Apparently We Are All Confused And Killing Net Neutrality Will Be Just GREAT For Startups

from the Godzilla-was-simply-misunderstood dept

What if I told you that the ham-fisted attempts by giant telecom corporations to abuse their gatekeeper positions anti-competitively are actually great for startups and consumers? Yes, I'd slap me too. Still, this appears to be the central thesis of a new Wired editorial by TechFreedom's Berin Szoka and George Mason University’s Mercatus Center's Brent Skorup, who insist that killing off net neutrality is just what Internet underdogs need. According to Szoka and Skorup, what you think of as entrenched legacy bullies taking every opportunity to play dirty is really just a "two-sided market" at play (like adorable puppies in a meadow!):

"Everyone assumes that cable companies have all the market power, and so of course a bigger cable company means disaster. But content owners may be the real heavyweights here: It was Netflix that withheld high-quality streaming from Time Warner Cable customers last year, not vice versa. As WIRED recently noted, “Netflix is hardly without leverage” (Time Warner lost over 300,000 subscribers). Similarly, it was ESPN that first proposed to subsidize its mobile viewers’ data usage last year."

There's some half-truths and falsehoods in that statement used for effect. One, Netflix's Open Connect Content Delivery Network is free for any ISP to join, and will speed up Netflix streaming by hosting Netflix caching servers on the ISP network. Netflix ranks ISPs by streaming performance, and while Netflix does "name and shame" ISPs in the hopes they'll join their CDN, joining is free and it benefits all parties involved.

Time Warner Cable (who chose not to join, like Comcast and Verizon) did try to feebly argue this was a neutrality violation, but Netflix responded by making Super HD streams (previously only available for CDN partners) available for all ISPs. It's also worth noting Time Warner Cable lost 300,000 subscribers because of their retransmission feud with broadcasting giant CBS and the resulting blackout, not because of imaginary Netflix "leverage."

As for ESPN being the one who came up with sponsored data, they're simply wrong; AT&T was the first to propose the idea of charging content companies in order to bypass user bandwidth caps (first pitched as "1-800 data" or "free shipping" a few years back). Verizon liked the idea, and ESPN being ESPN, was the first company with enough cash and cold ambition to think this was a good idea. The biggest problem with AT&T's Sponsored Data is that while ESPN might be able to pay to play, smaller startups and businesses can't -- creating an unlevel playing field where one didn't exist formerly. The editorial somehow forgets to discuss that angle of AT&T's awful idea.

By artificially inflating content company leverage and intentionally under-selling incumbent ISP power, Szoka and Skorup try to pretend that what we're actually seeing at play here isn't an entrenched TV and broadband industry (with a long history of anti-competitive behavior) fighting a disruptive new streaming Internet video industry, it's a healthy "two-sided" market relationship where incumbents are just doing an awesome job innovating:

"ISPs and carriers like AT&T, Comcast, and Verizon face what economists call a “two-sided market.” In this case, they — and other tech firms — can receive revenue from two major sources: content providers (through sponsorship or ads), and consumers (through subscription fees). While TV broadcasters traditionally relied almost entirely on the former, cable programmers like HBO and Showtime rely almost entirely on the latter. But most technology firms use a combination of both ad support and subscription fees. So it makes sense for AT&T, Comcast, Verizon, and others to do what most media firms (and that includes app creators) do: develop a balanced revenue stream from both the content side and the customer side to ensure profitability while making the service affordable."

That's a leap. Consumers pay for bandwidth. Content companies pay for bandwidth. Wireless carriers already profit handsomely on both ends and across the middle. What sponsored data and arbitrary usage caps do is allow the wireless carriers to charge yet another "troll toll" for wireless bandwidth already paid for. They get away with this double dipping because they enjoy regulatory capture and abuse their market position while regulators nap, not because of healthy markets. But in Szoka and Skorup's world, you're asking for trouble if you dare question telecom companies' motives for double dipping:

"...we also need to ensure content providers don’t undermine incentives to invest in the capacity they themselves need — or block the business model experimentation that may be needed to drive that capacity."

This idea that if you don't let telecom companies experiment with predatory pricing we'll face capacity and investment problems has been a cornerstone of sloppy telco logic for a decade. It's at the heart of the repeatedly debunked exaflood argument, and while Szoka and Skorup do yeoman's work trying to sell it as sound new theory, all they've really done is put some lipstick on a dead horse and given it a swift kick. It's a manufactured and frankly odd defense of predatory incumbent pricing practices that the pair claim will "bring down the cost of services for consumers" (protip: that hasn't happened, doesn't happen, and will not happen).

I'm all for honest debate on competitive markets, but a recent bout of painfully un-nuanced Wired editorials featuring Szoka seem more like Colbert-esque satire than honest discussion. Whether it's pretending that an FCC with a history of apathy, incompetence and deregulatory tendencies is a bigger threat than predatory monopolies or the insistence that incumbent ISPs are faultless for any part of the country's broadband competition problems, you'll notice one common refrain: the nation's giant telecom companies can do no wrong and it's always somebody else that's to blame. If Wired's recent editorial selections really are intended to be satire making fun of the nation's phone and cable companies, then I must say it's excellent, amazing work on Wired's part.

Filed Under: berin szoka, brent skorup, broadband, net neutrality, startup