Net Neutrality: The shareholders of the IT tech giants are losing out to the "valued customers"

By Tom Foremski - May 3, 2006

I recently wrote a post arguing that Google, Yahoo and all the other online giants have put up a half-hearted defense of Internet neutrality because they have a lot to gain from the absence of neutrality.

The tech giants that have the most to gain from net neutrality are not the web services companies but the infrastructure providers such as Cisco Systems, Intel, Sun Microsystems, IBM, EMC, Dell and Hewlett-Packard. And it is puzzling why they are so quiet on this issue.

If the Telcos and cable TV companies are allowed control the choke point--the last mile connection into the digital home then that cuts out competition. Without competition you have far fewer infrastructure builders.

This means that to get to the next stage of high speed broadband is going to take a lot longer because the Telcos and cable TV companies operate a duopoly in most markets. They'll get around to upgrading their networks when they get around to it.

There is no competitive pushing and shoving to get them moving faster. And there is no competitive infrastructure building which is bad for the big IT vendors.

Plus, it is a bad situation for thousands of Silicon Valley startups (and their VCs) that are banking on ubiquitous high speed broadband connections at low prices. We've been here before: During Internet 1.0 a lot of startups were way too early in their expectation that millions would soon have (low speed) broadband connections and they went out of business.

Now, we have millions with low-speed broadband but it is the rate of adoption of higher speed broadband that will determine the fortunes of the next generations of Silicon Valley startups.

Yet the startups are too tied up with their ventures and blinkered from seeing what is going on in the political realm, where the Telcos have huge sway thanks to institutional connections that span generations. They are very good at lobbying against any legislation that mandates net neutrality.

The leading Silicon Valley companies such as CSCO, INTC, and HPQ, all have much better political connections than the newbies such as GOOG and YHOO. However, the executives at the big IT vendors are extremely shy in speaking out on this issue when in private, some of them will agree with me that the actions of the telcos are harming their markets.

They won't speak up on network neutrality because they don't want to upset their "valued customers." But those valued customers are costing them the loss of a much bigger market.

In my humble opinion they should be taking care of their valued shareholders. They could sell far more infrastructure equipment if the Internet is open, neutral and there is unfettered access to the digital consumer.

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Please see:

Check out this Washington Post interview with Scott McNealy and how this former fearless iconoclast sidesteps the net neutrality issue.

Here is a summary of news coverage on net neutrality from News.com.


Here is Wikipedia on Net Neutrality as law.




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By Tom Foremski - May 3, 2006 | Permalink | Comment | Category: Future Watch
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Comments (2)

Sean Garrett:

Tom: You get a lot of big points on Net Neutrality right, but you are missing a lot of reality when it comes to who is lobbying for what and their level of effort.

Google, Yahoo!, MSFT, Amazon, and eBay are actually working pretty darn hard in DC to try to get legislation passed that (roughly) mandates net neutrality. They've been on the Hill and actively lobbying the issue. Refer to testimony last week from Amazon's Paul Misener that can be easiliy Googled for their positioning.

In a fairly unreported act, Intel recently switched from a "neutral" position to one that aligns the chip makers with the Googles/eBays. They have jumped in head first in DC.

Cisco, on the other hand, is for net neutrality principals but is opposed to legislation that mandates new regulations -- beyond what currently exists -- to enforce it. Whether you agree with them or not, these companies and folks like former FCC chairman Michael Powell don't think Congress is best positioned to create regulation based on a moment in time of the Internet that will be enforceable for many years to come.

Cisco is not alone with this position in SV and, btw, they have not been shy about this position, either. Check out the Cisco High Tech Policy blog for their feelings here.

As I've agrued on 463's tech policy blog (click on my name for the link), I agree it's mystifying that the start-ups aren't engaged in this debate. If they think that any individual entity is looking out for their interests on either side, they are mistaken.

That said, if I were YouTube, I might consider cutting a sweatheart deal with ATT that ensures a bandwidth advantage over, say, Google Video. And, if I'm ATT, I can point to the deal as proof that the new world Internet delivery order is favorable to the little guy.

From a DC perspective, the big deal of Net Neutrality is not what companies are on what side, it's that it's become party-line issue with Republicans against mandated solutions and Democrats for them. This partisanship is VERY rare for a tech policy issue.

Posted: May 3, 2006 7:27 PM

Tom Foremski - Silicon Valley Watcher [TypeKey Profile Page]:

Thanks for the insight Sean. You guys get a good view into how our local tech companies try to deal with the political process. But it seems the tech companies still don't understand that politics is important and if they aren't careful, they won't be able to innovate because of legislation. The Digital Millennium Act already bans certain technologies. Thanks for the update.

Posted: May 4, 2006 2:34 AM

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