Hands Off My Net

by | Jul 23, 2006 | POLITICS

The S&P 500 has more than doubled over the last 10 years — a decade in which the Internet came out of nowhere, and established itself as the technology platform of the new global economy. The Internet has been the greatest engine of economic growth the world has ever seen. Now, for the first time, […]

The S&P 500 has more than doubled over the last 10 years — a decade in which the Internet came out of nowhere, and established itself as the technology platform of the new global economy. The Internet has been the greatest engine of economic growth the world has ever seen.

Now, for the first time, the continued expansion of the Internet is at risk. We’re about to kill the goose that lays the golden global eggs.

How? By regulating it.

Ever since the Department of Defense turned over the Internet for public use, it’s been a free-for-all. The result has been innovation on unprecedented scale and at unprecedented speed. But now there’s a move among a coterie of powerful business interests, lobbyists and politicians to change all that — to shut down the free-for-all, and turn the Internet into a government-controlled mediocrity.

The stakes here are more than just your continued ability to enjoy simple innovations on the Internet, like being able to read this column online, and to instantly give me your feedback via email.

Do you shop at Wal-Mart Stores? Do you like the low prices? You can thank the Internet for that, even if you only shop in Wal-Mart’s physical stores, not on their e-commerce site.

The Internet is the secret of Wal-Mart’s success because it has enabled the dizzyingly complex web of global communications and coordination that has made it possible to bring together the ideas, the materials, the factories, the labor and the logistics that put inexpensive goods on the shelves of Wal-Mart stores in towns all over America.

Who can imagine what miracles the next 10 years of the Internet will bring? But now it’s all being put at risk.

The crisis has been triggered by the prospect of telephone and cable operators investing tens of billions of dollars to build the Internet of the future. With the technology they’re talking about investing in, the Internet will be able to bring high-definition images and sounds into your home, on demand. Not just movies and TV shows whenever you want them, but also “virtual meetings” with dazzlingly real telepresence that will replace the common phone call — and may end up replacing in-person meetings, too.

And who knows what other amazing innovations will come from that kind of capability? That’s why they’re called “innovations.” If I could tell you what they’ll be, they wouldn’t be innovations, now would they?

But whatever might possibly come from this new technology in the future, nothing will actually happen if the telephone and cable operators won’t put billions of dollars at risk here and now to get it done. And companies like Verizon or Comcast aren’t going to do that unless they think they can make a well-earned profit from it.

One way they can earn a profit is by charging different Internet users different fees depending on the kind of service they get. For example, if all you want to do is get stock quotes, you’d be charged a low rate for using the network. But if you want to watch “The Da Vinci Code” in breathtaking high-def video and bone-rattling surround sound at exactly 12:42 a.m., you may have to pay a higher rate.

And why not? You use a lot more network resources with high-bandwidth applications like video-on-demand. And not just because there’s inherently more data to be transmitted over a longer period than for a couple of stock quotes. It’s also because, for a high-def movie, you want perfect quality and no interruptions, so your network traffic may have to be put into a special “fast lane” of the information superhighway.

The same thing happens right now. You pay more for DSL service than you do for dial-up service. And your network controls other elements of your usage, too. For example, your DSL service probably gives you a fast downlink speed and a slower uplink speed, because you probably receive more information from the Internet than you contribute.

Yet a group of today’s biggest providers of online content have banded together with consumer groups, lobbyists, and political-influence organizations to strip the telcos and cable operators of the ability to control how their own networks will be managed and priced. They want the network operators to spend billions to create a regulated public utility that they can’t control and may not profit from.

The interests pushing for this regulation have given it the Orwellian name “net neutrality.” They say that if the telcos and cable operators control their own next-generation networks, they’ll “discriminate” against certain users of the network. They say that the network operators need to make their next-generation network available to everyone on the same basis and at the same price, no matter how the network is to be used.

But “discriminate” is just the lobbyists’ word for “compete.” If you are Microsoft , eBay or Google — three of the dominant web-content companies pushing for this regulation — you’re afraid of competition from Verizon and Comcast. With ultra-powerful next-generation networks, the network operators may go from passive providers of “data pipes” to active providers of online content and services.

And just what would be wrong with that?

Nothing, if you ask me. I like competition. I like the idea of being able to get something from Verizon that Microsoft wants me only to get from Microsoft.

And I like the idea of a next-generation Internet, and all the innovation it will trigger. But I know that if the “net neutrality” regulations are enacted, that next-generation Internet will probably never exist.

That’s why, with all the big content companies lined up on the side of regulation, the hardware companies are lined up against it. For example, Cisco Systems — which hopes its routers will be a big part of any next-generation Internet build-out — is publicly opposed to “net neutrality.”

Maybe the fight over “net neutrality” is one of the reasons why stocks have fallen over the last month, with the NASDAQ leading the way down. The growth of the Internet is the best hope for continued growth of the global economy. Regulate away the growing Internet, and you regulate away the growing global economy.

It’s just that simple.

The above is an “Ahead of the Curve” column published June 9, 2006 on SmartMoney.com, where Luskin is a Contributing Editor.

Don Luskin is Chief Investment Officer for Trend Macrolytics, an economics research and consulting service providing exclusive market-focused, real-time analysis to the institutional investment community. You can visit the weblog of his forthcoming book ‘The Conspiracy to Keep You Poor and Stupid’ at www.poorandstupid.com. He is also a contributing writer to SmartMoney.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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