You know the old saying that if you’re a hammer, you see every problem as a nail. Well, that’s the same with government. Government’s job, as it sees it, is to regulate. If Congress’ job is to pass laws, then we get more laws. In many cases, we could probably do without these laws. They only make our lives more complex and expensive.
Enter the Federal Communications Commission. The FCC’s role is to regulate radio and telecommunications, and it has done so. Now it wants to regulate the Internet. One way it wants to do so is with so-called net neutrality, which is the term the FCC uses to describe how it wants all U.S. citizens to have full Internet access. That’s a good thing. Here’s the bad part.
Net neutrality requires Internet service providers to be able to handle any content at any time without controlling access in any way. Heavy users of the Internet like surfers who watch videos and play multimedia games in excess—and they make up a smaller percentage of overall subscribers, at least for now—get to have all the bandwidth they want whenever and not have to pay extra for it. Other users will suffer the consequences of slower service or even service denial with no management.
Net neutrality does not allow ISPs to manage their networks by denying services to data hogs or to charge proportional fees to those who use the network excessively. George Gilder, in a recent article in the Wall Street Journal, called net neutrality cap and trade for the Internet. The big question is if net neutrality rules greatly impact the ISPs’ income and profit by such regulation. Gilder says that yes, it has to.
WHAT’S IN IT FOR WHOM?
Let’s look at the bright side. Net neutrality and the FCC’s grand broadband plan does have some great upsides. For openers, it wants to bring high-speed Internet access to all or at least most U.S. citizens. The FCC wants a 100-Mbit/s connection to 100 million homes by 2020. Who doesn’t want that?
Most residents have some form of Internet access, as most traditional telcos like AT&T supply DSL. Verizon offers its FiOS fiber network. Cable TV companies supply the bulk of Internet service in the U.S. Overall, almost 80% of U.S. homes (about 121 million) have access to high-speed broadband connections if they want and can afford it.
That’s a plus as Internet access has become a necessity in most people’s lives. Yet 7 million homes don’t have Internet access except perhaps by painfully slow dial-up modems. Internet access is now like basic phone service, electricity, and gas utilities.
Why doesn’t everybody have Internet service now? A big part of it is simply that many people don’t want it or need it. Surprisingly, people can function successfully in society without Internet access today. On the other hand, many consumers may want it but cannot afford it.
Also, it simply isn’t available in some parts of the country. Small towns and rural and wilderness areas don’t have it because the cost to build out the infrastructure is too great for the small number of people it will serve. In other words, there is no money in it for the ISPs. Do the math. It will cost a fortune to bring broadband access to these remote areas with few subscribers to pay the tab.
But are these consumers to be denied such service? No, because the FCC wants to make it available everywhere. That’s a good thing. Think of this broadband effort as the rural electrification project of the 21st century. The rural electrification program brought electricity to farms and other remote areas in the early 20th century. It was costly but a good thing.
By the way, the FCC only wants to regulate the access to the Internet, not the content. That really is good news as it will spur innovation and creativity in content and services, especially if the fat pipes are in place to handle it. That will mean more video, games, and other bandwidth-intensive applications.
WHO GETS CLOBBERED?
To meet the growing demand for more video, gaming, and other high-bandwidth applications, the wired and wireless ISPs are going to have to invest heavily in new infrastructure to handle the speeds. One estimate floating about is that an investment of about $350 billion may be needed, and that estimate may be low. The telecom industry may be rich, but that is still an outside amount that may not exist or come into play for years.
If the companies are allowed to charge for heavy usage in tiered pricing plans, the ISPs will go along with it. This is especially true of wireless providers that have a tougher time providing 100 Mbits/s over a wireless link. We are getting closer to that with Long-Term Evolution (LTE) and WiMAX. But even so, it’s complex, difficult, and expensive. LTE can get up to about 50 Mbits/s right now under favorable conditions and, of course, with the needed bandwidth.
It may be easy to get 100 Mbits/s by fiber, but that’s a stretch with wireless and to simultaneously provide the quality of service subscribers demand today. The FCC has promised up to 500 MHz of extra bandwidth over the next decade, which will make that speed achievable. Now all the ISPs need is the billions of dollars required to buy that spectrum at auction.
Like other venture capitalsts, Gillis Cashman of M/C Venture Partners sees investment opportunities in the FCC’s broadband goals. But he also sees some serious potential roadblocks, especially on the infrastructure side. He says that there needs to be an economic model that enables what the FCC wants. It does not exist right now. Such a business case would seem to embody a tiered pricing structure, especially in wireless. I agree. The FCC needs to factor in the business model in realizing its broadband plan.
Some final things. First, government regulation is supposed to fix existing problems or level the playing field for competition. There is little evidence that there is anything to fix, and the current level of competition has brought us an Internet that is the best in the world. The private sector can provide the extra growth desired.
This idea was supported recently by the U.S. Court of Appeals decision that said the FCC exceeded its authority in attempting to sanction cable company Comcast, which, in 2008, deliberately prevented some subscribers from using peer-to-peer file sharing service BitTorrent to download large files and limiting access to others. The ruling says that the FCC does not have the legal power to dictate that kind of control.
The FCC is upset with the decision as it fears it will have a negative effect on its broadband plans. The FCC could go to Congress and get the authority or reclassify cable companies and other broadband suppliers as telecom companies, which it is authorized to regulate. Or, it could leave well enough alone. Some future “push-back” action is expected.
Second, the FCC cannot raise money by taxing. That’s Congress’ job. But that could happen with enough influence from the FCC and full support from the presidential administration. And remember, it’s your money they’re playing with.
The FCC should tread lightly. With a balanced mix of rules, regulations, and guidelines, its goals can be met without killing off or otherwise crippling the lucrative industries that not only bring broadband to the nation but also many jobs and continued national technological supremacy.