The Internet uproar about network neutrality tends to come in waves. Right now we’re riding the crest of one.
In the two weeks since Federal Communications Commission Chairman Tom Wheeler’s proposal for new net neutrality rules became public, the Internet has erupted in protest. His proposal attempts to fill the legal vacuum created by the Court of Appeals for the D.C. Circuit, which in January struck down the core provisions of the FCC’s Open Internet Rules—the rules against blocking, discrimination and access fees.
The uproar took many policymakers in D.C. by surprise. It shouldn’t have. “Network neutrality” has long been a rallying cry in the United States.
Net Neutrality: Not Just An Abstraction
Unlike Internet users in Europe, many of whom are on restricted Internet service plans that ban the use of specific applications on mobile networks, U.S. users have experienced the power of an open Internet—and they are not willing to give it up.
They want to be able to use the applications, content, and services of their choice, without interference from Internet service providers. But many users learned the hard way that the interests of their ISP don’t necessarily align with their own.
Last fall, many Netflix users around the U.S. started experiencing a significant drop in Netflix quality. When the highly anticipated second season of House of Cards was released in February, users around the country couldn’t finish watching the show because Netflix kept reloading and buffering and reloading and buffering. Thinking there was a problem on the access network, many users upgraded to higher-bandwidth plans, only to find the glitch persisted.
By now, we know that many ISPs are not upgrading the connections or “ports” over which Netflix traffic enters their network because they want Netflix to pay a fee for that traffic. Thus, users who were paying for Internet service plans that provided more than sufficient bandwidth to view online video were unable to use their Internet connections to do what they wanted because their ISP was forcing Netflix to pay up. When Netflix finally caved and agreed to pay Comcast for interconnection, Netflix’s quality quickly improved.
Tough Lessons From Mobile and Music
Just as American users have experienced the power of user choice, U.S. Internet companies have experienced the power of being able to innovate without permission, without fear, and at low cost.
Since the Internet’s inception, Internet access in the U.S. has been guided by one basic principle: Internet service providers that provide the on-ramps to the Internet should not control what happens on the Internet. Originally, this principle was built into the architecture of the Internet. In the mid-1990s, however, technology emerged that allows ISPs to interfere with the applications, content, and services on their networks. In the face of this threat, the FCC has taken numerous actions to preserve this earlier principle by, for example, taking enforcement actions that stopped discriminatory conduct, imposing merger conditions, attaching requirements to stimulus grants for broadband services and to certain parts of the wireless spectrum, and, in 2010, promulgating enforceable rules.
The FCC’s commitment to and enforcement of this basic principle—that ISPs don’t get to pick winners and losers on the Internet—means Internet users in the U.S. haven’t had to worry about whether ISPs might block or discriminate against certain kinds of content or applications. Innovators who have an idea for a new application have not needed permission from Internet service providers in order to innovate and have been able to realize their ideas at low cost. This is a well-oiled free market at work.
But entrepreneurs and investors have experienced a very different world in mobile, and they don’t want to live in that kind of world again.
They remember with horror what the mobile Internet in the U.S. was like before the advent of the app stores—back when only a select few were able to get the carriers’ blessing that allowed them to realize their idea for an application. And they got a taste of things to come in December 2011 when AT&T Wireless, Verizon Wireless, and T-Mobile all prevented Google Wallet—a mobile payment application that was first to market in what was predicted to be a $56.7 billion market by 2015—from getting to its subscribers.
Those carriers’ actions not only deprived 75 percent of mobile users in the U.S. of the ability to use an innovative new payment technology; they also prevented Google from realizing its first-mover advantage. While the carriers were mostly silent about their motivations, analysts were quick to point out that AT&T, Verizon, and T-Mobile had partnered to develop a competing mobile payment service called ISIS, which was not ready to launch. For many, this was a wake-up call. Innovators and investors were already concerned about the lack of strong network neutrality rules for the mobile Internet in the United States. If even Google, one of the nation’s largest corporations, could be blocked by wireless carriers, every mobile innovator and investor in the country was at the mercy of the carriers.
Entrepreneurs and startups know that the threat of blocking and discrimination undermines their ability to get funding. As legendary venture capitalist Fred Wilson—whose firm Union Square Ventures was an early investor in Twitter, Foursquare, Zynga, and other Web 2.0 household names—pointed out:
“Many VCs such as our firm would not invest in the mobile Internet when it was controlled by carriers who set the rules, picked winners, and used predatory tactics to control their networks. Once Apple opened up competition with the iPhone and the app store, many firms changed their approach, including our firm.”
In 2007, while the FCC was investigating Comcast’s blocking of peer-to-peer file-sharing applications like BitTorrent, many entrepreneurs told me that they couldn’t get funding because investors were concerned their application would be singled out for discriminatory bandwidth management. And when the D.C. Circuit Court of Appeals in 2010 struck down the FCC’s Order that had required Comcast to stop interfering with BitTorrent and adopt application-agnostic methods for managing congestion, entrepreneurs heard the same investor concerns again. The bottom line: uncertainty about how new applications and services will be treated on the network does not create a climate conducive to investment.
Some policy makers, including FCC Chairman Wheeler, seem to be attracted to the idea that allowing ISPs to charge services fees for access to users (“access fees”) may allow carriers to develop new and innovative business models. But entrepreneurs and investors say that allowing these fees will irrevocably harm the environment for application innovation on the Internet.
On the Internet as we know it, the costs of developing an application have been incredibly low—so low that a student can start a social network in his dorm room for the $50 monthly fee of running a server and become the CEO of the dominant global social network. In turn, the Internet has become a gigantic petri dish for hundreds of thousands of innovators in the United States.
Allowing access fees would change all that.
If large, established companies can pay ISPs so that their application loads faster or doesn’t count against users’ monthly bandwidth caps, entrepreneurs and start-ups that can’t pay will be unable to compete. This increases the level of investment needed to start a new application, killing the Internet version of the American dream. It also breaks our petri dish model: without the many low-cost innovators, our Internet innovation ecosystem will be significantly less vibrant and will produce fewer, less diverse, and lower-quality applications.