Net Neutrality: The Peace Treaty

I have been following the clash between the Internet Content companies and the telcos with great concern. This so called “Net Neutrality” debate has now reached new heights with Google´s letter to the FCC in which Google has offered to pay $4,6bn for former military frequencies that are becoming available. This is what Google says.

In a filing with the FCC on July 9, Google urged the Commission to adopt rules for the auction that ensure that, regardless of who wins the spectrum at auction, consumers’ interests are served. Specifically, Google encouraged the FCC to require the adoption of four types of “open” platforms as part of the license conditions:

• Open applications: Consumers should be able to download and utilize any software applications, content, or services they desire;
• Open devices: Consumers should be able to utilize a handheld communications device with whatever wireless network they prefer;
• Open services: Third parties (resellers) should be able to acquire wireless services from a 700 MHz licensee on a wholesale basis, based on reasonably nondiscriminatory commercial terms; and
• Open networks: Third parties (like internet service providers) should be able to interconnect at any technically feasible point in a 700 MHz licensee’s wireless network.

Today, as a sign of Google’s commitment to promoting greater innovation and choices for consumers, CEO Eric Schmidt sent a letter to FCC Chairman Kevin Martin, stating that should the FCC adopt all four license conditions requested above, Google intends to commit a minimum of $4.6 billion to bidding in the upcoming 700 MHz auction.

Why is Google doing this? Well in my opinion Google was very disappointed about the telcos and cable operators wanting to create an environment in the fixed line world similar to the “walled garden” they created in the mobile space. In the mobile world telcos have tried and mostly failed to leave key internet properties like Yahoo, Google, Amazon, eBay, Microsoft, and others mostly out of reach of the typical mobile phone user who were offered T Mobile, Verizon, AT&T content sites that they mostly don´t like. To me it is reasonable that when the telcos started arguing that they were going to change the rules in the fixed line worlds moving away from Net Neutrality both large and small content sites came were very concerned that the wall garden was coming into the fixed world. So Google counterattacked with a combination of initiatives to make sure that the access space is as competitive as possible. These include many forms of Open Spectrum including Muni WiFi or bidding for spectrum proposing the rules that appear above that are clearly a threat to the telcos investments in the mobile arena. But even though Google has started these initiatives other than its own home town of Mountain View Google has not connected anyone to the internet yet. I believe that Google does not want to become a telco. If they were interested they could buy Earthlink on the cheap instead of teaming up with them. Moreover in Europe, where Google derives almost half of its market cap (Europe´s GDP is higher than US GDP and the euro is at 1.38 now) Google has made no moves into the telecom space. This is because in London for example there at least 10 DSL, cable, 3G, HSDPA and other companies/technologies fighting for your internet access and Google feels much freer to grow. The relationship between BT and Google for example is excellent. The choice and prices of telco services in London is so much greater than in San Francisco that Google would have nothing to add to the UK telco world.

So given that it is not Google´s vocation to become a telco but it is its vocation to have an environment similar to that one existing in Europe in USA, how would a peace treaty between Comcast, Time Warner Cable, Verizon and AT&T and Google look like? I think that the answer lies in the telcos understanding that as they make enormous investments as Verizon is doing to bring fiber to the home internet content sites like Youtube are their biggest allies. Video is probably the only reason why somebody may want to make the move from DSL to Fiber. TV, movies, games, family videos uploading and downloading or any movement of files over 50MB are the ones who move the needle when it gets to selling fiber. A better integration of video services in the offerings of the broadband providers and not a rejection of the providers of these video services is what´s needed to sell better connections. The proof of this already exists. Cable Operators ARPUs are higher than DSL operators because their broadband is simply better. Less lawyer intervention and more product people work leading to beautiful integrations a la Joost will make for a wonderful peace treaty between the content and broadband providers.