Posted by: hdemott | May 10, 2010

Why The Latest Net Neutrality Move By The FCC Is A Disaster

Last week the FCC – unhappy with it’s loss on appeal of the “Brand-X” case (the case against Comcast for regulating its traffic in regard to streaming) – decided to go with a “3rd way” of regulation – a sort of compromise between Title II (calling the ISP’s phone carriers and subjecting them to the same rules as phone companies) and keeping them deregulated.

As usual with these sorts of discussions – the devil is completely in the details.

As you can imagine – the blogosphere lit up with universal praise for the new regulations (see Fred Wilson here, Slashdot here, Huffington Post here, Techcrunch here,  and Gigaom here – just to name a few) – or if not praise – then some damnation in that the rules do not go far enough.

Predictably, companies that rely on internet service for near ubiquitous and close to free distribution are all for these rules – and the companies who provide the pipes are no all that happy.

From the law of unintended consequences comes my view on the matter – which is that these new regulations are a disaster for the consumer.

Bear with me – this will take a minute.

Since we all used our second phone line to connect to AOL up to the point where Verizon ran a fiber optic cable to your house – there has been a reasonably rapid increase in speed in terms of internet access. With more speed have come more applications – and with a profitable business has come more competition. Yes the ISP’s are generally an oligopoly, and I can really only get service at my house in CT from wither Cablevision with their Optimum Online brand of cable modem or AT&T with their U-Verse brand of DSL. That said, I get pretty good service for a base price (less bundled of course) and if I choose to fork over an additional $10 per month I can get an additional 10Mbs downstream – and for $99 I can get 100Mbs downstream – all from Cablevision.

All of this is possible because of the architecture of the cable plant – which has a coax wire running into my house divided into 6 MHz blocks. Use 1 block (or QAM in cable tech speak) and you get 10MPs speed – bond 4 QAM’s together and you get 100 Mps speeds – otherwise known as Docsis 3.0.

No back to the discussion.

The FCC has said that they want to protect the comsumer and make sure that all internet services are able to get on the internet – and that all people who have internet access can view and interact with all of these sites. That’s net neutrality at its core – open access for everybody – service provider and consumer alike. Google’s bytes are no different than the local florist. I don’t think anyone is really arguing against this principle.

What the service providers are arguing against however, is their ability to monitor their networks  – which are a shared resource by the fact of their architecture. I really don’t believe that Comcast cares whether someone is using The Pirate Bay or not – unless that consumers use of that peer to peer service dramatically negatively affects others on that node – and then it becomes an issue – because no one wants to lose a $50 per month customer at 95% margins. Cable companies and telecom companies are profit maximizers – pure and simple. They do not care whether you are watching Sponge Bob or porn – as long as you pay.

Now here’s the interesting part.

I agree wholeheartedly with Craig Moffett of Sanford Bernstein – one of the best cable analysts out there – when he says that the FCC’s decision is not at all about net neutrality (the cable companies and the FCC agree almost 90% plus on the issue) but about simpoly grabbing control over the industry – and making sure they can control pricing.

Now this may be conspiracy theory time – but given that this current administration has grabbed control of as much of the economy as it can in the belief that it simply knows better – it would not surprise me to see them grabbing at the internet. Yes, as Fred Wilsons comments state – they do not want draconian controls, just a light touch – and they are forbearing on some of the more arduous controls they could put in – but the truth is that if they go down this path – they are essentially classifying the IPS’s as telecom services – and subject to a host of archaic rules – and they will have the power to dictate pricing and to adjudicate disputes.

So what is the logical outcome of such regulation

Very simple. The cable guys have been moving from an analog plant to a digital plant – intending to someday go IP on just about their whole architecture. This would allow them to dynamically provision bandwidth – and provide almost unlimited bandwidth on demand throughout their system. The move from 10Mps to Docsis 3.0 at 100Mps is a direct result of this – and no one that I know of in the tech world squawked twhen the cable company reallocated analog cable channels to the digital tier to provide them with more bandwidth.

With the FCC taking more and more control over their business – at least as far as an IP based system is concerned – do you really think the cable guys are going to keep moving toward an IP world?

I doubt it.

What I think will happen here is years of stagnation – no higher speeds – no new applications to make use of those higher speeds. Google wants to wire a city. That’s great – they’ll be regulated as well. I wonder when we will see that project canceled?

All in all, while most people read that the government is going to assure net neutrality they cheer and think it is fantastic – and on the face of it, that makes sense.

But scratch the surface and what you see is the death of the speed wars – the death of innovation in architecture – and a freezing of the net where we are today.

All in all – a disaster.

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