Net neutrality legislation impact on innovation

I caught up with listening to a very good C-SPAN Communicators podcast on Net neutrality Jan 29 2014 and the recent change in legal status for carrier traffic for Internet service providers in the United States.

“Net neutrality = all traffic should be treated equally”

The assertion of the debate was if incumbent ISPs and large cloud providers such as Google, Facebook, Yahoo, Amazon, Microsoft and others could influence and “throttle” services at the network or service level. The question is how does this effect start-up innovators who do not have access to the same resources being unfairly disadvantaged by search engines and traffic access performance influencing consumers away from their offerings. Innovation at the edge would be stifled by the inability to gain net neutrality fairness for a level playing field for large and smaller competitors. The consumer would be disadvantaged by the fact that choice would be limited or at least influenced by the “walled gardens” of proprietary service providers, large social network providers and a constrained sea of applications that could only work in specific platforms or terms and conditions.

Current state of change in the Telecommunications Act of 1996– United States

The general state of legislation as I understand it was that the Section 706 of the Telecommunications act may have changed in a recent legal precedent allowing Internet service providers the ability to manage the use of their traffic. This could mean allowing ISP to offer “pay for priority” for access preference for traffic, sponsorship deals and other potential preferences including promoting their own apps and services above other traffic users of their service. The broad encompassing term that the previous legislation had classified “broadband” as a common carrier type traffic to now been referred to as “non-commentary traffic” that was open to managed service. The specific issue remains is that their level of influence by ISPs cannot include “commentary regulation” where by traffic is in effect adjusted or censored based on the content and use. The Federal governing body of the FCC, at the time or writing is debated if the Telecommunications Act, that was written in the 1980’s and 90’s needs to be potentially amended by government to enable governance of ISPs to prevent undue bias and influence on services.

While the debate raised many good views from the provider and consumer side I noted three key observations

Consumers versus providers

The change in legislation could advantage providers and disadvantage consumers. This was particularly the view of free internet organizations that saw this as an evolving legislation breaking the original “rules of the road” that the internet should be a neutral platform for all. An argument was also offered that this could also advantage consumers and providers as it would enable new commercial business models for ISPs to offer consumers.

Internet has never been neutral

That the internet has never been neutral, its whole existence has been the development of services from various interested parties. Even local ISP provider choice is influenced by local pricing and availability of connections and networks. The podcast pointed to examples of large public cloud providers investing heavily in their own dark fibre networks between their own data center operations to improve local cache response and services traffic performance.

Legislate at the local level

The legislation to control use or mis-use needs to be at local level to serve consumer behaviour and sourcing policies. We have seen this in the Californian Sales Tax law and the recent proposals by the Brazilian government to insist on all data is stored within country.

While these observations are valid in their own right I can see contractions in principle and action over how to reconcile large distributed service providers across a network that creates different barriers of entry and exit to existing and new markets. The internet and cloud computing together with the proliferation of mobile devices and social networks has lowered access barriers to technology and content in levels of step change that can only be described as disruptive by empirical analysis of cost, time and performance.

• 1 in 4 to 1 in 3 people connected to social networks by 2020

• 60% of internet traffic video and multi-media

• 1000 to over >1 million times differences in speed and cost of consumer technology compared over past 20 years

I would argue that while the inflection of entry barriers to these internet enabled markets is orders of magnitude lower , it is not necessarily reflected in the retention (privacy), ability to exit or competitive equity. The barriers to virtual markets are different to physical markets.

Some overarching perceived issues I see are

• The perceived inequity of investment in infrastructure and bandwidth licence standards such as 3G and 4G by Telecoms carriers and the apparent “free riding” on the back of these by large internet cloud service providers that “use bandwidth”. This can appear doubly troublesome with tax avoidance practices by the cloud service providers further reducing their apparent contribution to national domestic products that they “serve”.

• The perceived shift of supply chain and value economics towards a digital economy as representing “only a small” part of the “real” economy. The question is whether this is actually true materially if many financial transactions are now digital and the “old days” of handing over hard cash is a minority situation for smaller transactions.

• The perceived issue of trust and legislation for home market development where state boundaries and laws maybe passed with the interests of the country and citizens but may not be in the international market interest where local markets are undercut by “aggressive” “below market cost pricing” by large cloud marketplaces remote to those local markets.

Tax avoidance or minimization practices are legal in the context of national and international laws that allow such practices but one has to question if the link between competition and free market commerce is serving the tax system that was established many years prior to digital markets. It can be argued that companies are just developing business strategies using the “rules of the road” to their advantage and this is not unique to digital companies but a normal development of markets. Indeed large public cloud providers have heavily invested in their own data centers and services to enable this including dark fibre networks between their operations to support local cache and high performance of their services to reach their end user markets. But the question is how does this overall macro structure of networks , internetworking and mega clouds and the myriad of services and users play out. Nicolas Carr in the “big switch” long time ago pointed towards this inflection and the “long tail” of economics by Chris Anderson compounded the “98% rule” that potentially all things could be addressed as a market of services through technology. But the impact of technology in the digital economies involved digital ecosystems and digital markets that are fundamentally different in many characteristics peculiar to digitization. Namely, unlike physical objects and relationships, for example:

• Digital content can be instantaneously coped and can be reprogramable

• Digital content has no “physical mass” in the sense it is portable within its own standards

• Digital relationships can transverse geography and time with zero “distance”

• Digital meaning and metadata can be implied without the object or owner being aware of the information or behavior influence

Moving into a new internet era 2

The establishment of new types of (digital) infrastructure does seem to have an increasing impact on how the internet will be controlled and used in the future. Perhaps we are entering a new phase of hyper connected services brought about by the internet but is now at a crossroads of development. Maybe a new era is emerging from the first era that saw rapid IP address and internetworking growth. But the consequences were that data and mobile devices then grew on top of this “fabric” and a new sense of information and social networks of services have evolved. The early innocence of the free internet for all may not and was never possible. The maturing of the internet is now reminiscent of other industries that start off and now face proprietary versus common open services access. I don’t think this kills the principle of net neutrality that enables the same traffic and access for all but the scale of the internet may present new challenges to maintain innovation and the creation of new digital ecosystems. A counter argument is that you cannot have your “cake and eat it” and that large clusters of services , apps and content need stable and robust infrastructure and platforms inorder to grow viable and strong social and market communities. But I do think that the missing link is from the idea to the market the ability to incubate and leverage innovation will be the critical capability for existing and emerging economies. This cannot be the privy of just “first to market” large cloud providers or incumbent carrier services but must be enabled in a way for new forms of digital ecosystems, jobs and prosperity to thrive. I don’t think market forces alone will work if the span of control is literally global due to the scale of the internet. Effective incubator strategy and investment together with government legislation will be needed to help formulate a new future but care is needed in the balance between censorship and freedom to drive towards greater new hyper connected value.

References

http://arstechnica.com/tech-policy/2014/01/net-neutrality-is-half-dead-court-strikes-down-fccs-anti-blocking-rules/

Federal Communications Act of 1996 http://transition.fcc.gov/telecom.html

UK Communications Act 2004 http://www.legislation.gov.uk/ukpga/2003/21/contents

European Regulatory framework for electronic communications 2009

http://www.economist.com/news/business/21586321-digital-commissioner-proposes-single-market-speed-up-europe-kroes-control

#Netneutrality #Regulation #Telecoms #DigitalEconomy