Should Net Neutrality Apply to Silicon Valley?

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Should Net Neutrality Apply to Silicon Valley?

While the nation is up in arms about the repeal of something 99.9 percent of the population didn't know existed six months ago, its time for a sanity check.

We have been told "we" may be the only tech leader who thinks Ajit Pai is doing the right thing by rolling back net neutrality regulations. Our thoughts on the matter have been based on a great deal of experience in the past few years.

Here are some things we have seen happen:

  • The government promised a healthcare law would allow people to keep their doctor and plan and lower premiums by $2,500. Plans and doctors were lost and premiums have since doubled. Some states like Arizona saw their rates more than double in one year.
    Well, at least the website worked right. fing04
  • The Government promised they would help with student loans. Student loans are now perhaps the largest financing bubble in the entire economy.
  • The Government promised Dodd-Frank would eliminate too-big-too-fail. Banks are now bigger and CEOs of these banks tell you on conference calls that Dodd-Frank compliance has limited the ability of new entrants to compete with them.
  • Intelligence agencies were given surveillance powers after 9/11 but not to be used to spy on Americans. Surpise? They are spying on Americans. Even though the heads of these organizations swore to Congress they were not. We needed leaks to learn about it.
  • The government told us the IRS could not be weaponized. It is just a revenue collection agency. Yet, the IRS apologized repeatedly for targeting civilians based on their political beliefs.

There are a host of technical reasons why net neutrality is dumb as well but we won't go into them now. What we know for sure - even though we have noticed many twenty-something tech bloggers who have never signed the front of a paycheck disagree, when you regulate anything, you decrease investment and that slows the economy.

Without even knowing what the hell net neutrality is, we should all instinctively be against it. History has shown us centrally planned economies always fail. Not mostly, always. We don't even need to look back that far to Soviet Communism or Cuba's communism as examples. Venezuela started centrally planning their economy about a decade ago and as a result, they went from one of the richest countries in the world to one where people have eaten all their pets and zoo animals to survive and school teachers have become prostitutes.

But isn't net neutrality about having the good guys in the government protect us from those evil companies??

Corporations don't imprison citizens or lock them up for their beliefs or execute them in large numbers. Pick a spot on the globe and there is a good chance the government there has executed its citizens for its political beliefs or performed genocide. There are a bunch of countries doing both these things - as you read this. 

So, amid this backdrop, if there is a threat of government tyranny or corporate tyranny where competition keeps things in check, we will always, always, always choose the latter.

So these are our quick, back-of-the napkin reasons for supporting Ajit Pai - he is the most courageous of the FCC Commissioners to date. Having said that - a brief shout out to Michael Powell and Kevin Martin who were past ITEXPO keynoters and Tom Wheeler a past TMCnet columnist. All great people but they never had to face this sort of political backlash.

This post is a follow-up to one we wrote this last August discussing the utter hypocrisy of Silicon Valley pushing for Net Neutrality while they use their market power to censor far worse than anything an ISP could ever dream of doing. Apparently, if you support the right political party, you are immune to criticism as we learned from "hands-on" photographic evidence of one of our senators this past week.

The post is titled Maybe Net Neutrality Needs to Apply to Silicon Valley. Ajit Pai basically paraphrased this post today when he discussed the censorship on Twitter. The top thought leader on monopolistic Silicon Valley practices is Scott Cleland. He had a spot-on post on the double-standard between ISPs and Valley companies today and we are posting it here with permission. Enjoy.

Net Neutrality’s
Masters of Misdirection

On net neutrality, we have all been tricked by the masters of misdirection.

For many years Google, Facebook, Amazon, and the Internet Association have deftly misdirected the media’s and government’s attention away from their unaccountable market power, discriminatory models and practices, and real consumer protection problems, towards the potential for discrimination by legacy-regulated, competitive, broadband providers.

The masterful misdirection becomes painfully obvious when one looks at the facts.

First, it’s the supposedly “competitive” Internet “edge” that is hyper-dominant and hyper-concentrated, and it is America’s broadband industry that is the most competitive in the world.

America has at least three dominant distribution networks, Google for information with over 90% search share; Amazon for ecommerce with over 70% share of households given its 90m Amazon Prime members; and Facebook for social with over 60% share of all Americans. None of the three largest broadband providers have more than about 30% share of the combined wireline-wireless broadband market.

The public data shows that the top three Internet companies, Google, Amazon and Facebook are over seven times more concentrated than the top three offline companies, Walmart, Apple and Berkshire Hathaway, and that the top ten Internet economy companies are ten times more concentrated than the top ten offline economy companies.

And the public data show that Google and Facebook capture over 95% of all digital advertising growth, the apparent key content monetization engine of the future.

Second, it is the “edge” platforms that have long called for FCC rules to prevent ISPs from favoring one application over another.

Tellingly it is Google that has successfully mass-discriminated in favor of its apps over others more than any entity to extend its PC search dominance to mobile search dominance. In its Android contracts with manufacturers and carriers Google tied use of Android to requiring default use of Google search, and the prominent inclusion of at least 15 Google apps. No surprise, Google’s non-neutral app discrimination via contractual tying has enabled Google to capture 19 of the top 25 Android apps downloaded over a billion times.

In October 2016, ProPublica exposed that Facebook enabled advertisers to illegally exclude users by race, which is illegal discrimination under the Fair Housing Act, and in November 2017, ProPublica documented Facebook is still enabling advertisers to illegally exclude users by race.

In addition, as  a leading network where people get news, like being the top news source for over 60% of millennials, congressional hearings exposed that Facebook’s network favored highly-profitable, viral fake news and fake ads in the 2016 election.     

Amazon is America’s number one: direct online retailer, and online platform retailer and fulfillment provider for most of its competitors.

Amazon operates its dominant U.S. distribution network non-neutrally, because its core business model and growth strategy depend on systematic network discrimination against its direct competitors to succeed, i.e. self-dealing Amazon’s goods and services ahead of its competitors. If Amazon was not so dominant this would not be a problem.

However, Amazon has the top 90m of America’s 125m households as members of Amazon Prime. Over five million suppliers sell through Amazon Marketplace, with 100,000 sellers earning at least $100,000 a year.

Over half of online product searches start on Amazon’s network. And Amazon’s network captures over half of all ecommerce revenue growth, while comprising over 43% of all consumer online spending. This means Amazon’s network is non-neutrally discriminating in favor Amazon’s retail interests over its 5m supplier competitors’ interests which sell through Amazon Marketplace.  

Third, if one needs any more evidence that Google, Facebook, Amazon, and the Internet Association have deftly misdirected the media’s and government’s attention away from their unaccountable market power, and discriminatory models and practices, look no further than how “paid prioritization” became the top priority of Google, Facebook, Amazon and the Internet Association to get added to the list of “net neutrality” must haves in the 2015 Open Internet Order, in addition to no blocking, no throttling, and transparency.

No paid prioritization, or “no fast lanes,” had nothing to do with net neutrality and everything to do with price regulation, i.e. a permanent price of zero for Amazon, Netflix, Google, and Facebook’s outsized   downstream bandwidth usage, a de facto, multi-billion dollar, hidden subsidy fully paid for by the American consumer. 

Note in 2010, Public Knowledge filed net neutrality comments with the EU, that said this about paid prioritization: Question: “ What other forms of prioritization are taking place? Do content and application providers also try to prioritize their services? If so, how—and how does this prioritization affect other players in the value chain? Answer: Yes, content providers enter into paid peering arrangements with broadband access providers, or use content delivery networks. These arrangements do not raise net neutrality concerns…”

Even FreePress agreed paid prioritization was not a net neutrality violation because it said: “ Sometimes this interconnection of traffic is unbalanced, and fees are paid, while at other times, the traffic going back and forth is roughly equivalent, and there is no money exchanged. But the point here is that there is a financial structure in place at every point in the network. If Verizon feels it is losing money by receiving traffic on its network, then it should revisit its peering and transport agreements."

In sum, on net neutrality, we have all been tricked by the masters of misdirection: Google, Facebook, Amazon, and the Internet Association.

They’ve masterfully misdirected the media’s, consumer groups’ and the government’s attention from their rigged winner-take-all game, where they, as the only unregulated sector in the economy, successfully, maximally-used regulatory-arbitrage against their only potential competitors, and in successfully misdirecting most everyone’s attention, were then able to concentrate over seven times more than the offline economy, and devour the outsized lion’s share of all Fortune 500 revenue growth and market capitalization growth.

They played us all like a fiddle.

Hopefully, we all will learn from the old adage: “Fool me once, shame on you. Fool me twice shame on me. ”

***

Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an internetization consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google.



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