Congress: Don’t Kill the Internet’s Golden Goose — Welcoming Private Investment Capital

February 11, 2009

It is more important what Congress does not do — than what it does do — concerning the final language on broadband in the pending economic stimulus bill.

  • It is critical for economic growth and job creation for Congress not to derail the market competition and private investment dynamic, which is currently very successful for 90+% of the country — in trying to achieve broadband open access for the <10% of the country that does not have it, or enough of it. 
  • Economically-depressing, open access/net neutrality restrictions on broadband investment are counter-productive in an economic stimulus package.Welcoming private investment capital has been the proverbial ‘golden goose’ that has produced most all of the Internet’s many ‘golden eggs’ of economic growth, job creation and innovation. 
    • Few ever heard of the Internet until the National Science Foundation opened the Internet to private investment capital in the mid-1990’s. 
    • In 1996, Congress made it the “policy of the United States to preserve the vibrant and competitive free market that exists for the Internet….” 
    • One of the last things the country needs right now is for Congress to unwittingly cripple one of the few relatively healthy segments of the economy, and a critical engine of future economic growth and job creation, with unnecessary open access/net neutrality restrictions.
      • Such restrictions would be disincentives to continue investing private investment capital in the broadband Internet. 

    Public investment to achieve universal broadband for <10% of the country can be, and should be, done cleanly without destroying the private investment incentives for the other 90+% of the country.

    • In other words, conditions on $6b of proposed public investment in broadband, must not discourage private investment which is over twenty times larger — ~$120b in the last two years.
      • The real economic ‘multiplier’ Congress must want to avoid here is 20-1 — discouraging $20 of private investment for every $1 in public investment. 
      • The Senate bill has done a much better job of addressing these competition and private investment concerns than the House bill has.
      • However, the final bill should exclude open access/net neutrality restrictions on broadband investment.  

    In completing the final economic stimulus package, Congress needs to stay laser-focused on the recovery purpose of the bill and “do no harm” to the overall economy. 

    • There is great consensus around a clean bill that promotes universal broadband access and adoption.
    • It makes no sense for Congress to endanger the most important, urgently necessary, consensus goals of economic growth/job creation and universal broadband, with unnecessary and counterproductive open access/net neutrality disincentives to private investment. 
    • It has been irresponsible and self-serving for net neutrality proponents to try and take the urgent economic stimulus package hostage to their non-urgent, economy-depressing political agenda — that they cannot achieve through the normal policy making process. 

    I. Why does open access = economic depressant?

    Open access investment restrictions would depress economic growth, discourage job creation, and dis-incent private investment because they would have the practical effect of: 

    • Undermining the economic benefit of network ownership;
    • Undercutting market-driven pricing by:
      • Forcing the commoditization of broadband prices; and
      • Discouraging fair consumption-based pricing, i.e. speed tiers and usage caps; 
    • Crippling the market’s natural pricing mechanism for satisfying increasing bandwidth demand with increasing bandwidth supply;
    • Discouraging product and service differentiation to meet the growing diversity of consumer, needs, wants and demands from broadband;
    • Kneecapping private investors’ ability to earn a return on their investment; and
    • Prohibiting necessary smart network innovation to deliver quality of service. 

    Net neutrality proponents are irresponsible in asking Congress to totally ignore the real world risks and problems that their proposals could cause.

    • The old adage is true: ‘Capital goes where it is welcome.’
    • Applying unnecessary open access/net neutrality restrictions on the broadband industry could be seen by many investors/companies as a flashing neon sign: “private broadband investment unwelcome.”  

    II. What’s the big untold story here?

    The big untold story is the new government’s clear rejection of the net neutrality movement’s sweeping ‘commons’ agenda.

    • First, in his inaugural address, President Obama effectively repudiated those seeking to replace the free market Internet with a government-mandated Internet “commons” under the guise of promoting “Internet freedom” — by asserting: “Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched….” 
    • Second, the new Government roundly rejected overt commons-based agendas — like:  
    • They rejected this ‘commons’ vision because they know that the current market-competition policy is working, and that it would be unwise to increase the deficit and make the U.S. taxpayer pay for what private investors already are funding on their own.
    • Moreover, if ever there was a time when the Government could have endorsed a massive public investment in broadband, it would have been in this $800b stimulus package when the budget’s ‘pay-go’ rules have been suspended because of the economic recession.
      • If they couldn’t get the Government to fund their big commons agenda now, they certainly won’t be able to in the tighter constraints of the normal budgeting and appropriations processes.
    • Third, we learned a lot about where broadband funding fits in the nation’s political funding priorities.
      • Getting broadband to those Americans that don’t have it — was proved to be important to the tune of ~$6b.
      • However, public funding for mainstream broadband deployment or upgrades that would compete with or supplant current private investment did not prove to be important.
    • Simply, net neutrality proponents got a rude political awakening — that the largely-manufactured problem of network discrimination — paled in comparison to the Nation’s myriad of urgent, massive and real problems.

    Bottom line:

    The $120b of private investment by broadband companies over the last two years dwarfs the $6b in public investment in the economic stimulus package.

    • The biggest broadband economic multiplier the Congress should be concerned about is 20-1, i.e. discouraging the $20 of private investment in broadband by putting unnecessary and broad restrictions on the $1 in public investment.
    • The last time the Government considered imposing open access restrictions on broadband several years ago, that uncertainty massively chilled private investment in broadband and ended up delaying widespread availability of broadband in the U.S. — by several years.   

    Finally, placing open access/net neutrality restrictions on private investment in the economic stimulus package would depress economic growth, discourage job creation and dis-incent private broadband investment.

    • It makes no more sense than playing with matches during a drought.
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