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The Senate Commerce Committee is currently holding hearings on Net Neutrality. Webcast . The Bells are not be directly represented, cable companies views will be shared by Kyle McSlarrow, NCTA President and CEO. Walter McCormick, President and CEO USTA and Earl Comstock, President and CEO, CompTel. will also say their piece. Silicon Valley will be represented by Vinton Cerf, Chief Internet Evangelist at Google and Jeffrey Citron, Chairman and CEO of Vonage. This op-ed, hopefully will make everyone care about “network neutrality,” especially in Silicon Valley. — Om



By Daniel Berninger

The desire of AT&T, Verizon, et al to end network neutrality and assert fees for access to connected customers represents a death wish. Imagine the prospects of an info tech industry without “software neutrality” where Intel charged a fee to enhance software performance. Pay Intel and your applications run faster. The incentives driving Moore’s Law disappear in this pay-to-play model. Intel’s profit maximizing incentives become serving the interests of software companies willing to spend the most on “enhancing software performance” not the end users of computers. The meritocracy driving competition between software companies disappears as Intel picks winners and losers based on willingness to pay. Innovation becomes permission based at Intel’s discretion.

The Internet does not exist without net neutrality. Consider the misleading assertion that tinkering with network neutrality simply amounts to adding class of service as in the case of air travel or HOV lanes on highways. Network neutrality refers to the uses of the Internet not the quality of access. There already exists an infinite range of classes of service as regards Internet access. End users pay for what they get regarding the performance and capacity of Internet access. Internet content and service providers like Google, Amazon, and Vonage already pay for access to the Internet.

The telco and cable companies have in mind creating another type of customer not a class of service. They want suppliers to pay for the right of transit. It amounts to airlines charging Time Warner for the right of readers to take Time magazine on an airplane. It means charging Ford tolls in addition to drivers for the right of Ford cars to use highways.

The pursuit of tolls based on content and application type requires something that does not exist in the Internet today. It requires a linkage between content type and transport. Equipment providers like Cisco increasingly deliver products offering packet by packet inspection in the name of network management, but implementing the access fees means giving billing systems the ability to monitor and track the types of applications and content customers use. Setting aside the chilling privacy concerns, the

telephone network’s linkage of usage to transport represents the primary obstacle to service creation I observed during five years at Bell Labs in the 1990’s. Forcing innovators to change the network in order to implement an application means an end to innovation. The end of innovation means the end of growth in demand for Internet access.

An end to innovation probably represents the main motivation behind opposition to network neutrality rather than merely the desire for a second revenue stream from Internet access. The dominant providers of Internet access have powerful incentitives to protect their existing voice and video revenue streams from Internet enabled innovations. The ability to add tolls by Internet application end the prospect of Vonage and VoIP as a threat to Plain Old Telephone Service. It ends the prospect of new Internet enabled video distribution models that might compete with CATV. Network neutrality allows end users to choose winners and losers in an application meritocracy

that threatens service providers long dependent on barriers to entry. The idea that Yahoo could pay Verizon to improve performance over Google means Verizon not the end user decides which search engine wins.

Beware of the monopolist that wants the “market” to decide. If there actually existed a healthy market for Internet access, users would certainly switch away from service providers tinkering with performance based on kickbacks from content companies. The toll collecting ambitions of the telco’s and cable co’s hinge on the absence of market forces. The fights against municipal wireless initiatives and lobbying budgets that exceed R&D budgets arise to defeat any leakage of market power. Network neutrality

forces a virtuous cycle where winning requires making offers faster and cheaper. This dynamic accounts for growth in the info tech industry as platform improvements expand the range of possible applications.

Eliminating network neutrality means giving one participant in the value chain a tool to extract a greater share of revenues without delivering greater value. The best effort Internet holds far more promise than the metering of scarcity associated with QoS because “best effort” continues to improve. The improvement in modems set the pace for expansion of the dialup Internet during the 1990’s. Lowest common denominator broadband access continues to govern Internet health as access capacity and performance determines addressable applications. Continuous improvements in cost performance represents the key to growth just like every other area of info tech.

The network management quality of service argument for ending network neutrality misses the fact QoS does not work outside a private network environment where a single entity controls usage end to end. The implementation of QoS remains limited to private networks, because it makes the negotiation of interconnection compensation intractable.

The large info tech companies like Cisco, Microsoft, and Yahoo view themselves as arms dealers content to accept business from both sides of the net neutrality debate. Intel has proven a more consistent friend of the Internet as with its Digital Communities effort supporting municipal broadband initiatives. Intel may recognize the connection between meager US broadband offers and the decline of the proportion of Intel revenue attributable to the US from 41% to 18% over the last 5 years.

The future growth prospects of the trillion dollar info tech industry depend as much on network neutrality as on Moore’s Law, so the arms dealer point of view represents a very short sighted one. The Bell company and cable MSO efforts to protect existing revenue streams means preserving the 20th century telco business model of controlling scarcity. The growth of the info tech industry comes from delivering surplus value as the means to generate demand. The info tech industry needs the find a way to protect network neutrality, because the Internet will cease to exist without it.

Daniel Berninger is a senior analyst at at Tier1 Research.