Tuesday, December 16, 2008

Net Neutrality and Googlopoly

Some broadband bits and pieces.

First, I was struck by Rick Whitt's blog post trying to explain what Google means by net neutrality in light of yesterday's Wall Street Journal article suggesting that Google's putative deals with Internet broadband providers concerning creation of a Google priority fast lane may be inconsistent with the company's relentless advocacy of net neutrality mandates. In his post, Whitt says: "[B]roadband providers should have the flexibility to employ network upgrades, such as edge caching. However, they shouldn't be able to leverage their unilateral control over consumers' broadband connections to hamper user choice, competition, and innovation." A bit further along, Whitt calls ups the same macro, the one labeled "unilateral control," and repeats the mantra: "[I]f broadband providers were to leverage their unilateral control over consumers' connections and offer colocation or caching services in an anti-competitive fashion, that would threaten the open Internet and the innovation it enables."

One thing Google's Rick Whitt knows for sure is that there increasingly are few places in the country where providers exercise "unilateral control" over a consumer's broadband connection. We could have a good debate about whether broadband providers exercise such "unilateral control" over consumers if he likes. In most places, consumers can switch if they are dissatisfied with an ISPs' practices. In many areas, there is fierce competition for broadband customers between companies that we use to call "cable" and "telephone" companies. And they are not the only competitors.

Perhaps you didn't take note of the most recent winner of the Alliance for Public Technology's "Broadband Changed My Life" contest. The winner's name is Nancy Reid, and she lives in Southampton County, Virginia, which she describes as a rural farming community. In her winning essay, Ms. Reid recites some of the difficulties she faces in rural Virginia. Then she explains:

"I was so close to achieving my academic goals but had a huge and very frustrating problem, now I would have to drive if I wanted to continue. That is when a close friend told us about his satellite broadband access. I was skeptical but after some creative financing had it installed. To say it has made an impact on my life is so true in many ways. I am now able to download and send pictures to my mom in California in seconds, online banking is a breeze, and school, well, my first 2 reports were given A's! How is that for a morale boost!!" (The extra exclamation point is Ms. Reid's, and I say good for her and for APT for telling her story.)

Satellite broadband access. In the discussions about broadband competition, especially in rural areas, rarely is satellite broadband access mentioned. It should be. It's available almost everywhere across the country. I understand that it is not as fast as cable or telephone-provided access, but not everyone needs or wants the same service. And for marketplace and technological reasons, all network infrastructures won't (and shouldn't) develop at the same pace if consumer demand is to be met efficiently. It will be a big mistake if, in trying to figure out ways to spur the further development of broadband, policymakers now abandon primary reliance on private sector competition in favor of command-and-control planning based on government guesses as to what services consumers want and how much they are willing to pay.

Rick Whitt concludes his post by stating that Google remains "strongly committed to net neutrality." What I think he really means is that Google will remain committed to neutrality in accordance with its own understanding of the concept as its business needs and strategic planning evolve. And as I have pointed out many, many times, therein lies a big problem. As the WSJ story, and Whitt's response trying to explain away the story, illustrate, the concept of "net neutrality" is likely always to be so murky and ill-defined that – in light of the extent to which marketplace competition already exists – the costs of enforcing neutrality mandates will outweigh the benefits. With the regulatory uncertainty created, along with possible enforcement sanctions, net neutrality mandates will result in diminished investment and innovation and increased consumer welfare losses.

A final note: One of the FCC's net neutrality principles states: "[C]onsumers are entitled to competition among network providers, application and service providers, and content providers." If this indeed is an enforceable mandate, it is not difficult to imagine that Google itself might one day find itself embroiled in an FCC net neutrality enforcement proceeding defending its dominant market position. After all, Google presently has approximately 65% of the search query market and captures about 75% of the advertising revenues of Internet search companies, and these market shares appear to be growing. It is not fanciful to imagine that some neutrality advocate will file a complaint at the Commission alleging that Google's dominant market position constitutes a googlopoly that deprives consumers of their entitlement to competition among content providers. I assume that, at the least, such a complainant will ask the agency to delve deeply enough into Google's search engine algorithms and search practices to ensure that they operate in a completely neutral and nondiscriminatory manner.

In the event this scenario occurs, I predict that Google's views on net neutrality will evolve -- quickly. Indeed, I predict that, even if such an FCC complaint never materializes (and I hope it doesn't), Google's net neutrality views will evolve as the company recognizes that implementation of rigid notions of neutrality, subject to unpredictable bureaucratic decisionmaking, will hinder the continued evolution of the Internet upon which its business model is entirely dependent.