Neutering the 'Net

The real agenda of Google, Amazon, Microsoft and other status-quo web powers behind the Obama administration's Net Neutrality campaign.


By HOLMAN W. JENKINS, JR.
Wall Street Journal
SEPTEMBER 23, 2009


Like Chekhov's gun, "net neutrality" gets dragged down from the mantel for every act of the broadband rollout. It's getting dragged down now for the rollout of wireless broadband.

Yet everything you need to know was contained in the first act, when AOL began bleating about "open access" when broadband first threatened its dial-up empire. AOL's business model depended on free riding on the infrastructure paid for by phone users. AOL users were dialing up and keeping a line open for days or even weeks at a time—yet faced no cost for the disproportionate capacity they used up.

View Full Image

Getty Images
.This is the basic pricing model the biggest Web companies (especially Google) seek to preserve on the Internet. Their business models are built on a Web that makes their services appear "free" to users.

On Monday, Obama's FCC Chief Julius Genachowski obliged by offering a sweeping new net-neut initiative aimed at wireless. He sounded all the usual fears about the "companies that control access to the Internet." Yet the idea of broadband carriers nefariously blocking access to Web sites, for all its longevity, is perhaps the most talked-about, least-seen bogeyman in the history of bogeymen. Here's why:

Broadband growth is leveling out in the U.S., and suppliers increasingly grow only by stealing customers from each other. Two-thirds of Comcast's new broadband subscribers signed up in a recent quarter were defectors from DSL. "Churn" is the biggest challenge to broadband profitability, especially as competition drives down margins. According to Arbor Networks, the cost of fielding a single call to customer service can wipe out three years' profitability for a customer's broadband account.

This is hardly an environment in which broadband suppliers can run their systems on any basis other than trying to keep customers maximally happy.

Wireless networks, it's true, have traditionally been run to provide voice communications, but are slowly merging with the broadband Internet. Yet for all the billions of investment, their capacity is far from being able to support, say, unrestricted file sharing or video streaming—as AT&T's struggle to keep Apple and its iPhone users maximally happy has been demonstrating.

But customers know about these restrictions when they sign up. There's also zero doubt that competition will eventually drive providers to supply the same unrestricted access that users get at home, making the FCC's intervention dubious at best.

The mask really slipped earlier this year when Time Warner Cable began experimenting with usage-based pricing to protect the average broadband customers from the 20% of users who create 80% of the traffic. A lobby called Free Press, the most extreme of the pro-net neutrality interests, went ballistic, calling metered pricing a "price-gouging scheme" and backing a bill in Congress to ban it.

Never mind that Free Press had previously argued just the opposite, saying usage-based pricing was a fairer way to deal with congestion than, say, by selectively slowing down file-sharing sites that gobble up disproportionate broadband capacity.

Never mind, too, the irony that the net-neut campaign against the selective slowing of non-urgent traffic has left only differential pricing as a way to bring a modicum of efficiency to network usage.

Here's where the real fight begins. Google has been one of the most influential net-neut proponents. It recently secreted its top lobbyist, Andrew McLaughlin, into a White House job as deputy head of telecom policy. But Google also understands, as its chief Eric Schmidt recently put it, "It's very, very important that the telecom operators have enough capital to continue the build-outs."

Google's trick will be to lobby for the optimum of Internet socialism—"tiered" pricing may be OK, in which some consumers pay extra for a bigger pipe. But usage-based pricing that would give consumers a reason to think twice before clicking on a Google-sponsored ad? It would be the end of Google's business model.

And Google has allies. The greatest fear of Microsoft, Amazon, eBay and Yahoo is having to plumb their deep pockets and offer competing payments to broadband carriers to speed their bits to consumers. They much prefer spending their money to sprinkle server farms around the globe, assuring fast, reliable access for their customers in a way that no newcomer can easily replicate.

What if some startup Google sought to achieve the same goal by outsourcing its data management to the telcos, say, by mounting servers in their premises to help deliver Web applications more quickly? This would be a win-win for both parties. Data that travels within a carrier's system is cheaper to deliver than data that must be handed off between two or more carriers. Would such an arrangement be a violation of net neutrality? Google would likely shriek so.

But then, for all the grass-roots pose, net neut has always been a weapon in the hands of status-quo companies trying to protect themselves against technological change. First AOL, now Google: A lot of things may be new under the sun, but regulatory incentives aren't one of them.

http://online.wsj.com/article/SB1000142 ... 27044.html