“We’re not gonna take it
Never did and never will
We’re not gonna take it
Gonna break it, gonna shake it,
let’s forget it better still.”
From “We’re Not Gonna Take it”, The Who – Tommy, 1969
“Net neutrality (also network neutrality or Internet neutrality) is the principle that Internet service providers and governments should treat all data on the Internet equally, not discriminating or charging differentially by user, content, site, platform, application, type of attached equipment, and modes of communication. The term was coined by Columbia media law professor Tim Wu in 2003 as an extension of the longstanding concept of a common carrier. Proponents often see net neutrality as an important component of an open internet, where policies such as equal treatment of data and open web standards allow those on the internet to easily communicate and conduct business without interference from a third party. A “closed internet” refers to the opposite situation, in which established corporations or governments favor certain uses. A closed internet may have restricted access to necessary web standards, artificially degrade some services, or explicitly filter out content.”
Definition of net neutrality, Wikipedia, http://en.wikipedia.org/wiki/Net_neutrality
This is a story of disruptees in two heavily consolidated industries, cable and telecoms, that have powerful interests affecting how we use the internet. My specific focus here is on how the disruptees, incumbents such as Comcast and Time Warner or AT&T and Verizon, react when faced with having to stream compelling online content from innovative new disrupters such as Netflix, Amazon, YouTube, or Hulu in addition to providing internet bandwidth to users everywhere. Huddling uncomfortably between these two groups are the traditional media companies – including Disney, ABC, Univision, HBO, and Warner Brothers – that have been shell-shocked by successive waves of disruption during the past decade or so as (for example) Apple introduced successive disruptive innovations in music consumption, smartphone functionality and apps, and tablet computing. On a side note, it’s strange to recount that just a few years ago NBC would have been part of this latter group, except that its acquisition by Comcast, today’s cable/broadband version of a “giant vampire squid”, was unaccountably approved by the FCC despite numerous anti-trust concerns related to joining one of the three largest cable operators with one of the three largest broadcast networks.
Any lingering doubts that lobbying by dominant players in heavily consolidated, regressive industries such as banking, aviation, telco, or cable, has become a chronic blight in the U.S. economy have been dispelled since that merger’s approval in 2011. The New York Times reported recently that Comcast has more than 100 registered lobbyists in DC, including a former FCC commissioner who joined the company shortly after voting to approve the NBCUniversal deal. Can there be any clearer indication of illicit collusion between big business, elected officials, and appointed bureaucrats?
Today we see Comcast attempting to browbeat the FTC into approving its $45bn takeover of Time Warner Cable and simultaneously join with other members of the cable and telco cartel(s) to force the FCC to gut the whole principle of net neutrality. How and why there hasn’t been a noisy and unambiguous response by other players in the media and entertainment industry, as well as consumer groups, is beyond me. Sure, there is plenty of commentary in the financial press and blogosphere on these issues, but somehow the debate still seems muted. Have we forgotten that there is strong, longstanding legislation in place to protect consumers against monopolistic practices in this country?
What’s at issue with Net Neutrality?
The New York Times reported a week or so ago that FCC Chairman Tom Wheeler is getting ready to propose a new set of rules in response to a January federal court decision that rejected the agency’s earlier Open Internet rules. The Times’ interpretation was that “the proposed rules will essentially gut net neutrality, allowing Internet service providers what they’ve always wanted—the ability to charge content companies extra for preferential treatment. Pay, and you get more bandwidth, a bigger tube to send yourself out. Don’t pay, you’ll be last on the priority list for having your content distributed.”
In a nutshell, this means that a company like Comcast, AT&T or Verizon will be able to negotiate separately with each content company – like Netflix, YouTube, Amazon, Disney, or HBO – and charge them different amounts for “priority” service. The resulting increase in bandwidth costs would almost certainly drive increased subscription fees for consumers.
The report continues: “Proponents of net neutrality have feared that such a framework would empower large, wealthy companies and prevent small start-ups, which might otherwise be the next Twitter or Facebook, for example, from gaining any traction in the market. This is hardly the only concern. It will also be potentially disastrous for startups, small business sites, or nonprofits – in essence, for any content provider that doesn’t have the big bucks to pay for priority treatment. This in turn will hurt all consumers of online information and services.”
Leading up to an FCC vote slated for May 15, intense lobbying by tech entities and companies is now taking place in Washington in an attempt to restore the Open Internet rules. However, this may come too late to change the minds of the already heavily lobbied (and in some cases, compromised) members of Congress and the Senate.
Arguments against gutting net neutrality
Over the past two decades since Tim Berners-Lee invented the HTML language and Mark Andreessen developed the Mosaic browser with some college buddies, the internet has become a de facto utility. It had started life as a government-sponsored innovation by DARPA in the 70s. I have seen no convincing argument from cable or broadband suppliers or any of their surrogates to explain why one or other commercial entity should have the right to control how it is used, especially not those powerful entities that, in a monopolized or cartelized industry, have zero interest in providing competitively priced services to consumers and businesses.
Here, in a series of bullet points, is how internet technology and business expert Robert Greenhood explained to me his opposition to a closed internet in a recent email exchange:
- “Companies that provide internet access to either end users or commercial players charge a toll based on carriage and transport. This fee should allow the providers to operate a profitable business whereby they can purchase and re-sell bandwidth – the general concept being that all data packets are equal.
- “In many cases, the providers have geo-market exclusivity provided by the US Government – the case for most of the old Verizon and PacBell landline business and cable utility areas. There are very few (mainly rural) areas where there is an overlay of cable companies, assuring a reasonable degree of competition.
- “Allowing the providers to charge a premium for commercial carriage means the companies are free to gouge both sides of the lines at once – on one hand for better service to commercial providers and on the other to charge high prices for mediocre service to consumers.
- “Adding a fee to specific traffic implies that either they don’t have pricing figured out for end users or that their commercial side is also not adequately priced.
- “The argument that some traffic generators like Netflix have a disproportionate impact on the plumbing is a smoke screen for the provider’s commercial side not being adequately priced and maintained.
- “Even extrapolating the argument about how Netflix may use P2P models in the future to use a decentralized client-server model to make all viewers into small transmitters (i.e.: Skype) again puts the emphasis on the need for broadband providers to find normal ways of adequately charging their end users.
- “One real issue is that both cable and wireless providers are becoming “dumb pipes” and add almost no value to either the commercial or end users side. Their capacity to innovate is distressingly low.
- “The WhatsApp purchase was a wakeup call to wireless providers who charged high usage fees to end users for SMS for over a decade, which allowed a small 55-person company to create $19B worth of value – the wireless companies are watching their SMS billing decrease and they have yet to figure out a way to add value to their “dumb pipe” in the lucrative business of phone messaging.
- “If anything, the fees Netflix has paid can just be considered a “Mafia tax” – if the government (read FCC and Congress) had any conviction of what is right and wrong, they would back innovative content and service providers whose use of the Internet creates net new tax streams – instead, the disrupted Mafia is getting frustrated about being out-innovated, and they are (perhaps predictably) resorting to gangsterish tactics to defend their turf.”
What about the proposed Comcast-Time Warner Cable merger?
It’s difficult to understand what part of the “anti-trust” laws our politicians, businesspeople, media, and industry experts no longer seem to get? And where is the consumer outcry? Have we become so jaded that we no longer care enough to defend our long term interests? Are we really willing to give Comcast veto power over any significant innovation that it interprets as a threat to its fiefdom, or allow a single dominant cable operator to disrupt the entire media and technology ecosystem? Thank goodness for the candor of Reed Hastings, CEO of Netflix, who is never to be confused with a shrinking violet. In Netflix’s most recent earnings call, he stated his opposition to the merger, saying that the deal would create a powerful giant with “anticompetitive leverage”. Duh. Comcast’s management argues with a straight face that it only has 30%-40% market share across the market. Which of course is disingenuous nonsense. The problem for each consumer isn’t one or other vendor’s national market share, but – as Mr. Greenhood reminds us – their actual share in each monopolized (or duopolized) metro or rural area. Like carriers, cable companies are pretty unpopular, for a very simple reason – they are proprietary businesses that operate a cartel and display zero vocation to serve customers fairly and squarely. The result is that consumers feel they have little reason to trust anything they say.
To my mind it’s time for us fat, complacent consumers to get off our sofas and let Washington and the media know that, like the Who’s song in the musical Tommy, “We’re not gonna take it!” anymore. Otherwise, our already extortionate fees for cable and broadband are certain to be increased, while we watch already-mediocre cable and broadband service degrade further. True, Comcast and their few remaining competitors in cable can claim that they do face real competition from consumers who are cutting the cord and streaming TV programs as well as movies directly onto their computers. But if the merger is approved and Comcast is allowed to effectively dominate cable, and then if the same players, plus the aforementioned wireless carriers, are allowed to discriminate against whomever they please in pricing their broadband services, we can all kiss goodbye to decent cable and broadband services in this country. And then the U.S. will fall even further behind major Asian and European countries, leaving us less competitive than ever.
As mentioned earlier, the threat here is to an entire media and technology ecosystem. As in most B2C “business networks”, over time a few powerful players emerge as “concentrators”; the anti-trust laws were invented to protect consumers and markets against these players becoming too powerful and in effect bullying every other participant. Where private enterprise breaks down and allows abuse of economic power, government needs to step in to regulate the network, or ecosystem, in responsible fashion. So there are my suggestions to address these two specific issues as well as the overall health of the ecosystem:
- Disrupters (online media and technology companies such as Google, Apple, Amazon, and Netflix): Keep innovating with new streaming, mobile, and other services. Also, be transparent about your own agenda (this is addressed to Netflix as well as the other players, notably, Apple, Google, and Amazon).
- Disruptees (cable and broadband operators such as Comcast, Time Warner, AT&T, Verizon): Back off. Compete by innovating rather than by lobbying your way to success. You know you have a horrible reputation with consumers – it’s time to do some hard thinking to figure out what value you deliver to the market, and revise your business model as needed. Otherwise the cord-cutters will get you in the end.
- Conventional media companies – second group of Disruptees (Disney, HBO, Viacom, Univision): Grow a spine, and act to prevent the merger as well as the collapse of net neutrality. Review your current strategy and business model, and identify how you can contribute positively to delivering more efficient and cost-effective services to your audiences. Be transparent about your own interest in protecting the massive fees that you receive from Comcast and other distributors, and ask how long you can realistically hold onto fees that consumers resent paying. Again, the cord-cutters will get you if you ignore their concerns.
- Congress & Senate: Resist the big bucks of powerful lobbies and stop allowing the country to fall further behind its major international competitors in internet and media communications.
- Consumers: Get off your rear-ends and reject both the cable merger and the gutting of net neutrality. If necessary, just stop paying your cable fees and cancel your contracts for a week or two. You can watch almost all your news, sports, sitcoms and dramas online today as it stands, so you won’t suffer that much. But one or two months of mass cable fee cancellations will definitely get the attention of the bad guys.
With respect to the immediate priority of heading off the collapse of the open internet, venture capitalist Fred Wilson framed these three steps for you to take in his recent blog “The Fast Lane, the Slow Lane, and the No Lane”:
“1) You need to be very clear that you will not accept fast lanes, slow lanes, and no lanes on the commercial Internet. A good start would be signing the White House Petition (see link below) before May 15th. But you will need to do more. This rallying cry must be sustained until we rid the FCC of the idea that fast lanes, slow lanes, and no lanes are OK.
2) You need to “plug into” the Internet activists who are building the opposition to fast lanes and slow lanes. A good start would be to follow Facebook feed: https://www.facebook.com/fightfortheftr.
3) You need to watch the FCC’s proposed rules that will be aired to the public on May 15th to see if they are going to consider “reclassification”. If they do not, we all need to rise up and go into action against these proposed rules. Because without “reclassification”, the FCC really cannot protect us from the last mile duopolies who are hell bent to build these lanes on the Internet and destroy the golden era of Internet innovation that we have experienced over the past twenty years. We cannot allow that to happen.”
Note: If you have any doubts in your mind about the pros and cons of Net Neutrality, you might find this video helpful: https://www.youtube.com/watch?v=wtt2aSV8wdw