Monday, October 12, 2009

Google: Phone Giant or Internet Giant?

Those, like Google, who support net neutrality mandates are fond of referring to some of the broadband providers as "phone giants" or "cable giants." As if Google, with a market capitalization that is essentially the same as AT&T's, twice as large as Verizon's, and three times as large as Comcast's, is anything but an "Internet giant."

But now with the FCC having launched an investigation of Google Voice, we may find out whether Google is a "phone giant" as well as an "Internet giant." If I were Google's senior management, I'd be worried about where all Google's pro-regulatory advocacy is leading and whether, in the end (well, there often is no real "end" when the regulatory process gets started), Google might not have been better off negotiating in the marketplace rather than in the halls of the FCC.

Let's be perfectly candid. What Google principally has been trying to protect the last five years through its net neutering regulatory advocacy is its position, as a true Internet giant, of not paying any more than it currently pays for the use of ISPs' broadband capacity. Indeed, as I pointed out in a post last week, Google concedes, at least implicitly, that once the FCC fixes what it labels the "badly flawed" access charge/intercarrier compensation system it might well be called upon to pay more for its heavy broadband network usage.

Of course, Google has never made fixing the compensation system a top Washington priority because it benefits from the broken system. Instead it has devoted its regulatory resources to maintaining or re-imposing, as the case may be, legacy regulation in the form of "net neutrality."
The strategy Google has pursued calls to mind Sir Walter Scott's line: "Oh! What a tangled web we weave...."

It may be that Google can successfully manage the regulatory process. But the web is certainly getting tangled in a way that ought to cause concern to those, like me, who would prefer to maintain an unregulated Internet ecosystem – one in which even Internet giants like Google remain unregulated. (Note I am not saying that Google or the broadband ISPs should not be subject to the antitrust laws, consumer protection laws, disclosure requirements, or even certain FCC interconnection requirements and the like. I am referring to regulation – aside from whatever poll-tested label is applied – that, like net neutrality, resembles traditional common carrier regulation.)

The entanglement – and confusion – is illustrated by this statement, as reported in the October 13th edition of Communications Daily, from Public Knowledge:

“The FCC’s Wireline Competition Bureau today asked some very legitimate questions about the nature of Google Voice,” Public Knowledge said. “We should be clear that the Commission’s inquiry has nothing to do with issues of an open, non-discriminatory Internet, as AT&T alleged when it brought the issue of Google Voice to the Commission’s attention last month. Neither does it have anything to do with denying service to rural customers, as others have said. It has to do with the clash between traditional telephone services and new technological realities.”

If Google is not a phone giant, but rather an Internet giant, of course the Commission's inquiry has to do with "an open, non-discriminatory Internet" because Google concedes that its voice offering is by invitation only and that it is not open to customers in certain rural areas.

And of course the inquiry has to do, as Google concedes, with denying service to rural customers.

So, these first two assertions by Public Knowledge only serve to obfuscate matters. But the inquiry also has to do, as Public Knowledge says, with the clash between traditional telephone services and new technological realities. Or, as the FCC's inquiry letter puts it: "How does Google believe its various Google Voice services fit within the statutory classifications in the Communications Act of 1934, as amended (the Act) and the Commission’s regulatory classifications (e.g., interconnected VoIP)?"

Or put another way: Under the existing regulatory paradigm – the one Google has been fighting so hard to preserve – is Google a phone giant rather than an Internet giant? If it is a phone giant, will it be regulated the same way AT&T is regulated, or differently? Exactly how differently? And under what rationale?

Here are some fundamental truths:

While Google, Public Knowledge, Free Press, and their allies have been intent on imposing on digital broadband Internet providers the Computer II separation regime developed in 1980 in the analog world, that regime simply doesn't make public policy sense anymore. In today's digital environment, the line between "information services" and "telecommunications" services is necessarily indistinct. And the costs imposed by regulators trying to keep separate the two will outweigh the benefits to consumers. Indeed, even apart from the costs imposed by the constant litigation and regulatory uncertainty created by separation requirements, consumers will be harmed by the loss of the efficiencies that might be gained by integration and by the innovation deterred.

For years I have written about the inevitable blurring of the distinction between information and telecommunications services, and why a regulatory regime based on metaphysical techno-functional constructs no longer makes sense. Here's an early 2004 piece, "The Metaphysics of VoIP," on the point, and here's a law review article. If you wish, you can google many other pieces using the Internet giant's dominant search engine. What is needed is a regime that gets away from reliance for regulatory purposes on techno-functional constructs (see the FCC's inquiry letter) and looks at competition in the marketplace. To some extent, to its credit, the FCC's letter does seek information concerning competitive realities in addition to information about the particular techno-functional constructs of Google's service.

It is true that it would take a rewriting of the Communications Act to move away completely from a regulatory paradigm tied to techno-functional constructs to one that is tied much more closely to competitive marketplace realities. Nevertheless, there is much the FCC, under its existing authority, including its forbearance authority, can and should do to move in that direction. (How about that for an FCC workshop idea?)

The FCC should abandon the notion of imposing net neutrality regulations because, in essence, the definitional problems the agency will confront in trying to distinguish between the "edge" services it wants to protect as unregulated and the "core" services it wants to regulate with a non-discrimination rule are akin to the ones it will now face in trying to figure out how to classify Google Voice. And the agency will face the same definitional difficulties trying to distinguish "reasonable network management" practices from "unreasonable" ones.

In his most recent post on the subject, Google's Rick Whitt again says: "This [dispute about Google voice] is about outdated carrier compensation rules that are fundamentally broken and in need of repair by the FCC." It is about compensation rules. But it is about more than that, of course, because the compensation rules about which Google complains are tied directly to the regulatory distinction between information and telecommunications services that Google steadfastly defends – and to the same distinctions upon which net neutrality regulations ultimately depend.

I am quite certain that Google understands all of this, and, for now, I prefer to remain optimistic that the FCC Chairman and his fellow commissioners will come to understand it as well, if they don't already. When Chairman Genachowski said in his Brookings speech that his proposed net neutrality regulation "is not about government regulation of the Internet," I do not question his good faith. But the imbroglio over Google Voice already has demonstrated that net neutrality-type disputes (is Google discriminating?) inevitably are about Internet regulation, unless you really do consider Google a phone company and not an Internet company.

My hope – I am an optimist – is that before the FCC is forced to go too far down the road of deciding whether Google is a phone giant or an Internet giant, Google concedes that the regulatory distinctions upon which it has relied and upon which it continues to rely are not viable, and that they are not the basis, going-forward, for creating sound public policy for the entire Internet ecosystem. My hope is that Google will decide to shift its Washington-based efforts away from maintaining in place these outdated regulations – and, indeed, away from enacting still new Internet regulations in the form of net neutrality mandates – and towards joining the fight to fix the broken carrier compensation system it regularly decries.

PS-- Take note that I have used "Internet giant" and "phone giant" with my tongue largely in cheek as a reaction against the reflexive and tiresome use of the "giant" label by the net neutrality advocates. I am by no means opposed to large size per se. Indeed, I appreciate that Google's size -- as well as the size of the leading broadband ISPs -- have enabled these companies to invest in building out more broadband capacity and in making the Internet better.