almost 9 years on 2009-01-01

SOME OFF HAND THOUGHTS ON 'NET NEUTRALITY'


recently i had occasion to think about the 'net neutrality' issue a bit.  below are some loose thoughts i got to -- seems like the type of thing to throw on the blog

the set of discussions that has been politicized under the heading of 'net neutrality' represent in my mind one of the most complex and deeply important issues of our the next century.  these discussions are at the heart of the relative balance of power within the information economy largely because they have a massive impact on the relative cost of capital for different players in the stack, with enormous long-term implications.

it is a rare issue where the fundamental premises of freedom of capital and freedom of information may collide.  this seems to be one of those issues.

ultimately, to contribute to the discussion i would offer three thoughts:

first, let's be clear about definitions - what does 'net neutrality' mean?  people like to abstract the internet as an open and free vehicle where all players/services are equal and users have equal access.  this simply is not the current state of play in any real sense.  the internet is not flat, and services are not currently equal.  when we talk about openness and neutrality, we come up against serious issues around speed and availability.  do we think that all services should be equally fast?  what is a minimum level of speed that counts as accessible? 

larger more sophisticated players with lower cost of capital already engage in all sorts of activities like 'edge caching' and buying cdn services at scale to gain speed and cost advantages over competitors.  is that a problem?  it certainly gives larger companies a service level advantage, but so does having cheap capital to spend on more complete user testing and more efficient javascript -- if you want to argue at that level, then there are several layers and issues which quickly get exceedingly complicated... and this isn't even about net neutrality anymore

second, what are our goals/interests regarding this issue as a society.  we live in a time where change is accelerating almost exponentially.  i believe that the goal of good regulation should be to correct market inefficiencies to break out of stagnated outcomes and foster greater innovation and growth. 

elements in the 'net neutrality' debate have characteristics which are feel like they tend towards the classic tragedy of the commons...  i love my iphone, but i recently had to get a verizon blackberry because att's bandwidth "commons" in parts of new york city are feeling very bare.  we are very lucky that we have several competitive providers of cell service, is that the same for the home & high speed wired connections?

ultimately, i believe that this is all about cost of capital, and where in the stack of information services we want to see innovation. 


over the last  fifteen years small start ups have flourished, especially in the internet application space.  it is undeniable that companies like drop.io have benefited from a largely level playing filed in a world of relatively ample bandwidth (largely created as a result of massive over exuberance during the last internet boom and subsequently financed indirectly - one might argue - by the public through bankruptcies and reorganizations).  internet startups with very low cash requirements have been able to leverage up quickly, and the entrepreneurs and engineers behind them have in some extreme cases benefited wildly from relatively cheap capital... the result has been a ton of application innovation, and not as much bandwidth build out/innovation.

if we move away from open principles, the cost of starting new web-applications will rise.  startups will have to buy access to customers at a higher price (either by paying isps, or engaging in marketing activities to get end users to demand/pay isps for our services).  but, at the same time, while the cost of capital for startups will go up (shifting leverage and cheap money away from entrepreneurs and engineers) the cost of capital for isps will decline and you may see more critical bandwidth build out (further, as public companies, one could argue that if the net innovation was constant this setup would allow more individuals to benefit from the growth in the public market). 

while these trade-off might be obvious, the implications of a changed structure around the internet could get even more mind bending.  some of the largest internet players with exceedingly low cost of capital may benefit from a move away from net-neutral principles (despite the fact they currently stand in favor of open principles)...  as might venture capitalists - whose capital may command higher relative ownership vs. entrepreneurs, even among a smaller set of startups.

so, should the federal government be looking at this and in a position to potentially act probably.  should they act, i don't know - i am not a politician and would have to spend more time researching the issue and considering how to maximize the long-term common good (and even if that type of maximization plays within the purview of the federal government). i do, however, strongly believe that to take the federal government completely out of the discussion that will fundamentally shape the economy and growth of the united states over the next century would be a grave misstep.


original swl blogposts and letters 2007-2010