Sprawling, untamed, evergreen, and inspirational, the Internet has changed the world. And that’s thanks in part to its egalitarian nature. The Internet is a tabula rasa hosting new ideas, technologies, movements, and businesses, all of which tolerate each other reasonably well. Sure, that anarchy has allowed viruses and spyware to spread, but it has also let the Googles, Facebooks, and Amazons of the world to flourish. The original peer-to-peer intent of the Internet (think sharing photos sans Flickr rather than illegal file sharing) has floundered a bit in the world of asymmetric connections, but people and businesses can still trade bits with relative ease.
But recent developments have raised the specter of a less-than-open Internet. Thousands of dial-up Internet service providers (ISPs) have given way to a handful of broadband companies, especially in the United States. Wireless broadband can offer an alternative way to connect, but with license fees auctioning for billions of dollars, many of the same wired players dominated the wireless field. With those few companies facing booming traffic, a showdown over the Wild West nature of the Internet has been shaping up. And it is into that fray that Federal Communications Commission chairman Julius Genachowski stepped with his recent speech in favor of net neutrality.
The net neutrality debate is primarily shaped by the concept of market power, according to Kellogg School professor of Management and Strategy Shane Greenstein. The few companies that have emerged this side of the broadband shakedown have a good deal of market power—they are sufficiently few and powerful enough to dictate terms and pricing regardless of consumer demands. Chairman Genachowski’s tack is to limit these companies use of market power to stifle entrepreneurship and innovation by formalizing the FCC’s four “Internet Freedoms” (pdf) and adding two more—non-discrimination and transparency.
“The Four Freedoms are looking for the good parts of common carrier regulation without getting the bad parts,” Greenstein said. The two new “freedoms” Genachowski proposed are meant to shore up some of the shortcomings of the previous four. The new additions have grown out of recent dust-ups between broadband providers and the FCC and consumers.
One such brouhaha occurred when SBC’s then-CEO Ed Whitacre leveled the following threat at content and service providers like Google and Vonage during a 2005 interview with Business Week: “Now what they [content providers] would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it.”
What Whitacre forgot to mention is that the data transfer has been paid for twice by the time it reaches someone’s computer—once by the company sending it and again by the person receiving it. His plan would then turn around and ask Google et al. to pony up more money for the privilege to access AT&T (née SBC) subscribers. (For the record, Google is certainly not getting a free ride under the current system. As an example, Credit Suisse estimated bandwidth for YouTube alone will cost $300 million this year.)
Comcast also made headlines for the way it handled BitTorrent peer-to-peer traffic on its network in 2007. Rather than regulating high-use customers at peak times or informing customers of their intention to single out BitTorrent users, Comcast flipped the switch on a system that harshly throttled BitTorrent connections. Outraged customers claimed Comcast wasn’t giving them the bandwidth for which they paid. Comcast countered that a handful of users were swamping their network, dragging down speeds for everyone else. In the end, the FCC launched an investigation of Comcast’s practices, and Comcast has since abandoned their controversial strategy.
In the wake of these and other incidents, Greenstein formulated his own ideas for how to guide the Internet toward “healthy behavior.” His proposal centers around four points: economic experiments, standards competition, entrepreneurial invention, and the absence of one-sided bargaining. In Greenstein’s eyes, any approach must be sufficiently flexible to address unforeseen future incidents.
Genachowski hopes turning the six principles into regulations will balance the playing field between networks and their users, giving broadband providers the ability to run their networks efficiently without stifling the innovation and entrepreneurship that has been one of the Internet’s hallmarks. The success of the six principles approach “really depends on how it gets implemented,” Greenstein said. “There’s too much that’s still open ended.”