Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Google, Yahoo and Microsoft have little to gain from Internet neutrality

Posted by Tom Foremski - May 3, 2006

By Tom Foremski for Silicon Valley Watcher

Network neutrality is a concept that there should not be any favoritism on the Internet, that a packet of data is a packet of data and thou shalt not discriminate between packets of data.

Yet not all packets of data are equal because they all do different things however, they all travel along the same pipe. Some data packets clearly need priority, or could greatly benefit if they had priority and could reach their destination faster.

If part of an email is slightly delayed, that's okay because a microsecond later it is complete and readable. Packets of time-related data such as phone calls, video data, sound data--all have to be assembled in the right order and at the right time.

Business data also benefits from being given a high priority within a network, especially if it is fueling a real-time business process management system.

That's why Quality of Service (QoS) was invented and is widely available on network equipment from any vendor. With QoS you get to peek into the data packet and determine if it requires a fast path through the pipe.

QoS is vital for Service Level Agreements (SLAs) these are contracts that mandate and guarantee specific levels of communications and IT services. SLAs are used by in-house IT departments providing services to their company's business groups, and by outsourced IT services providers. And QoS provides a way to charge premium prices for premium communications services--which is what the Telcos want to do.

But the phone and cable companies have a hold on the last mile--the link into the consumer home. And as consumers consume more products digitally, the telcos and cable companies have a key strategic position as the gatekeepers, and the toll collectors.

You can see the effectiveness of this market position in your bills. My cable TV bill has been going up steadily and so has my telecommunications bill--yet I don't recall that I watch more TV, and I certainly didn't find a few extra hours in the day to talk more on the phone. Yet I'm paying a lot more now than a couple or three years ago--and I don't have much choice in the matter.

Competition with the gatekeepers of the last mile connection into the home is non existent, and it will remain that way until maybe WiMAX, wireless broadband with a reach of many miles, can vault over the walls of the Telcos.

The Telcos and the cable companies have another advantage: these are federally regulated companies. This means any competitors have to be federally regulated and that is a huge and expensive barrier to competition. And these companies know the ins-and-outs of the federal regulatory system, and they have political connections crafted over many decades.

Google, Yahoo, Microsoft and others, have grown concerned that their services could get shut out of easy access to consumers. The Telco and cable companies are going to be offering similar web services as those found anywhere else, after all, in this mashup world web services are going to be commodities--it's who owns the first screen on your PC or phone or TV that counts. And it is the providers of the pipe that can put themselves on the first screen that you see quite easily.

You'll still be able to get to Google, or Yahoo, or Microsoft, or Ebay, or Amazon--but it'll be a click or two away, and the web pages might not load as fast as those of Telco partner sites. Eventually, you'll stick to the first screen to get your maps, or search, because it's a few clicks easier, and a few seconds faster.

GOOG and others have seen this coming. In September 2005 GOOG hired Vint Cerf, considered one of the Fathers of the Internet, away from MCI and made him Chief Internet Evangelist.

Any Internet services company has to be concerned about the gatekeepers. But the big guns, GOOG, YHOO, MSFT, EBay, AMZN etc have the least to be worried about. In fact, they have a tremendous amount to gain because it is much easier for them to do sweetheart deals with the telcos and cable companies. Such partnerships between them would represent a huge competitive barrier--and it is the small companies that have the most to lose.

The startups and the smaller companies won't be able to get the deals on bandwidth that GOOG et al can get, because they can buy bandwidth in enormous quantities across many regions. That's why GOOG et al haven't put much into their fight for laws that would mandate Internet neutrality.

Jeff Chester at the blog "Digital Destiny" believes that the half-hearted political fight is due to existing business relationships with the Telcos. He could be right. I think it is more likely that GOOG et al have figured out that Internet neutrality is not a good thing.

Why risk an open and neutral Internet and become vulnerable to smaller, swifter competitors? Yes, right now GOOG, YHOO and some of the others move reasonably fast in some markets, but as they grow larger they won't be as nimble.

If you are a well established Internet services company such as GOOG, it doesn't pay to expose yourself to any disruptive, innovative startups. Why make it easy for your future competitors by fighting for their right to a neutral Internet?

That is why you should not look to GOOG et al, to save the Internet from the gatekeeper telcos and cable companies. I"ll tell you who should be fighting in the front lines . . . in the next post.
- - -
Please see Jeff Chester's Digital Destiny blog.

And http://savetheinternet.com/

And GigaOM on net neutrality.


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