Net Neutrality Is Pro-Business

The WSJ has a story this morning that FCC Chairman Julius Genachowski has decided to move forward with an effort to “regulate broadband Internet.” Many people, including readers of this blog, think regulating the Internet is bad for business. I don’t and here is why.

The FCC is already on record that they have a very lightweight regulatory framework in mind for the Internet. In 2005, the FCC proposed four very simple rules:

??? Consumers are entitled to access the lawful Internet content of their choice. 

??? Consumers are entitled to run applications and use services of their  choice, subject to the needs of law enforcement. 

??? Consumers are entitled to connect their choice of legal devices that do not harm the network.  

??? Consumers are entitled to competition among network providers, application and service providers, and content providers.

In late 2009, Chairman Genachowski proposed two more rules:

??? Non-discrimination: ISPs must not discriminate against any content or applications;

??? Transparency: ISPs must disclose all their policies to customers.

The six principals are the sum of net neutrality regulation. That is it. This is what Chairman Genachowski intends to push forward on.

But of course, the telcos and cable companies don’t want to be subject to these rules and they have been fighting them tooth and nail for years. They complain that they won’t be able to invest in their networks. They say that business interests don’t support these rules.

Well first and foremost, let me say that I am in business too. And I very much support these rules. And without these rules, investors like me who invest in the “open internet” will not be able to invest anymore. So you can choose between telcos saying they won’t be able to invest under one set of rules vs VCs who say they won’t be able to invest under another set of rules.

But if you look at history, you can see that telcos have invested very heavily in their networks while under the threat of net neutrality regulation or even in instances when they were under direct net neutrality regulation. The argument is specious and their actions have show that.

But if you look at VCs, you see another story. Look at the mobile Internet from the late 90s until the advent of the app store. Many VCs such as our firm would not invest in the mobile Internet when it was controlled by carriers who set the rules, picked winners, and used predatory tactics to control their networks. Once Apple opened things up with the iPhone and the app store, many firms changed their approach, including our firm. And if you look at the hundreds, maybe thousands, of mobile Internet firms that were VC funded in the first decade of the mobile Internet, when the business was controlled by the carriers, you will see an enormous failure rate and certainly negative returns for the entire sector. Contrast that with the current environment and the difference is striking.

So a lightweight regulatory framework for the Internet is good for business, particularly the businesses that are getting funded today. And it is not bad for the carriers’ businesses. There is no mention of pricing in the six principles. The carriers will be able to charge whatever they feel is necessary to finance their network buildouts. But what they will not be able to do is charge on both sides of the network, where they could stifle innovation at the edge. The bottom line is we want the carriers to be able to make money, invest in their networks, and build the broadband internet. But we do not want them to be able to control it and turn it into the kind of Internet that existed in the mobile environment in the past decade.

That is what this fight is all about. And so I would encourage all you business leaders working and investing in the open Internet to stand up and say that net neutrality is pro-business. Because if you don’t, the FCC could lose this fight and we’ll be in a much worse place.