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

Innovation At Risk: We Need Competition To The Luddite Telcos . . .

Posted by Tom Foremski - August 10, 2010

We won't be able to have net neutrality/open Internet because the Telcos will always have the right to prioritize their own services over their own networks.

So let's have real competition to the Telcos.

But the US has Luddite Telcos. The US has some of the slowest broadband and the least penetration.

A recent FCC report found that there are 14 million Americans without access to any high speed Internet service.

S. Derek Turner, Research Director of Free Press, a lobbying group advocating universal access to communications, said:

"The facts present a sobering reality of our broadband problem. We pay far too much for far too little, and the lack of meaningful competition among Internet service providers leads to delayed investment and slow technological progress."

The Telcos control the features available in smartphones often dumbing them down. That's Luddite behavior.

The Telcos have no real competition. As Danny Sullivan over at Search Engine Land points out:

The mobile marketplace... where providers unilaterally add on $10 surcharges just because you're using a smartphone, regardless of you actual data usage?

Where you can't take your expensive device and go elsewhere?

Where they deliberately cripple parts of a smartphone's OS?

Where they decide to charge you more for using your device as a modem even if that usage still comes under the same data cap as allowed by native use of your device?

If we can't have net neutrality then let's have more competition. But where is that competition going to come from?

Building a new Telecom infrastructure is expensive. Potentially, WiMAX could vault over the Telco walls but WiMAX rollout is slow and its performance is patchy. Plus, you need the customer facing support component and the billing relationship, which is labor intensive.

Another solution is to adopt open network policies as in Europe, where Telcos are forced by law to offer their platforms to third parties. But there is no way Congress will pass such a "socialist" law, especially with the Telco lobbyists making huge contributions to political campaigns.

Silicon Valley startups are in danger

Four years ago I warned that if the situation with the Telcos isn't changed it will impact Silicon Valley startups. We need competition not net neutrality otherwise Web 2.0 dies on the vine

Three years ago I wrote:

"Last mile = Golden Mile. This Telco/Cable cartel sits smack-dab in the middle of Silicon Valley's innovation efforts. The Telco/Cable cartel control the communications gateways, they control the wireless services, and they are the most backward element in our society in terms of resisting technological progress in the US."

In today's NYTimes.com, Brad Burnham and Fred Wilson, partners at Union Square Ventures, an early stage venture capital fund wrote: A Threat to Startups.

Between the lack of any protection on the wireless side and the qualifiers and complexity on the wireline side, young startup companies will have difficulty finding financing and building businesses of scale. If an Internet access provider discriminates against a startup directly or through its network management practices, it is unlikely the startup could afford a long and expensive process to seek redress. So this proposal favors the incumbent applications and access providers.

I can't see an easy way out of it.

Luddite Telcos seem bent on keeping us in the Internet dark ages with slow connections and expensive services that will drive innovation out of the US. Government regulation has no teeth and our politicians have incentives to keep the status quo.

Where are Cisco, Intel, HP, IBM on net neutrality?

You would think that the infrastructure providers: Cisco Systems, Intel, HP, IBM, EMC, etc would be all be big supporters for more competition in Telco markets but they remain quiet. They would sell a whole lot more kit if there was more competition.

I once asked John Chambers, CEO of Cisco, why doesn't Cisco criticize Telco policy and come out with support for more competition in Telco markets? He smiled and said, "We support all of our valued customers."

But surely Mr. Chambers, and the heads of the other tech giants, have a fiduciary duty to maximize shareholder profits?

An open Internet with healthy competition would do wonders for sales. Yet where is their voice?

Net neutrality threatens GOOG, et al...

It is worth pointing out that Google, Yahoo and Microsoft have little to gain from net neutrality. I explained in a post from May, 2006:

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.

The big boys can afford to pay the Telcos and in exchange the Telcos keep the startups at bay. If I were a shareholder of Google, I'd be against net neutrality and I would campaign for Google to make deals with all the Telcos.

It's clear that's where Google is headed anyway...

The situation for startups and innovation in the US doesn't look good. Maybe it is time to relocate Silicon Valley elsewhere.

- - -

Please see:

Tom Abate: Speed Bumps on the Information Highway

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

Corporate Luddites: Cable and Telcos versus Silicon Valley - SVW

Analysis: Bad News For Startups If ISPs Start Charging Google - SVW


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