INTERNET - NET Neutrality

"Net Neutrality Is Critical For Innovation" by Albert Wenger, Business Insider SAI 8/12/2010

I am glad to see the net neutrality debate raging. As Union Square Ventures and on our personal blogs (AVC, Continuations) we have long been proponents of net neutrality (the USV link is from 2006!).

Our own bias here is clear: we are pro-startup and pro-innovation. Both are of course essential to the venture capital business, but we believe they are also the lifeblood of the economy. Surprisingly, a lot of people who argue against net neutrality don’t seem to make the connection to innovation and startups at all. That is even more surprising when the criticism comes from someone like Henry Blodget who is clearly the beneficiary of the level playing field provided by net neutrality.

As for the Google-Verizon proposal, my partner Brad has done a terrific job pointing out two of the key problems. I want to go a step further though. Much as I am glad that Google has been a proponent of some aspects of net neutrality, Google is no longer a startup itself! Google’s ability to cross-subsidize new markets from its amazing core business poses a potential threat to innovation that I have written about before. This access to nearly limitless funds is especially important to keep in mind when looking at net neutrality.

Because there are a lot of subtleties once one drills down, it is easy to lose sight of the most basic principle that net neutrality is trying to achieve: the ability for innovative startups to deliver their content and services on a level playing field with incumbents. It is easy to forget this because we have actually de facto had net neutrality, which is what has allowed the creation and rise of services and companies such as Google in the first place. It is hard to argue that the Internet has not unleashed a torrent of innovation that has hugely benefited endusers (at the cost of disrupting some existing businesses). Net neutrality is all about codifying this existing state of the Internet and preventing a distorted playing field that favors incumbents.

Imagine for a moment an Internet in which Google can pay Verizon and others to deliver Youtube videos faster than video content from other sites, including that of your favorite startup. Given Youtube’s existing scale and Google’s ability to cross subsidize, this would forever cement Youtube as the source of Internet video. I fail to see how this could be in anybody’s interest other than Youtube’s and Verizon’s (Business Insider included). That is exactly what the current Google-Verizon proposal would allow for the wireless Internet. Now ask yourself what will be more important in the near future — wireline or wireless delivery of the Internet?The argument that competition among wireless carriers will take care of this seems disingenuous at best when we have all of four carriers left of which two control the bulk of the market. This is an oligopoly in which (even without any talk among carriers), the natural game theoretic equilibrium is one where none of the carriers provides net neutrality and all accept payments from incumbents.

So what could actual net neutrality look like when codified? It could be as simple as saying: carriers can charge people only for their bandwidth (up and down) and cannot accept other payments. In this scheme endusers still pay for bandwidth (as they do today) and bandwidth caps are possible. Youtube still pays for its bandwidth. But Youtube cannot pay for faster delivery, cannot pay for being excluded from consumers’ bandwidth caps etc. As it turns out — and this is again critical to emphasize — that is the status quo! A status quo that has brought us tremendous innovation and sufficient investment by carriers in bandwidth despite their griping.

Finally, to all those who would say that the government doesn’t regulate what people can pay and cannot pay for in other areas, that is of course wrong. You can pay a taxi for taking you from A to B, but paying the taxi to go above the speed limit is not legal. You can pay to get a liver transplant, but you can’t pay to get one faster than others. We full well realize that safety and ethical concerns matter. So does innovation. Net neutrality is all about protecting innovation while still providing the funds for carriers to invest in network growth.