Why Net Neutrality Is Important for Startups, Innovation

63 Comments

The crossfire from friends and colleagues debating net neutrality has caught my attention in recent weeks and got me thinking about how it affects my industry, venture capital. We make our money by investing in startups, of course, which would not, by definition, exist without capitalism. Many of the technology startups we invest in similarly wouldn’t exist without the Internet, as they use it as a platform on which to provide their services.

The capitalistic system on and off the Internet encourages economic growth by the use of free and open markets to distribute goods.  While some could argue that a free and open Internet means less regulation and oversight, my experience leads me to believe that an Internet that encourages innovation and startups is one that supports net neutrality — and unless such neutrality is enforced, capitalism on the Internet is in serious jeopardy.

The essence of the net neutrality debate is about the control and management of the publicly subsidized last-mile connection between the consumer and the service provider. Service providers argue against net neutrality because they want the ability to apply policy to the traffic flowing across the last mile, which they claim is the only way operating costs can be controlled, fees can be kept reasonable and service levels can be maintained throughout the network.

From a startup and innovators perspective, service providers need to exist and be profitable. They provide the last mile and global connectivity required by technology startups to operate at any level. They also buy products and services from those startups, and often deploy them at a scale unheard of in other end markets. Customers like that make startups attractive acquisition targets — often resulting in a nice return for a VC fund (see Reliance’s acquisition of Yipes or BT’s acquisition of Ribbit).

Those in favor of net neutrality argue that service providers need to be decoupled from the last-mile infrastructure. The problem is that if service providers are allowed to apply policy to the last mile connecting to the consumer, that policy may be constructed to favor the service provider’s and their partners’ services over a competitive offer from another company, such as a startup.

Imagine, for example, if your service provider had a business relationship with a specific set of e-commerce sites and applied policy that allowed their web sites to load faster and their transactions be completed quicker than yours. Or if your provider applied policy that affected the quality of video streams or voice calls from a competitive service provider or startup. In fact, in some global markets, this is exactly what happens, especially where the service provider is a government-owned or controlled entity.  Just ask anyone trying to use voice-over-IP or watch uncensored streaming video in countries like Singapore or China.

More importantly to a VC, imagine funding a startup whose offering depended on the use of a service provider’s last mile. Without net neutrality, there would be no guarantee of a free and open market and by extension no guarantee of the delivery of goods and services. Such an environment would hinder, not foster, innovation and economic growth — core principles of capitalism and venture capital investing.  Startups need the ability to buy services from providers on a fair and level playing field — even if their services may compete with those of the provider itself.

Service providers need to accept the fact that net neutrality is the only way that capitalism on the Internet will survive. Without it, venture capital would no longer be able to fund innovative technology startups — the very same startups that will inevitably make service providers’ offering attractive to consumers, as Google, Facebook, Twitter and countless others have done.

This article also appeared on BusinessWeek.com.

63 Comments

Robert J Berger

Brett you’ve been Wyoming too long. I am 2 miles from neighborhoods that have DSL for $29/month and cable modems for less than $50/month.

I have run an ISP myself, I know what bandwidth costs. There is a difference between mom & pop ISPs like yours and Telco/Cableco Oligopolies that got their rights of way and plant payed for by ratepayers.

And there should be a difference between how those two classes of entities should be treated as well as their responsibilities to deliver services to entire populations. Your mom & pop shop in the middle of nowhere should not be required to deliver services at any mandated rate. But oligopolies that were subsidized by ratepayers and regulated monopoly plant builds should be.

Richard Bennett

Frankly, Robert, you sound like one of those people who buy a house next to the airport (for a discount) and then complain about the noise. If you live in a rural area, your housing costs are lower than those of people who live inside the DSL coverage area. Since networking is so important to you, it’s odd that you made this choice. But now you want the subscribers who are paying higher housing costs to subsidize your Internet access; are you willing to help them with their rent?

I didn’t think so.

And yes, I know you’re going to say “I shouldn’t have to make that choice, I’m ENTITLED to cheap Internet access even though I live in the back of beyond!” Fine, go open an account with the WISP, invest in a good, high-gain antenna and you’ll be fine.

Robert J Berger

My house is 2 miles from “downtown” Saratoga, 6 miles from Apple Headquarters, 16 Miles from Google Headquarters and 21 miles from Cisco Headquarters. I would not call that rural. What’s happening to other US citizens who are not urban?

And yes, as a US Citizen I do expect to have affordable access to broadband Internet. Just as I expect roads, sewer, water, and postal service.

Richard Bennett

95% of Americans can get cable modem access to the Internet, Robert, so if you can’t you’re in a hard-to-reach area by definition.

For those outside of the Bay Area, Saratoga is on the furthest fringe of Silicon Valley, much of it rugged terrain in the foothills of the Santa Cruz mountains. In fact, much of the Saratoga population relies on septic tanks because they can’t buy muni sewer hook-ups.

Brett Glass

Robert, I just love your sense of entitlement. I guess that, by analogy, I’m entitled to a Porsche.

Bandwidth isn’t free, and infrastructure isn’t free. You want it? Buy it our build it. Don’t featherbed or throw an infantile tantrum.

Robert J Berger

You guys sure like your straw-men. I didn’t say I expected my Internet for free just like I don’t expect my Water, Garbage Collection, Electricity or roads for free.

I expect common goods that are necessary for modern citizenry to be managed so there is not unnecessary scarcity. Brett’s tiny ISP has nothing to do with this. Its an issue of oligopolies that are improperly managing a common good.

Oh and I did have a nice high gain antenna connected to a wireless ISP a year ago that was going to be the basis for feeding my neighbors but there are these damn trees and hills around most of my neighbors so it could not be extended economically and my friend went out of business.

But there are already utility poles and copper pairs that get to every one of them. But AT&T will not put the proper electronics in the field to drive them. Competitors are not allowed to do it in place of AT&T because unbundling does not apply to VRADs.

Im sure that if I actually organized a local coop to build out the neighborhood, AT&T and/or Comcast would suddenly come in and under price it just like it has in other regions.

Richard Bennett

Brett, not only should you be given a Porsche, but your gasoline bill should not exceed that of a little old lady with a Prius who only uses it to drive to church. That’s auto neutrality.

Richard Bennett

The thing about copper, Robert, is that size matters. The analog phone will work on loop lengths up to 20,000 feet, but DSL gets real unhappy after 8,000. So the phone company would have to incur the expense of adding some regenerating repeaters and changing out the loading coils to get to you. They’re probably holding out for the eventual fiber extension, but you’re not gonna get that for a while. It’s a tough break, but most people in your neck of the woods are there to get away from it all, and they’ve succeeded.

Life is hard, we have to make choices.

Brett Glass

“Managed,” Robert? Should we have a “five year plan?”

Neither you nor the government has any business “managing” my network.

Robert J Berger

Brett, if you can get my DSL or Cable Modem Access to my home, I would be forever indebted to you. When I or my neighbors call AT&T or Comcast we are told there is no service to my area. Ive escalated my requests within the Comcast & AT&T and as I mentioned earlier, comcast would bring broadband to our neighborhood if we paid $100k-$200k. AT&T said there were no plans at this time.

My connection right now is AT&T 3G, but I don’t consider that a real Internet connection as I can not use it for much more than web surfing and email. I can’t use an Apple TV or Hulu. on it since it will generate an overage for the 5Gb limit. The quality of the link fluctuates wildly and its tough to do remote management of my startup’s infrastructure since the latency for ssh sucks, git pulls take 10x longer than they should, etc.

When I got a second 3G device I got a first month overage bill for over $3000 from AT&T because I had my email client configured in a way (the recommended defaults from Google/Apple) that Google mail was constantly updating the mail client for a few machines on my network. I wasn’t even doing video. So I don’t consider that an adequate modern broadband connection.

I’ve talked to a neighbors that use Etheric wireless service and they said its flakey. Etheric charges a minimum of $99/month for 1.5Mbps with a 50Gb cap.

Brett Glass

Ah, I see: the real problem is not that broadband is not available to you but that you want it below cost.

In that case, your complaints simply aren’t credible. Bandwidth isn’t free. It costs money — a lot of money in many cases. If you won’t pay, it is not the ISP’s fault.

Brett Glass

Allan, you could not possibly be more wrong.

So-called “network neutrality” regulation is not neutral at all. This regulation would prohibit innovation by Internet service providers so as to give a leg up to content providers, thus DESTROYING opportunities for engineers to innovate in that space.

Deployment of broadband is a national priority. Which do we need more: to provide better, faster, and more economical broadband service to users with no service (or no choice of service) or another music piracy site? Vital connectivity, or another time waster like Facebook? I was the first wireless ISP — an innovative idea that no one thought would work. And, quite frankly, we could not exist, much less help our customers reach the Net, if the Draconian regulations being flogged by the “network neutrality” lobbyists — almost all of them in the pay of Google — were imposed. You ask, “imagine funding a startup whose offering depended on the use of a service provider’s last mile.” Well, imagine a startup whose business depended upon users being able to obtain any other commodity, like batteries to power it. There are plenty of sources, plenty of competition. The same is true of broadband. “Network neutrality” regulation is a “solution” to a “problem” that does not exist.

Marcus

“The problem with “net neutrality” is that you substitute government control for market control.”

Government controls to insure that all players act on a level field and that none of them cheat is perfectly appropriate. Net neutrality rules are no different, really, from the government rules that say your butcher’s scale has to weigh honest pounds and your gas station’s pump has to deliver honest gallons.

Dave Asprey

Dan,thanks for your kind words. Protocol spoofing is easy to deal with for realtime protocols because you can look at packet size and frequency and easily spot a voip call even if it’s tunneled, for instance, without even unencrypting the traffic. (Orbital Data was good at that trick when I led the diligence effort to buy them while I worked at Citrix…that product is now called WANscaler.)

Robert, good points! The closest analogy I can see to the market not working is what happens when we let a private company (the Fed) with Citibank as its largest shareholder set currency levels and interest rates. The fox guarding the hen house…exactly what would happen if Comcast or another ISP gets to set the rules on the playing field and then play on it.

We need VERY large fines for ISPs that prevent users from accessing any site based on the source IP or type of content it contains (the inverse of the freedom of speech; the freedom to read), but we need to allow the ISPs open license to treat different protocols as they choose, or to allow users to pay for the level of service they want. The key ingredient in a civil rights friendly net neutrality policy is that no ISP may censor content for any reason – economic or political. (yes, that puts web filtering in a class outside what ISPs could offer legally, which is a good thing from some perspectives…)

George Ou

Dave, I absolutely agree with you. If this is all that Net Neutrality is about and this is how it’s defined, then we all support Net Neutrality. The problem is that this isn’t what Net Neutrality regulations and legislation is about, and this isn’t what Net Neutrality proponents are pushing.

<

p>What Net Neutrality proponents want is to regulate the Internet and ban new innovative business and connectivity models.

George Ou

You’re absolutely right about the impracticality of spoofing Dave. I think the policing mechanisms are even simpler because the low-jitter queues are limited to very low bandwidth. So if a P2P or file transfer application pretends to be a VoIP application, they’ll get useless low jitter characteristics and they’ll be limited to very low speeds.

The problem is that the Net neutrality lobby are trying to convince the FCC to ban what they deem “application bias”.

Robert J Berger

Its clear that the current paradigm of Laissez-faire is not working. It hasn’t worked in the Energy Markets, it hasn’t worked in Finance and its not working in Telecom. Those who think the “Market” will magically serve the common good are no more realistic than the child who believe in the tooth fairy.

If an entity has a high margin service that competes with free or true market based pricing of the same kind of service and they can control which one will have priority, guess which one they will choose.

You can not have a market where the entity that controls the playing field can control who wins or who looses.

Telecom Transport is a common good private ownership of such a common good which springs from common ownership of rights of way and capital formation from rate payers will not serve the common good but the self interests of the private owner who is using their control of the commons and historical capital formation from when they were regulated monopolies to prevent competition.

That is where the government must step in and insure that the common good is met. That doesn’t mean they have to control he content, but insure that the private entity doesn’t control the content.

Brett Glass

Robert, you’re a Communist.

I built my network personally, with my own hands. I do not have a monopoly and I do not filter content. You have no right to appropriate my network and impose arbitrary constraints on it to benefit billion dollar corporations such as Google and Amazon while harming my users.

George Ou

“Imagine, for example, if your service provider had a business relationship with a specific set of e-commerce sites and applied policy that allowed their web sites to load faster and their transactions be completed quicker than yours.”

Oh the horror Alan! Paying more money for better Internet access to get faster content deliver? My god, that’s just evil! Oh wait, but this is how the entire Internet works today.

But I guess that doesn’t matter. You’ll just get the government to change the Internet, and ban ISPs from charging content providers. Too bad there will be the unintended consequence of harming new innovators by forcing the little guy to spend more money on lower quality transit bandwidth http://www.digitalsociety.org/2009/11/fcc-nprm-ban-on-paid-peering-harms-new-innovators/.

But that’s ok, the new regulation was for a good cause and your heart’s in the right place.

Allan Leinwand

No, that is not how the Internet works today. AT&T does not prioritize Amazon.com’s traffic over Walmart.com on their last mile DSL because Amazon pays AT&T for special “policy” and “management”. That is what could happen though…

I’m not saying that service providers can’t charge content providers – they do charge them today and make plenty of money for port fees and transit services.

Peter Wohlers

Sorry George. I have to disagree.
I pay full freight for my internet connection. The whole internet, not selected parts of it. I shouldn’t have my ISP giving priority so some traffic over another because they’ve got some sort of side-agreement. And if I don’t like it? What are my options? There is a near-monopoly on my ISP choices. And as far as cost-recovery…with bandwidth costs for even mediocre commitments being offered at $4/mbit, hardware costs falling rapidly, one can hardly say that the ATTs or Comcasts of the world are suffering. Except for maybe the new hardware they buy that intentionally degrades certain traffic types.

Richard Bennett

George makes a good point. The article fails to offer any support for the idea that net neutrality regulations promote innovation, it simply throws the idea out there and says “You have to believe me, because I’m a venture capitalist.” Leaving aside the trustworthiness of venture capitalists as a class, it does seem that basic respect for the reader demands a more detailed argument. If ISPs really do have capabilities for policy and priority they haven’t had before, it stands to reason they can be used for good as well as for ill, and the author merely asserts that any new thing in the last mile must be evil because it’s not traditional.

We don’t generally associate innovation with maintenance of the status quo, so there’s a huge contradiction on the argument.

And it clearly is the case that content distributors can pay more to get better service all the way to the eyeball: they simply pay Akamai to host content closer, and that makes it faster. Nothing new here at all.

Allan Leinwand

Capitalism has a basic premise of a free and open market for the distribution of goods. Net Neutrality supports keeping an open marketplace.

I do not say that anything new in the last mile is evil – what I am saying is that Net Neutrality will work to enforce that nothing to stop the capitalistic system on that public infrastructure.

I think VCs are far more trustworthy as a class than DC-based think tanks. You know our motivations – they are right in our name – we’re capitalists.

Richard Bennett

Sorry, Allan, but you’re still not offering a serious argument, you’re just saying “trust me, I’m more credible than the other guys.”

Your argument doesn’t give me any confidence that you’ve even read the proposed net neutrality regulations, let alone that you have any concept of how they interact with innovation. (My organization has “innovation” in its name, so I’m obviously the spokesman for it.)

Let me give you an actual example of the kind of service ISPs will be forbidden to sell under the Rule 5, Question 106 clause of the FCC’s proposed new regulation: high-priority, low latency, low jitter delivery service. This is essential if Internet-based service providers are to compete on a level playing field with ISP-based triple play voice and video services. ISPs have determined that the statistical nature of best-efforts delivery is not good enough for high-quality voice and video, so they segregate or prioritize these packets from best-efforts Internet access. If they were allowed to sell premium transport to Internet-based third parties, we could have meaningful competition in real-time services for the consumer. But you oppose the sale of such services, and you do so in the name of free markets and level playing fields. So in effect, you’re supporting a non-level playing field for over-the-top services and doing so with the claim that you’re for competition.

This leads me to believe that you’re not actually familiar with the specifics of the regulations you claim to support. So perhaps you can say whether you support or oppose the FCC’s proposed ban on the sale of enhanced delivery services to third parties. Everybody likes freedom, openness, and neutrality, so the real question is whether the FCC’s proposed rules actually do anything to advance these aims; I don’t think they do.

Brett Glass

Actually, “network neutrality” regulation would greatly harm the open marketplace for Internet bandwidth. It would kill small providers, leaving less competition. And it would preclude many useful pro-consumer innovations. For example, suppose a user’s normal connection speed doesn’t support streaming of a very high definition movie. The user won’t want to raise his or her monthly bill just to watch one movie, so why not let the content provider — or an advertiser who gets to show the user a 30 second commercial — buy some “spot bandwidth” for the consumer so that the stream can go through at full speed? Sounds like a win/win/win to me, but it is only one of the many innovative ideas that would be unnecessarily prohibited by the proposed regulation.

Dale B. Halling

Any government restriction on how the internet can operate will by definition limit innovation. The FCC’s Net Neutrality proposal violates the “Rate Law of Innovation”, which states that rate of innovation is directly related to the number of elements that innovators have available to them. The Net Neutrality rule limits how many variables or elements that innovators have to innovate. See the Laws of Innovation (http://hallingblog.com/2009/07/16/natural-laws-of-innovation-2/) for more information. All the major engineers who developed the internet are opposed to the FCC’s Net Neutrality rules. According to Andrew Orlowski, “Engineers fear rash legislation would inhibit the ability of systems engineers to improve latency and jitter issues needed to move data at speed.” See Mr. Orowski’s article http://www.theregister.co.uk/2007/01/18/kahn_net_neutrality_warning/) for more information.

The FCC’s response is that all their proposed rules include the limitation “Subject to reasonable network management.” They argue this prevents the FCC from being overly onerous in the application of these rules. Of course, the catch is who gets to determine what is reasonable. If it is the internet providers, then the rules are meaningless, since they will clearly believe that their network management is reasonable. Thus, it is clear that the FCC intends that someone other than the internet providers, get to decide what is reasonable. We know from history this will be lawyers, special interest groups, and large corporations defining reasonable to meet their special interest at the expense of the owners of the network and the public in general.

In addition to limiting innovation, the Net Neutrality rules are widely seen as the first step in a “Fairness Doctrine” for the internet. The Fairness Doctrine, which applies to radio and television, has been used to stifle free speech in this country. The Fairness Doctrine will kill the value of the internet as an outlet to monitor and police the government.

There is no justification for the Net Neutrality rules, they will stifle innovation, and they will lead to a Fairness Doctrine for the internet.

Dale B. Halling, Author of the “Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation.” For preview of the book see http://hallingblog.com/my-forthcoming-book-1209/

Full Disclosure

Richard works for a Washington “think tank” purportedly funded by big cable and big telco (he refuses to divulge their funding sources!).

It’s only natural he’d support leaving Comcast and friends to their own devices with no legislative oversight. Meanwhile consumers suffer.

Please keep that in mind…

Kevin Walsh

This highly spirited debate would be vastly easier if we had bad actors to point at. Most instances of regulatory overreach (e.g., Sabanes Oxley) use these bad actors (e.g., Enron) to sell intrusive government regulations to an inherently skeptical public. The lack of such parties in the case of internet regulation makes the sales job that much more difficult. Comcast is frequently cited but it’s a pretty poor example, having been effectively dealt with using existing regulatory mechanisms (not to mention good old fashioned market pressure).

Oh well, I guess we’ll have to be content pointing to Singapore and China as examples of what will happen in the US without the valiant efforts of regulators.

John E. Smith

isn’t “enforcing net neutrality” a lot like enforcing free speech? If you support the principle (such as in the Constitution for free speech) it’s fine. However, if you think that by prescribing what words to say and how to see (regulations), as in “politically correct language” you actually suppress free speech. Principles are fine. Proscriptive regulations are not. And the business of govt is making regulations. Keep the Internet free by supporting the principles not passsing new “regulations” that inhibit or limit.

Allan Leinwand

Yes, I see the analogy of enforcing free speec to make some sense. If you against Net Neutrality then I guess that you would be fine without laws and regulations enforcing free speech? In that case, news and information would be distributed by one or two news organizations on infrastructure that they control and operate. I tend to think of Armed Forces Radio and the movie “Good Morning Vietnam!”. Not the environment where I think innovation thrives….

Dave Asprey

Allan,
Great post. Last month I quit working for Blue Coat, one of the traffic shaping companies whose products are used to degrade the quality of some applications over others, sometimes by employers, sometimes by telecoms.

Before it even had a name, I was a huge proponent of net neutrality (and even interviewed at one of the major portals to be their czar for it), but now that I’ve spent some time on the vendor side of the fence, I think that being for or against net neutrality doesn’t make any sense.

It is evil for a carrier to prevent a person from seeing content they want on the basis of what it contains. It is stupid for a carrier to be prevented from prioritizing VOIP or video over email, or prevented from offering the equivalent of next-day package service to (even if the US Postal Service doesn’t like it.)

So the answer isn’t net neutrality, it’s a set of laws preventing carriers from discriminating on source or destination or type of content, but allowing them to discriminate on type of protocol or traffic. That would prevent them from controlling what you see by blocking access to political sites, but would allow them to make video fast and online file transfers slower (unless you wanted to pay for fast service, just like you do when you use Fedex vs USPS).

It’s also interesting to note that if the carriers can’t shape traffic, their customers will, and there will be nothing the carriers can do about it. That would create an arms race, where the customers with the most aggressive packet shaping will get the best performance at the expense of everyone else, with no recourse for the telecoms.

The sad fact is that the politicians and regulators don’t understand nuances like this well enough to write effective rules, and the net neutrality debate is already set in black and white terms when the most tenable answer is the gray one out outlined here.

Dan

+1

I work in the business and Dave is the only one in this thread to hit the nail on the head. Without prioritization you can’t provide a low jitter connection and thus some products simply cannot be. The problem left unresolved is that once the only arena for prioritization is by protocol is that you will get protocol spoofing. Also, how do you handle VPN/SSL tunnels? Shouldn’t you be allowed to make a SIP connection inside a VPN? Or do you have to make the call in the open to get it recognized as VOIP and prioritized? I have 0% faith that the FCC or any other government agency will handle issues like this in a reasonable fashion.

George Ou

“The problem left unresolved is that once the only arena for prioritization is by protocol is that you will get protocol spoofing”

No it will not, and you clearly don’t understand how prioritization mechanisms typically deployed. Priority queues have low jitter characteristics, but they’re usually configured with very slow throughput. So if you take a throughput-intensive application that does not need low jitter and shove it in the low jitter lane, you get a feature you don’t need and you end up with really slow speeds. So you can masquerade all you like but it is self defeating.

binfire

Every time Government meddle in anything, the result is a disaster! I really feel Net Neutrality is invented by a certain political elite (yes those who invented Internet :) ) to keep ideas they don’t agree with off the Internet!
let the market regulate itself and establish punishment for those who don’t play fair!

Joanthan

It’s going to be interesting to see how the next few years play out for the internet as a whole. The Good The Bad and The Ugly.

rjberger

Broadband was competitive in Japan because the regulators forced NTT unbundle and to lease the DSL Data portion of a copper pair based on the cost of the copper with the assumption that it was already fully paid for by the rated payers.

So the wholesale price of the DSL portion of a copper pair is in the range of $1.25/month. The regulations also allow CLECs and other to access the inter-central office fiber at very cost effective rates. That allowed Softbank and others to compete.

Once the telcos paid off the politicians to remove unbundling in the first part of this decade, there has been very little advancement in the US high speed internet. FIOS is hardly anywhere and there is no Fiber to the Home in almost any of AT&T territory, so don’t tell me they are not using ratepayer financed infrastructure in the last mile.

Allan Leinwand

@Richard Bennett – Like I said before, we’re going to have to disagree. And it’s not surprising that we disagree.

As you point out and as I have fully disclosed, I am a VC and even work on Sand Hill Road where the “flavors of the month” – as you mockingly call them – that we fund work exceedingly hard to create innovation. That is my job – invest in, fight for and help develop startups.

My motivation for Net Neutrality is that I want service providers to exist so that they can provide valuable services for startups – I see value in having a company provide those services. I am also clearly motivated by having service providers as potential exit vehicles for our portfolio companies. A global ecosystem of service providers fighting to acquire valuable innovation help the VC world.

What I do not want is for those same startups to have access to their consumers and customers managed by the service providers. They need a free and open market for the distribution of their services. I believe that anything else hinders innovation and destroys the capitalistic market on the Internet.

To me, the answer here is clear – let’s decouple the last mile from the service providers. Let’s make them no better and no worse that any other company trying to gain free and open access to consumers.

The wired last mile that is owned by the service provider is always publicly subsidized – whether we are talking about twisted-pair, coax or fiber. How else do they reach the consumer? They use some public facility, conduit, telephone poles or roadway.

I fully expect that you will disagree here again – your background on helping to shape broadband policy in a manner that benefits your line of work at ITIF means that you will naturally be at odds with how a venture capitalist sees the world. And since you testified for the FCC (presumably against Net Neutrality) and the FCC ruled against Comcast and for Net Neutrality, I guess as have another precedent set.

Richard Bennett

Fair enough, we differ on the means to enable innovation in the Internet ecosystem, but not on the value of innovation. One thing I do want to correct, however, pertains to my affiliation and my views. I’ve been arguing about the Internet regulation issue since at least 2002, when I was employed as an engineer building QoS mechanisms for MAC layer wireless protocols, and have only been working with ITIF since June. My concern is that the proposed regulations will most likely make QoS illegal on the last-mile, layer 2 networks that really need to apply it, especially for VoIP and that sort of thing. Comcast, AT&T, Verizon, et. al. aren’t able to string a 10GE link to each mobile phone, so they have to do their job without recourse to infinite bandwidth.

Richard Bennett

Incidentally, Allan, I wanted to tell you I enjoyed the piece you wrote a couple of years ago about how clueless Web 2.0 companies are about the Internet: http://gigaom.com/2008/05/07/web-20-please-meet-your-host-the-internet/ I praised it to Stacy when we met at one of GigaOm’s bunker sessions. In many ways, it parallels the current discussion about Internet regulation, which is something that’s happening because Web 2.0 companies are clueless about the ways of the FCC, inside-the-beltway tussles in DC, and the implications of ISP service models for innovation. We all tend to be narrowly specialized in our little niches and less knowledgeable about the bigger picture issues than we should be.

Allan Leinwand

@Richard Bennett – I don’t know the last time you worked with a Sandvine product, but it was hardly an x86 device when I was looking at them a few years ago. I’ve yet to see all but the most optimized software route at 10 Gbps on x86 architectures, even today. But that is besides the point….

I agree with you that Net Neutrality will alter the services that a service provider can offer. They will have to continue to offer services on a level playing field in a free and open market. As a venture capitalist, that is what I want to see because that is what I believe leads to innovation.

Can you tell me how startups and their service offerings can be expected to be treated on an Internet where a service provider can apply policy specifically to their traffic? If there is no abuse in the status quo environment (and I think we’ve all seen abuse from Comcat and others already) and the service providers are doing nothing wrong, then why fight against Net Neutrality? In other words, if you can guarantee that service providers will not apply policy that hinders innovation and startups then why not just let Net Neutrality happen and continue business as usual?

Richard Bennett

Sandvine sells a variety of different devices, and I happen to know for a fact that the one that examined traffic for P2P and injected TCP Resets to keep P2P under a 50% quota of upstream is as I’ve described; I got this from the horses mouth at both Sandvine and Comcase, so I’m not guessing about it. You know as well as I do that passive monitoring and RST injection is not a compute-intensive job that needs specialized ASICs to perform; this device didn’t do rouing anyhow.

Was this system abusive? I don’t think so, given that the goal was to prevent piracy from disrupting Vonage so badly that customers complained. Comcast has an obligation to all their customers to make their network work well, not just to those running P2P seeders.

You ask the critical question about net neutrality, namely if the system ain’t broke, why fix it? But that’s the question I asked you, since you’re the one who wants to change the law. Your answer, that operators can do things they couldn’t do before, still hasn’t been supported.

My estimation is what I said before: “What is happening now on the Internet that we haven’t seen before is a more diverse mix of applications ranging from Twitter to HD video conferencing, each with its own requirements for latency and price. Net neutrality regulations will hamper the diversification of the Internet ecosystem by hampering the kinds of delivery services ISPs can sell to service providers. Unless someone can show a pattern of abusive conduct under the status quo system, it’s hard to justify the need to regulate. That’s especially true when we consider that every regulation has unintended side-effects, as well as the intended side-effect of locking down the dominant role of the established players.”

The Internet is changing in terms of application diversity and a pending explosion of users on mobile platforms which have traffic management needs that the Internet of today is poorly-equipped to handle. The Internet is certainly not a level playing field with respect to any of the critical dimensions of network service (latency, capacity, and cost.) The behemoths of the web have bought an advantage for themselves by building massive server farms at critical points on the Internet, and they’re fighting any change that might undermine the value of these multi-billion dollar investments. The established players are not the least bit concerned about scrappy Web Squared startups, and simply use the rhetoric to hide their monopolistic nature.

Startups will he helped if ISPs are allowed to sell diversified services, but Google won’t be helped. That’s the issue.

Allan Leinwand

We’re going to have to agree to disagree here.

I believe that what Comcast was doing was not in the best interest of anyone on the Internet but Comcast. In Aug 2008 the FCC agreed and that set the proper precedent. http://www.washingtonpost.com/wp-dyn/content/article/2008/08/01/AR2008080101205.html

I’m also not sure I see the established web players as monopolistic. Almost all of them were driven by capitalism and thrived in a world where the publicly subsidized last mile and access to their consumers was free and open.

In fact, none of them have any publicly subsidized infrastructure and do not have a monopoly on a physical piece of infrastructure that controls access to their consumers. The behemoths you speak of built great services and companies – they just want an open market for the distribution of their goods. The issue is that the service providers do have absolute control of the last mile and control consumers access to the behemoths services. Also, from my VC perspective I’m not sure I see much of a difference between a Google and a startup like WorldGolfTour (full disclosure – WGT is in the Panorama Capital portfolio of investments). Both want access to consumers across the Internet last mile.

If we can separate the last mile from the service providers then I think we’ll agree on nearly all of the issues. Since the service providers control the last mile and don’t seem to be giving up that control and desire to manage it any way they see fit, we’re going to have to continually disagree.

Richard Bennett

@Allan Leinwand Thank you for pointing out that the FCC ruled against Comcast. I did already know that, as I was among the expert witnesses the FCC called to testify in their first hearing on the subject, at the Harvard Law School. If you read the actual order, you’ll find something very curious. The FCC demanded two things from Comcast: 1) That they explain what they were doing to P2P traffic; and 2) That they stop doing whatever it was they were doing. This order is unparalleled in the history of regulation, and is under review by the courts.

The court challenge is the reason the FCC has proposed to codify the old Four Freedoms of Internet access, with a couple of new ones to make a round half-dozen, BTW, not anything to do with new tech that can make policy decisions never before possible.

In US law, a monopoly is a company with 70% market share or greater; none of the ISPs has more than 30% of the national market, but Google has over 90% of the revenue from search ads, for example. So there’s your monopolies.

The ISPs have built their DOCSIS and FiOS systems completely with private money, and as far as I’m concerned, they should be allowed to innovate, sell differentiated services, and prosper as long as they don’t abuse their position in the ecosystem; the same goes for Google. The level playing field requires the law to be fair and just toward all the players, not just Sand Hill Road’s flavor of the month.

tbrander

Clearly net neutrality is critical. Carriers are anxious to corral traffic and make pay barriers at every opportunity.Let’s hope that someone in Washington has a head on their shoulders. Makes me hopeful that Google continues to have some influence, rather than ATT?

Allan Leinwand

I’d like to see the Web100 companies work together and fund a special interest group to lobby in Washington against the carriers. Maybe there is already such a thing?

Robert J Berger

Its pretty clear if you look at the rate of innovation and bandwidth in the last mile since it has been re-monopolized (an oligopoly of ATT, Verizon, Comcast and Time-Warner if you want to be specific).

I live in Silicon Valley, My home neighborhood has NO option of high speed Internet access. My startup in Mt View CA at the corner of El Camino Real & San Antonio Rd can only get 3Mbps/512K. Next step at significant cost increase is a T1 (1.5Mpb/1.5Mpbs) and then the next step is to spend $10K+ upfront and thousands / month for some kind of fiber.

Other countries that have effective Net Neutrality (in most cases that the incumbents must resell last mile infrastructure at true cost+ basis) are having much better penetration and significantly higher bandwidths.

This doesn’t even touch on the issues that Allan brings up, that when the same oligopoly controls Content & Transport, they can freeze out competitors at the Content level because of their control of Transport.

Its time for Re-Divestiture. But this time break them up horizontally. A public common-good entity that owns and operates the physical plant and a vibrant competitive marketplace on top of that. Just like Roads.

Richard Bennett

If you want to know the role that policy choices have made in international broadband systems, I recommend you read the ITIF report “Explaining International Broadband Leadership”, http://www.itif.org/index.php?id=142. The bottom line is that 75% of the differences are due to non-policy factors such as population distribution and the length of the pre-existing copper loop. Copper loop unbundling is only helpful in places that lack facilities-based competition between DSL and cable, which is the situation in most of Europe. Japan, the world leader in residential broadband speeds and prices, got where they are by following the facilities-based competition model. See NTT’s comments with the FCC on how the Japanese system was put together: http://fjallfoss.fcc.gov/ecfs/document/view?id=7020348410

Brett Glass

Robert, you are dead wrong. Not only do you have DSL and cable modem service available; you also have multiple cellular providers as well as several WISPs. (Etheric Networks, for example, is right in your neighborhood.) And that’s not to mention Google’s network. Are you simply ignorant of your options, or are you lying to support a political agenda?

Richard Bennett

The Internet is not governed by any network neutrality regulations today, nor has it ever been. The FCC and other national regulators are considering applying net neutrality regulations for the first time, and it’s because of that consideration that there’s a discussion about the shape that such regulations should take. But the status quo is that the Internet, which is after all a world-wide system, is not governed by the regulations that the established web properties (Google, Amazon, eBay, some of the CDNs, Netflix, et. al.) would like to impose.

So how is it that VCs have invested so much money in startups doing business on a network that has never been regulated the way that the established players wish to regulate the Internet in the future?

Allan Leinwand

You bring up a good point but one that has its place in time. Up until the most recent years, the technology to implement policy via network management has not been been available at a scale that allows the service providers to change the playing field. Now that technology has caught up to the scale of the service provider’s networks (see Sandvine and Comcast) we’re potentially seeing a fundamental shift and that is not going to help innovation.

Richard Bennett

The Sandvine tool that Comcast used to use is an application that runs on an x86 Linux machine out-of-band with the DOCSIS data plane. Such systems are essentially as old as the Internet, they’re just slightly more spiffy versions of net monitors like Sniffer. There’s nothing new there.

The reality is that network operators have been making policy-based routing decisions since the advent of BGP. Hence, the VCs have been investing in a network ecosystem that’s been governed by policy-based routing since the advent of the commercial Internet so it’s in fact quite unlikely that they’re going to stop now unless the FCC issues a new set of regulations.

What is happening now on the Internet that we haven’t seen before is a more diverse mix of applications ranging from Twitter to HD video conferencing, each with its own requirements for latency and price. Net neutrality regulations will hamper the diversification of the Internet ecosystem by hampering the kinds of delivery services ISPs can sell to service providers. Unless someone can show a pattern of abusive conduct under the status quo system, it’s hard to justify the need to regulate. That’s especially true when we consider that every regulation has unintended side-effects, as well as the intended side-effect of locking down the dominant role of the established players.

Li Fu

Start with the cell phone companies. The most anti-competitive industry there is. Blocking apps, traffic, etc.

We also need Search Neutrality, Internet Advertizing neutrality and CDN neutrality. Those industries have just as large barriers to entry, are world wide, and currently mono/duopolies controled by even fewer players than the ISP business.

How can anyone make money on Internet adveritzing when only a few control all of it? Same goes for CDN.

Allan Leinwand

Or just innovate and release a device that causes the carriers to be more open and flexible in their distribution model. Does anyone really think that AT&T wanted the iPhone AppStore to be open? Of course not – if they had it their way all of those application would be AT&T branded applications and controlled by their distribution policy. It’s the open market that led to innovation.

Anonymous

The problem with “net neutrality” is that you substitute government control for market control. That might help certain parties in the short run but do we really think making this into a public utility is the way to go, given history?
Also, if you believe in net neutrality, you must also believe that restaurants can only serve “all you can eat for one price” meals, and that they must carry food from every supplier who wants to supply them.
The biggest enemies of the free market are the capitalists who want some government protection for their business.

Allan Leinwand

Agreed that you substitute some government control but not instead of market control. In a free market there is the ability for the open distribution of goods. On the Internet the distribution is going through a government and public subsidized distribution point that is controlled by a non-government entity. We just need a level playing field – otherwise how can a startup innovate and potentially build a service and get it distributed fairly?

Greg

You are totally off base. For the net to be actually be neutral then the govt needs to be kept out. Let the market and more importantly the consumer regulate itself. Take Comsat for example. They tried to charge bandwith limits, consumers revolted and there are no more companies trying to pull that crap. Consumers nor competitors would allow the net to become anything other then neutral. Take a look at all the issues and you’ll see they arise explicitly because of govt interference. AT&T and timewarner and the like monopolize the way they do because they lobby and get govt approvals smaller companies don’t get. LESS GOVT. Ron Paul 2012!!!

Allan Leinwand

If we do not have Net Neutrality then the Internet will not be neutral. Comcast, Time Warner and many others are already starting bandwidth usage limits and caps – you should expect this as the service provider’s way to charge more for access to the last mile for your service. And without Net Neutrality they can be “managing” that last mile according to their desires and business policy.

Brett Glass

Allan, you are dead wrong. The Internet is not “neutral” and never has been. And neither are the so-called “network neutrality” regulations. They are intended to give a leg up to content providers at the expense of Internet service providers. Do not drink the Google “Kool-Aid.”

Steve Ardire

Yes agree Allan and here’s another reason for viability of startups and innovation…

Job creation? Look to entrepreneurs – CNN.com
http://bit.ly/6CIJvt
It is time for the White House to return to its campaign roots. Since Obama’s inauguration, our unemployment rate has risen from 7.6 percent to 10.2 percent. It is time to stop propping up outmoded and overleveraged institutions and start betting on the new men and women who offer hope for greater prosperity. Supporting entrepreneurs is change we can believe in.

Kudos and well said Amy M. Wilkinson !

Comments are closed.