Monday, January 30, 2006
The Internet has won. Why negotiate terms of surrender?
We mustn't settle for negotiating “Net Neutrality”. We must demand the basic right to connect and not just an enumerated list of what we are allowed to do. It's no different from having to negotiate free speech by listing what is allowed. Having to beg for permission to speak is offensive.
What we need is very simple – a recognition that Internet-style connectivity is our right as fundamental infrastructure just like the roads are. We can share them like the roads or power lines.
Today's regulatory rules – the Regulatorium presumes that everything is a service. This made sense 100 years ago.
The situation is coming to a head because the carriers' viability depends on their ability to create services – if we are allowed to create services and communicate without giving them a portion of the value we create they will fail.
We can be sympathetic to their plight but not to the point that we sacrifice our principles merely to give their investors protection from the marketplace.
If we're assured of our right to connect be it municipal connectivity wired or unwired or simply people doing it on their own, then the marketplace will do the rest. We've already seen what we can do within the current constraints.
Protecting the carriers is no different than prohibiting cars because of the threat to the railroads.
The carriers may have once seemed necessary – they are no legacy industries using their past glory to justify their continued existence even as they renege on their promise to serve the public good and they appropriate the public rights of way for their own private gain.
The Regulatorium is like the emperor's new clothes but this time not only are there no clothes – there is no emperor. All that we have is a billing system that exists only to pay for the overhead of billing. That's stupid – and offensive.
If we accomplish this the marketplace will take care of the rest – regulations are vital to remedy a dysfunctional marketplace. These principles will give us an effective marketplace that can operate very well without stifling regulation.
Prisoners of Own Devise
A century ago it seemed necessary to have phone companies just like we had light companies. The only reason we still have phone companies is that the Regulatorium presumes they must exist.
If we change the rules and make connectivity fundamental we find that the carriers are no longer viable because they make their money by selling services. That means they must capture the value of the services. If customers are able to create the services using the basic raw material – bits of data – they the companies lose their revenue base and must fail.
The old model required that each company build its own infrastructure in order to provide services and bill for them. Building infrastructure is expense. With convergence the infrastructures are becoming interchangeable and we have a situation akin to each power company running its own electrical wires to each subscriber one by one. It is not a sustainable model.
No wonder the carriers are seeking protection from the marketplace. They would be no different from any other old industry except they are creatures of legislation, not of the marketplace! Were it not for the protections afforded by the FCC's Regulatorium, they would have long been gone for there is a far better model for a viable marketplace.
The Internet has given us a dramatic example of how we can create abundant capacity by approaching the problem very differently. Today's carriers have very smart purpose-built networks. The problem with an intelligent network is that all of the value is vested in the network. The network itself is packaged as a service and the users simply get to choose among them. It's an example of Hobson's choice – you can choose any horse as long as it is one he chose to make available.
The Internet moves the ability to create to the edge of the network. The Internet doesn't even guarantee that the bits will be delivered. This may seem very risky but it's no different from real life. If we choose to over insure and fear all risk then we will accomplish nothing. If we can manage our risks then we can create new value. And this is what happened with the Internet – by allowing the users outside the network to manage the risks themselves we've reinvented the world! We're still coming to terms with the abundance. Consider the impact of just one application the Internet has enabled – the Web. We don't even say World Wide Web anymore – it's obvious. It's becoming hard to remember when you couldn't casually read the headlines from newspapers all over the world.
The Internet is a dramatic confirmation of the wisdom of the First Amendment to the US Constitution. By giving new ideas opportunity we've created a bountiful economy. The first amendment is constantly under threat because people focus on the risks since the rewards are always in the future and there are no guarantees.
The Internet shows that there is no inherent scarcity of capacity. The ability of the carriers to choose how we can communicate and the rules for communicating might have seemed like a necessary compromise a century ago but we now know that there is abundance. Exceptions to free speech require extraordinary justification.
Not only is there no justification, the premise of scarcity is false. And the cost of preventing us from creating new value is high. And it's also dangerous – in a crisis we are left dependent upon brittle services. Raw connectivity is easy to provide. The Internet is resilient.
Connectivity is not a luxury, it is a necessity.
We can be sympathetic to the plight of companies whose business depends on maintaining scarcity but we can't afford to limit our ability to communicate just to keep them on life support. It is also a gross and tragic violation of the First Amendment.
For those more concerned about property rights than the economic importance of the First Amendment we need to remember that the carriers were granted their access to the rights of way by eminent domain so they could serve the public good. They are treating the rights of way as their private property for their own gain.
If we use the rights of way for connectivity we need not be taking anything from the carriers other than their ability to limit abundance. If we assure that the physical plant is used for pure connectivity the carriers can be afforded the same rights as any citizen or company. They can provide their services over these pipes without having to pay an extra charge.
The carriers are currently paying for the cost of connectivity. If we recognize that connectivity, like the roads, is a public good, then the carriers are being relieved of a burden. If the carriers are getting special advantage by controlling the rights of way then they need to explain why they deserve an exception from antitrust.
The reality is that they have a right to worry about whether their services have sufficient value for them to be competitive in a level playing field. Telephony is like e-mail – it's difficult to charge for e-mail as more than an amenity.
There is no reason to give them special treatment just because they are using names (like ATT) that were once very respected.
At the heart of the debate is value creation. In a traditional service business like classic telecommunications the carriers create value.
Connectivity is a basic resource like air and water but it is abundant and its value comes from enabling others to do valuable tasks but it has no intrinsic value. This is why it doesn't make sense to try to fund the infrastructure by charging for bits.
We can compare it to garbage collection – we don't sell our garbage but we pay to have it removed.
Today's carriers try to fund the network by trying to charge for valuable applications – those that give them a profit. The value becomes captive of the network and society loses the benefit.
The carriers aren't the only beneficiary of telecom charges – telecom taxes fill many coffers. It is important to recognize that there is far more to gain from enabling the creation of new value outside the network.
The Path to Connectivity
Connectivity will not be fully realized by expanding the phone network any more than we built the highway system by adding more tracks to the railroads. It's an apt analogy because today's networks are built with a hub and spoke model. It's as if we had to go to the railroad station and buy a ticket to get to any destination even if we just want to visit our neighbors.
The Internet works very differently from the phone network. We can take advantage of high speed local connectivity even if we can't get the same performance everyplace. With the Internet you discover what works rather than relying on promises. This may be worrisome – what if you can't guarantee that a phone call will get through. In reality the phone network doesn't guarantee it either – it's a brittle network with many failure points. It just seems reliable because we've spent many billions of dollars on excess capacity but in a crisis it still fails us while the Internet continues to work.
In the worst case we can still exchange messages, even if we cannot have a voice conversation. With the traditional networks, it's all or nothing! What is reassuring is that the quality of conversations over the Internet is becoming better than over the phone network especially when talking to people on another continent.
The myth that the current networks are very reliable is surprising. In 1970 we were told that almost all phone calls got through because we accepted the idea that if a phone rang then the phone company had done its job. Today we expect to be able to leave a message because in the 1970's the Supreme Court rules that the phone companies had to let users attach their own devices.
Today we are again having to fight for the ability to create our own value on the networks. What is different is that this time the carriers' existence is at stake and they can't even give us what we need.
If a city simply provides local connectivity – such a municipal fiber or even repurposing the copper plant we can have abundant local connectivity. What's more – anyone can extend the network themselves by adding access points.
The problems with wireless connectivity are very clear when we examine cellular. Despite the claims of the importance of quality you can't really depend on having your cellular phone work everywhere. In the early days you were happy to connect at all and quality wasn't the primary requirement.
Today we've know what we can do with simple local Wi-Fi connections. If we didn't have to confine connectivity to billable pipes we can allow it to “leak out” and give us pervasive connectivity. That's something new and far more important than fatter pipes. Speed is easy, coverage is what we lack.
If you are browsing the web or using the Internet for a conversation you can close your laptop, get on an airplane and then open it up again when you land and continue. Try doing that with a cell phone. Once again, the Internet architecture is far superior to the traditional architecture and it's far less expensive to deploy access points than cell towers. And even better, if you don't have coverage you can add your own access point without having to convince a carrier that extending coverage will add to their revenue!
While I've focused on voice, the same applies to video. Today's Internet is already capable of doing more than the current video distribution system. If you worry, then you can consider a local caching service like Akamai as the equivalent of a head end. Cable companies are already providing individual streams with their Video on Demand services and you have gigabit speeds available if you switch from a broadcast to an Internet model.
The same idea of the Internet as basic infrastructure applies world wide. The economic benefits of a connected world are now being held hostage to carriers who laid down fiber on the assumption they can price it like they've been used to. This has the effect of taxing new economies. If you setup a web server you find yourself having to pay a high price just to let customers visit. This is a price but the actually cost is very low – the problem is that the carriers need to maintain scarcity to assure a high price and many countries are dependent upon the short term revenues from telecom.
As with the local economy our goal must to be encouraging the creation of value rather than preserving prerogatives. That's real democracy.
JDI – Just Do It
We cannot afford to be hostage to our fears and misunderstandings. The Regulatorium seemed like the right thing during the worrisome days of the depression. It's time to move on.
The Internet demonstrates that we do have abundant connectivity. Imagine what would be possible if it were liberated. We have an abundant resource and are treating it as nothing more than by product of an old industry. It's as if we discarding oil because it was in the way as we mined shale.
But unlike oil connectivity is abundant and is the new source of value creation. Holding it hostage is foolish and tragic.