Episode 14 – Google-Verizon's Internet and the Effects on Future Growth

For all intents and purposes, Google and Verizon’s recent legislative proposal should be viewed as a preemptive strike expressed out of frustration with the FCC’s slow progress on the classification of access services to the Internet. That change would recast internet access as an “Information Service”, instead of a “Telecommunication Service” as previously defined by the Bush Administration. Such a change would allow the commission, under current law, to enforce “Net Neutrality” policies on all service providers, potentially affecting all organizations and individuals using the Internet.

But it appears that Google and Verizon concede that ISPs do provide information services. A closer reading of the proposal reveals the real motive is to identify for the FCC three tiers of internet access, and suggest why each tier should or should not be regulated. In doing so, however, the proposal suggests how Google and Verizon would like the Internet to be perceived by regulators, a vision that could have long term effects on the future development of the global network.

A Myopic View

One major problem is that the Internet landscape envisioned by Google, Verizon, and now AT&T, is not only simplistic, but incomplete. For example, their vision does not account for other media platforms that now rely on much of the same technical infrastructure that supports the Internet. This vision also fails to acknowledge other services on those platforms that have already migrated to the Internet. These factors raise some important questions.

What will happen to Internet-based radio, television, web commerce, messaging, video conferencing, and other non-mobile wireless if the tiers are adopted? Will some services be reclassified and languish when access fees become too high? What about new services that rely on one or more of those platforms, such as social media, gaming, streaming video, and virtual reality sites? Each will need faster and more robust networks to operate. What will happen if the cost of high speed access is prohibitive to their business models? How do they fit into Google and Verizon’s tightly scripted world?

These questions and the potential effects on future services have been lost in the debate since the proposal was first made public. To understand the full impact of Google and Verizon’s proposal, we must go into greater detail regarding what exactly is at stake in the debate.

Reconceptualizing the Internet

Although we seem to be beyond viewing the Internet as the “Information Superhighway”, grasping its physical nature is still an elusive task. Conceptualization of the Internet, in fact, has become a contested terrain. Google, Verizon and others apparently view the Internet as a simple three tiered structure: “wireline” terrestrial based services, private services geared to specific groups of professionals and high end users, and mobile wireless services. But is that all there is?

A more accurate definition of the Internet may be as clichéd as a gigantic global network, but one of many networks, in fact, that include radio, telephone, television, messaging, video conferencing, and wireless networks in many different countries. The popular image of the Internet as “the web”, taken from the 1990’s graphic interface that gives form to different sites on the network, illustrates just how extensive and prominent we see that particular network becoming in comparison to others.

But if we strip down the Internet to its base elements, giving it no more and no less weight, we can then see it in context with other communication systems, which I call “meta networks”, as follows:

Radio - broadcast, satellite, web, cable
Telephone - land lines, long distance, cellular, VOIP
Television - broadcast, cable, web TV
Internet - web, social media, gaming, streaming video, virtual worlds
Messaging - e-mail, texting, instant messaging
Video Conferencing - private, public, business networks
Mobile\Wireless - wireless 3G, 4G, Wi-Fi, Wi-Max

All meta networks, including the Internet, share well known traits. Most communications networks, including many operating within the Internet, are owned and operated by commercial entities. Some networks are “closed” or “walled”, restricting the types of hardware and software applications that can be used on it. Other networks are “open”, with few or no restrictions on devices and applications. Some allow access at no cost to users, while others charge fees for access. Some networks restrict content, only allowing that which has been produced professionally, while other networks encourage users to contribute any content they choose. Most networks also support operations by selling advertising, the form dependent on the way content is delivered to consumers.

Another important trait of all networks in the 21st century is that each is supported by portions of the same technical infrastructure, made up of government allocated spectrum and commercial satellites in the atmosphere, and terrestrial fiber optic, coaxial cable, twisted copper pairs, and microwave systems. The sharing of infrastructure allows various forms of access to large numbers of users, but also makes all networks potentially vulnerable to actions that restrict access to it.

Potential Effects on Future Growth and Innovation

This is the problem faced by newer Internet-based services, or “sub networks”, which now may be exposed to restrictions if the Google-Verizon proposal is adopted by the FCC. These networks include social media, such as Facebook, Twitter, and LinkedIn; gaming networks, such as EA sports and Activision’s World of War Craft; video networks, such HULU and Netflix; and virtual reality networks; such as Second Life. The effects on their businesses can only be imagined.

Each of these services are beginning to incorporate applications requiring faster processor response time and greater bandwidth. As a result, there is the possibility that these and future networks in each space would be identified under the Google – Verizon proposal as “proprietary” services requiring higher access fees. These fees would be passed on to consumers in the form of more expensive hardware and software costs, creating disincentives to user growth. Once the numbers of users go down, operating margins would shrink and capital would begin to dry up. This would limit future development, and ultimately restrict expansion of the business itself. The cumulative effect on lost business revenue and jobs is not the message that should be sent during a recession.

The problems may grow worse if the migration of these services continues in the mobile and wireless space. Social media on mobile devices is clearly booming, as are gaming, video, and even virtual worlds. Besides the use of handheld devices for access, many new 3G and 4G devices and other plug-ins allow access to Wi-Fi hotspots and wireless networks that could charge more restrictive fees for bandwidth hungry services.

Critics who suggest that social media users and gamers will always pay the higher fees miss the large issue of why consumers use these services in the first place. These new sub networks are not simply diversions from work or school, but important destinations for social interaction, leisure activity, and professional referrals, associations that are an integral part of the lives of many adults in the critical 18 to 48 age groups. Tampering with this demographic category could damage the possibilities for advertising and other business in the coming years.

Time to Look Beyond Short Term Solutions

Placing a ceiling on new services that represent core areas of innovation on the Internet is probably not what Google or Verizon have in mind. The issue for Verizon and other ISPs is the future costs of providing network access to those services. For Google it’s important to lock in current access rates and hold down future costs to deliver Android applications that are now very marketable.

Their legislative agenda, however, only provides short term solutions for each company, and does not address the long term issues of sustained growth and job development in an economy increasingly dependent on the Internet. To those cynical enough to suggest that businesses are selfish and will only plan for the short term, I would point out both Google and Verizon’s long term strategies for development proposed in the early part of this decade.

The FCC, of course, is not immune to such limited vision. Net neutrality alone will not insure either growth or jobs. Nor will inactivity and attempts to reach “consensus” be the answer in the dynamic environment in which we find ourselves today. The best solution will be a combination of investment by telecommunication and application providers in better infrastructure, and selective and light handed regulation by the FCC that will guarantee that all businesses and user groups have equal access to the Internet and its various services.

Let’s hope that such a solution will be part of the negotiations that will take place in the future.