November 11, 2014
The Department Of The Internet: Obama’s Quest For Net Neutrality Is A Disaster For America And The World Wide Web — The Future Of The Internet Is At Stake
Adam Kessler, a former hedge-fund manager and author most recently of the book, “Eat People,” had an Op-Ed in the November 11, 2014 Wall Street Journal, whereby he articulated some of the very damaging consequences for the Internet; and, its billions of users — if, POTUS Obama’s gets his way regarding the future of the World Wide Web. Indeed, warns Mr. Kessler, “get ready for the Department of the Internet.”
“On Monday, POTUS Obama called on the Federal Communications Commission (FCC), to reclassify the Internet as a public utility — like water, or electricity — under Title II of the Communications Act of 1934,” Mr. Kessler writes. The goal: “to protect net neutrality,” Mr. Obama said in a White House YouTube video, an ironic venue for announcing a monumentally bad idea that could strangle the Internet.”
“For years,” Mr. Kessler observes, “the FCC has been inching toward imposing net-neutrality rules, which are sold as a way to ban Internet service providers from discriminating against content providers. In reality,” Mr. Kessler contends, “such rules would dictate what ISPs like Comcast and Verizon can charge for their services. The Silicon Valley crowd particularly likes the net-neut idea; because, it would mean cheaper access for companies like Google and Netflix, who are heavy bandwidth users. POTUS Obama’s announcement is likely to delight them — and liberal groups supporting supposed Internet “fairness” — because now the FCC Chairman Tom Wheeler will be under enormous pressure to do the White House’s bidding.”
“But, the Internet cannot function like a utility,” Mr. Kessler argues. “First,” he says, “public utilities don’t serve the public; they serve themselves, using by maneuvering through Byzantine [maze] of regulations — that they helped craft. Utilities are about tariffs, rate bases, price caps; and, other chokeholds that kill real price discovery — and, almost guarantee the misallocation of resources. I would know,” he writes, “I used to work for AT and T in the early 1980s when it was a phone utility. Its past may offer a glimpse of the broadband future. Innovation gets strangled.”
“Bell Laboratories — owned by AT and T, invented the transistor in 1947, the basic building block of today’s telecommunications and computing [sectors]. But. AT and T was one of the last businesses to actually use the innovation. Why?,” Mr. Kessler asks. “Because the company had a 10yr. supply of the old technology — vacuum tubes — and waited until they ran out before converting to using AT and T’s own invention.”
“It was much the same with touch tone dialing,” Mr. Kessler notes. “which was invented in 1941,– but, not rolled out till the 1970s. Though touch-tone was easier to use than rotary-dial phones, and cheaper — AT and T charged $10 per month extra for the service…because the company could. Bell Labs funded a study to decide the size, color, and coding of the touch-tone buttons. The study’s director received a report with hundreds of ideas; but, didn’t like any of them. Instead, he insisted on gray buttons, and just twelve of them.”
“More utility follies?,” Mr. Kessler asks. “The first cellphone call was made in St. Louis in 1946 with AT and T’s Mobile Tele[phone Service, but the company let the innovation wither. It took until 1983 for Motorola to introduce the now…comically unwieldy DynaTAC, a cellphone that weighed more than 2lbs. — but, that private-sector effort is what ultimately led to today’s 4-ounce iPhone.”
“Oh and data,” Mr. Kessler writes. “I worked in a group at Bell Labs that developed the early 300, and 1,200 bit-per-second modems. We wanted to test them by sending data from our Western Electric factory in Illinois to our site in New Jersey. But, no luck, because Illinois Bell hadn’t set tariffs for data. We had the technology, but regulators lacked far behind.”
“A boss at Bell Labs in those days explained what he called the Big Lie, using water utilities as an example. Delivering water involves mostly fixed costs. So, every decade or so, water companies engineer a shortage. Less water over the same infrastructure meant that they needed to raise rates to per gallon to generate returns. When the shortage ends, they spread the extra money coming in on fancy facilities, thus locking in the higher rates for another decade.”
“If the Internet is reclassified as a utility, online innovation will slow to the same glacial pace that beset AT and T and other utilities, with all the same bad incentives. Research will focus on ways to bill you — as wireless companies do with calling and data plans — rather than new services. Imagine if Uber had to petition the FCC to ask for your location,” Mr. Kessler added.
“The POTUS’s statement Monday was not the first time he has promoted net neutrality, just as the most emphatic. At an October 9, 2014 town-hall meeting in Los Angeles, he said: “I made a commitment very early on that I am unequivocally committed to net neutrality. I think…it’s what has unleashed the power of the Internet, and we don’t want to lose that, or clog up the pipes.” Then he [POTUS], however awkwardly, implored the FCC to act: “My appointee, Tom Wheeler, knows my position. Now that he’s there; I can’t just call him up and tell him exactly what to do. But, what I’ve been clear about, what the White House has been clear about, is that we expect whatever final rules to emerge…to make sure that we’re not creating two, or three, or four tiers of Internet.”
“Maybe, Mr. Wheeler didn’t get the message last month and the White House thought he needed some public hectoring,” Mr. Kessler postulates. “Or maybe, he has been only sidling up to the idea — because he knows deep-down, that network neutrality is a fuzzy concept that can’t possibly exist in nature. Comcast might want to charge Netflix customers $5 a month for a fast lane. But, if Google Fiber is in town and offers Netflix with no extra charges, that’s what customers will choose.”
“The beauty of competition,” Mr. Kessler argues, “is that you get network neutrality for free. AT and T cut long-distance rates in the 1980s, when MCI and Sprint started competing fiercely. Calling from San Francisco to New York became cheaper than calling from San Francisco to San Jose, because California tariff prices were still highly regulated. The same thing happened to international rates, once Skype offered voice and video connections free online. And, it is no surprise that AT and T hurried to offer its own gigabit Internet connection in Austin Texas, as soon as Google Fiber showed up. Now, everyone in Austin has access to a fast lane.”
“And, the rest of us?,” asks Mr. Kessler. “At 25 Mbps, there is simply no competitive choice for most Americans,” Mr. Wheeler said in a September speech. Treating the Internet like a utility would ensure things stay that way,” Mr. Kessler warns.
“The POTUS might think he’s doing a favor for Americans; but, utilities are utopias — only on paper. With no competition to stimulate investment, capabilities will wither. Eventually, a federal bureaucracy will be needed to help allocate the scarce broadband resources. In that vaguely neutral world, everybody gets access to the same resources. Well, except for the government — it of course will need special, super-fast access. You want cheap, ubiquitous and naturally neutral broadband? Promote competition…..and, outlaw utilities.”
POTUS Obama’s Quest For Net Neutrality Is A Bug In Search Of A Windshield
I wish I could claim credit for the “bug in search of a windshield” analogy; but, I heard it used by someone on Wall Street this past summer while watching CNBC one day. But, the phrase is certainly apprapro for POTUS Obama’s misguided and ill-conceived net neutrality push. Indeed, if approved, the result is likely to be the direct opposite of what is being envisioned. As PC World’s Johna Johnson wrote back in October 4, 2009 [and still correct today], “unfortunately, by imposing legislation designed to keep things that way [keeping the Internet neutral], net neutrality proponents run the real risk of destroying the very Internet they want to protect. Here’s why: he writes, “Internet usage continues to grow dramatically — between 50 percent to 100 percent year-over-year. That’s not a problem in the core, which has more capacity than it needs for the foreseeable future. But, access circuits (both wired and wireless) are bandwidth constrained — and excruciatingly expensive to upgrade (ask Verizon how much it has spent on FiOS). Net neutrality prohibits carriers from recouping those costs by charging differentially — based on type of content, or quality of service.”
“That means,” Mr. Johnson wrote, “as user demand increases, carriers have just one option for recouping their costs: Charge by the bit. And, that it turn, will have a domino effect on peering arrangements. Tier-one providers now peer for free with each other. Once they have no choice but to charge for bandwidth, free peering will go away. And, one of two things will happen: Both of them unpleasant. Either user costs go up (to cover the cost of peering), or more likely, carriers won’t bother to peer in the first place, (because they can’t charge users enough to recoup the costs of peering).”
“Guess what?,” Mr. Johnson asks. “When peering goes away, so does the Internet — because you’re no longer able to connect to anywhere, from anywhere. A site on one network, won’t be visible to users on other networks, unless the site owner is rich enough to buy connections to multiple networks.”
This President and his team have been particularly destructive when it comes to promoting the private sector; and, quality paying jobs. Excessive regulation — Obamacare, mandated minimum wage, unnecessarily restrictive environmental regulations, and so on — are choking small business owners and undermining the American dream. The Internet has been one of the most breath-taking advancements in human knowledge and freedom; and, helped foster the creative economic engine that is “the Internet of Things,” that is driving much of America’s high-tech, economic growth.
The future of the Internet will be considerably restricted if POTUS Obama’s misguided net neutrality regulations come to the fore. No capital sector market is completely free. The financial cost to provide Internet services is steep — as Mr. Johnson observed in the case of Verizon’s FiOS. If businesses can’t recoup or get a decent return on their investment……..they won’t invest. Indeed, POTUS Obama’s net neutrality concept will have the opposite effect of promoting ubiquitous access to the world wide web. Innovation will die.
POTUS Obama’s current understanding of net neutrality is terribly naïve and destructive; and, if allowed to come to fruition — will be looked upon even more unfavorably than his current ‘signature’ legislation — Obamacare. This move, more than any other on the radar screen — risks killing the golden (Internet) goose — that laid the “egg” that became the World Wide Web V/R, RCP
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