poles. But so what? The government-mandated owners have been neglecting them for years--we are left with slums in need of redevelopment. Horse-drawn trolleys ruled cities, too, but had to be destroyed to make way for progress. How do we rip the telco's trolley tracks out and enable something modern and real competition?

Forget the argument that telcos need to be guaranteed a return on investment or they won't upgrade our bandwidth. No one guarantees Intel a return before they spend billions in R&D on their next Pentium chip to beat their competitors at AMD. No one guarantees Cisco a return on their investment before they deploy their next router to beat Juniper. In real, competitive markets, the market provides access to capital.

Without even being paid by the hour, I read through the Supreme Court's Kelo v. City of New London eminent domain rulings. Surely there exists some clever Silicon Valley counsel to twist the wording of the precedent. The telcos may want to treat the Internet like a shopping mall that they own, but the premises are looking awfully sketchy. So start with this line: "Economic underdevelopment and stagnation are also threats to the public sufficient to make their removal cognizable as a public purpose."

Sure, property rights are important, but that doesn't mean we can't shake a cattle prod at our stagnant monopolists and say "update or get out of the way." The mantra should be "megabits to phones and gigabits to homes." We'll only get there via competition. Regulations--even regulations that look friendly to the Googles and Yahoos and hostile to the telcos--will just freeze us where we are today.

IN THE LONG RUN, technology doesn't sleep. You can't keep competitive King Kong in chains. But why wait a decade while lobbyists run interference? If Congress does nothing, we will probably end up paying more for a fast network optimized for Internet phone calls and video and shopping. But this may not be the only possible outcome. Maybe the incumbent network providers--the Verizons, Comcasts, AT&Ts--can be made to compete; threatening to seize their stagnating networks via eminent domain is just one creative idea to get them to do this. A truly competitive, non-neutral network could work, but only if we know its real economic value. If telcos or cable charge too much, someone should be in a position to steal the customer. Maybe then we'd see useful services and a better Internet. Sounds like capitalism.

What new things? It's not just more bandwidth and better Internet video--how about no more phone numbers, just a name and the service finds you? How about subscribing to a channel and being able to watch it when and where you want, on your TV, iPod, or laptop? How about a baby monitor you can view through your cell phone? Something worth paying for. And that's just the easy stuff.

We don't even know what new things are possible. Bandwidth is like putty in the hands of entrepreneurs--new regulations are cement. We don't want a town square or a dilapidated mall--we want a vibrant metropolis. Net neutrality is already the boring old status quo. But don't give in to the cable/telco status quo either. Far better to have competition, as long as it's real, than let Congress shape the coming communications chaos and creativity.

Andy Kessler is a former hedge fund manager turned author. His next book, The End of Medicine: How Silicon Valley (and Naked Mice) Will Reboot Your Doctor, is out in July.