February 18, 2007

Microsoft and Google vs. Big Business

By: AFF Editors

Telecommunications policy is often tricky to understand, but this much is simple: any time someone tells you that one side of a policy debate favors “big business” and the other side favors “consumers,” you are probably being lied to.

The issue of net neutrality is a great example. Ted Kennedy and Arianna Huffington tell us that we need federal “net neutrality” regulations to protect consumers from the evil ISPs. In an interesting twist, however, it turns out that some very big businesses stand to profit from these very “pro-consumer” regulations.

First, let me explain the issue at hand.

In August 2005 the Federal Communications Commission declared that high-speed Internet access was an “information service,” not a “telecommunications service.” As a result, “common carrier” regulations — basically, strict pricing and service rules that treat a business as if it were a government service — would not longer apply to high-speed internet. This gave telephone and cable companies more power over their provision of Internet service than they had over telephone service. This raised the possibility, alarming to some, that the business of the Internet was about to change.

Pleased with the current arrangement, the biggest content providers called on the government to freeze the status quo. Amazon.com, eBay, Microsoft, and Google headed a campaign to “save the Internet” through legislation to preserve “network neutrality” — a guiding principle of the net, not enshrined in any regulation or law, that Internet service providers (ISPs) treat every packet of information equally (regardless of the source or nature of that packet) and deliver it to the web surfer on a first-come, first-served basis. ISPs, under the principle of net neutrality, would not discriminate between information provided by Google and that provided by Yahoo (or between information provided by the Christian Coalition and that provided by Hustler).

Ideally, Net neutrality legislation would prevent the owners of the networks, such as AT&T and Comcast, from denying service to customers or charging whatever they wished to whomever (provider or consumer) they wished. Net neutrality would, in effect, treat Internet service providers (ISPs) as common carriers.

Senate records show Google and eBay have amped up their spending on lobbying, dispatching representatives to Capitol Hill to support net neutrality. Those companies, together with Microsoft and Amazon, lead a coalition of pro-net neutrality businesses and nonprofit organizations based at the website ItsOurNet.org.

Forcing ISPs to live under common carrier regulations could make it very costly and cumbersome for them to adapt to advances in Internet technology, but it could save money for the content providers. Amazon has begun offering movie downloads online. Google, with its purchase of YouTube has signaled it wants to be the online video leader, soon offering something a bit more hi-definition than YouTube currently does. Perhaps led by the rapid expansion of video (which uses much more bandwidth), the Internet is growing and will soon need an infrastructure overhaul.

Let me explain the nature of that overhaul in an analogy.

Imagine a town in which a few private companies own all the roads and charge tolls for using them. A local bus company wants to launch a high-speed bus line that is not subject to any traffic delays (this would be like streaming video). If customers demanded this delay-free bus service, the road builders would have two options. First, they could build dedicated bus lanes, fully funded by the bus company and indirectly funded by the passengers (dedicated bandwidth that only carries such premium content). Or instead of building bus-only lanes, the road builders could just build enough new all-purpose lanes that the buses would never experience delays (simply tons more bandwidth). In the latter scenario, the buses would get their zero delays, but everybody else would be footing the bill for the new pavement — even the people who didn’t mind the minor delays.

Back to the net:

If Amazon wanted to stream high-definition television over the Internet (a use for which any delays would be intolerable), the ISPs could either build dedicated lanes for HDTV or greatly expand overall bandwidth, thus passing some of the cost onto folks who just use email and don’t mind a delay of five seconds every minute. The dedicated lane option is more efficient: The people who run and use the bus pay for the infrastructure that makes it possible. That is, the people who sell and buy the online HDTV would pay for it in a tiered Internet with different transmission lines. Net neutrality would prohibit this user-pay approach and thus guarantee that the big content providers wouldn’t have to foot the bill for the big new content they want to offer.

Regulation preserving the current business models — in which Google or Amazon only need to get the content and the customers, and the bandwidth will take care of itself — will make technological advances more expensive, but it will also preserve the profits for the incumbent giants. That is, big government will profit big business.

But telecommunications is never a field where the “free-market” approach is easy to discern. Given that the government helped the cable and telephone companies build the networks on which the Internet depends, perhaps even a libertarian can support some regulation. The businesses today battling net neutrality regulation have achieved their positions through government-enforced monopolies, after all. But this much is clear: On one side, you have some big businesses (the cable and telecom companies) lobbying for free markets, while on the other side you have other big businesses (the content providers) lobbying for regulations that would preserve current business models.

In other words, there are no good guys.

Tim Carney is the author of The Big Ripoff: How Big Business and Big Government Steal Your Money. He is the Warren T. Brookes Journalism Fellow at the Competitive Enterprise Institute.

Shares 0