Facebook: Where’s The Gratitude?

Imagine finding yourself in this frustrating situation. You wish to give to a worthy cause, but you’re unable to find any one who is happy to accept your contribution!

Facebook founder Mark Zuckerberg must be feeling that frustration today. The Indian government recently ruled that the firm’s Free Basics service, which provides complimentary internet access to Facebook and a few other web based services, is illegal in that nation.

Why? Apparently, the Indians classify Facebook as an internet service provider because it provides web access as well as a web-based service. Thus, the firm is required by Indian law to allow users to access any online site and service, and not just a chosen few.

That principle is known as net neutrality in the United States. Although it has been debated throughout the government from time to time, it is generally the law of the land in America as well.

This isn’t the first time that Zuckerberg or his firm has been rebuffed for giving away funds or services. Several months ago, he and his wife were criticized for the legal structure of a charitable organization that received 99% of his Facebook stock.

And a few years ago, the citizens of Newark, New Jersey severely criticized him for failing to establish appropriate goals for a $100 million gift to the public education system of their city. Instead of generating gratitude, the gift precipitated immense rancor in the local community.

Of course, Mr. Zuckerberg isn’t yet ready to resign from his firm and manage his charitable investments on a full-time basis, as Bill and Melinda Gates did when they left Microsoft to found their global charitable foundation. He’s still fully immersed in the business of managing the world’s most successful social network.

Nevertheless, if he does intend to give away more money or resources, he might wish to pay more attention to managing those charitable activities. Otherwise, he’s likely to continue wondering why he isn’t receiving the slightest amount of gratitude from the beneficiaries of his largesse.

Internet Neutrality and Market Competition

Many consumer advocates expressed concern last week when a federal court judge struck down regulations that required the “net neutrality” of internet service providers. Without such regulations, the advocates fear that telephone and cable companies that provide access to the internet may begin to wreak havoc on the existing system of web services.

On the one hand, they do have valid cause for concern, given that service providers now possess the right to manipulate web traffic patterns. But on the other hand, a little chaos in the short run may possibly benefit consumers in the long run.

What, exactly, is net neutrality? It’s the longstanding policy, first established by the Federal Communications Commission of the United States, that internet service providers must provide equal and open access to all web sites and services. Comcast Cable, for instance, had been prohibited from strengthening the competitive position of its own NBC Universal programs by slowing down or blocking rival video streaming services like Netflix or Google’s YouTube.

But as a result of last week’s court decision, internet service providers now possess the right to engage in such brazen tactics. What would be the outcome of this type of bare knuckled competitive activity?

It’s not difficult to foresee that producers of content might retaliate by developing new technologies for reaching their audiences. Google, for instance, has already introduced its own fiber based internet service network in Kansas City, Missouri. It has announced plans to introduce similar networks in Austin, Texas and Provo, Utah as well.

It’s also possible that producers of content might retrofit and then customize traditional systems of data transmission for digital use. When the original analog television broadcast spectrum was upgraded to transmit digital signals, a “digital dividend” of unused spectrum was set free for alternative uses. This unused spectrum can now be utilized for new broadband networks.

Such blending of traditional television broadcast technologies and web based data streaming services would be consistent with today’s newly emerging delivery systems. Aereo, for instance, is currently battling the legacy television broadcast networks for the right to capture free television signals via antennae, and then to stream the video (without paying royalties) over the internet to its customers.

In other words, although the deregulation of the internet service industry may strengthen the competitive positions of entrenched providers in the short term, it may incentivize new rivals with far deeper pockets to develop innovative delivery systems in the longer term.

If you were the investment director of a telecommunications industry mutual fund, would you buy or sell the stock of Comcast and other internet service providers in light of the recent net neutrality court decision?

Netflix vs. Comcast: A “Ma Bell” Moment?

Do you remember Ma Bell? Do you miss her?

Ma Bell, as you may recall, was the colloquial name for AT&T’s national monopoly, a business that controlled virtually every telephone in the United States. From the time that the Justice Department granted it that franchise in 1913, until the time that the government launched a lawsuit in support of spunky upstart MCI’s antitrust case in 1974, AT&T possessed what might have been the most lucrative unchallenged legal monopoly in American business history.

Throughout that period, AT&T owned and operated every telephone pole, every phone line, and every piece of voice transmission equipment in the United States. It also provided service to each citizen and each organization that needed a telephone. But once MCI introduced a competitive plan to deliver voice services over AT&T’s system, the Justice Department decided to require AT&T to provide the same level of access to any external service provider that it provided to its own service division.

It remains a topic of conjecture as to whether the innovative threats of mobile phone service and the internet would have brought down the AT&T monopoly any way, had AT&T not voluntarily agreed to a break-up under Justice Department auspices in 1984. Amazingly, though, a very similar debate erupted last week between a cable television company and a pair of internet service firms.

Comcast: The New AT&T?

Comcast, like the old AT&T, is a communication transmission company, albeit one that enables customers to receive cable television service. In each of its communities, Comcast has been granted a monopolistic license to maintain the television transmission cables under (or over) the public streets, and to sell access to those transmissions to the general public. They have also been granted an exclusive license to provide the public with cable-based internet access as well.

Recently, however, a relatively new service firm named Netflix has begun streaming Hollywood films and shows to the television sets of Comcast customers through Comcast’s transmission cables. At first, Comcast did little or nothing to oppose that practice. But now that the Netflix movie streaming service has grown to the point where it utilizes over 20% of America’s internet bandwidth traffic during the peak evening hours, Comcast is suddenly paying attention.

Once Netflix agreed to rely on the internet service firm Level 3 Communications to help it grow even further, Comcast suddenly demanded that Level 3 pay it special fees for the privilege of using its transmission cables. But will the federal government permit Comcast to charge independent providers special fees for competing with Comcast’s own cable television service?

Net Neutrality Under Fire

Negotiations between Netflix, Level 3 and Comcast are now in progress. The federal government is looking on as a highly interested observer, due to the importance of a general principle known as net neutrality.

To put it simply, net neutrality means that an internet service provider cannot “play favorites” by providing one web based service with preferential transmission rights over another. It cannot, for instance, stream its own movies at full speed over the internet while slowing down or halting the streaming activities of rival firms. Likewise, it cannot transmit the email messages of its own customers more quickly than the email messages of others.

The problem with net neutrality, of course, is that internet service providers appear to be the only firms that are being held to the principle. Apple’s iPad, for instance, plays streaming videos in the HTML5 format but refuses to play videos in Adobe’s Flash format. And Facebook’s new email service initially places the messages of each user’s Facebook friends in a more easily accessible box than the messages of others.

To force full neutrality on all of these parties would be an overwhelming task; no one is currently suggesting that the federal government enforce such a standard. That being the case, though, can the government selectively enforce the net neutrality principle on Comcast and other cable television firms?

The Future: Web 2.0

One vision of the future, dubbed Web 2.0, is that the very concept of net neutrality will fall victim to the evolution of the communication medium itself. Facebook, for instance, seems to be evolving into a private password-protected version of the internet, with its users maintaining “walls” that function like web pages, and with email, text chat, and other communication capabilities available as well. And Iridium provides the entire earth with its own privately owned transmission service, operating via a network of 66 planetary satellites.

As such firms continue to grow in size and power, it will become progressively harder to force them to provide equal access to upstarts like Netflix. What may eventually emerge is a bimodal internet system, with a theoretically “net neutral” world wide web that relatively few people continue to use, and a number of private, proprietary services that represent the future of the medium.

Net Neutrality and the Internet’s Future

Government regulators of the transportation industry were jolted earlier this year when an unprecedented 3.5 mile long freight train was driven through the Los Angeles metropolitan region by Union Pacific. Although public advocates expressed concerns about monster trains, experts noted that such modes of distribution can remove hundreds of large freight trucks from our nation’s highways, thereby relieving road congestion.

Railroads, of course, have been enjoying a recent revival in the United States as a preferred method for transporting merchandise. Although train tracks were first laid across the North American continent during the 19th century, decades before interstate highways were built across America, the decline of trains during the 20th century has ironically led to a current surplus of rail shipping capacity at the very moment when gridlock threatens our national road system.

The internet, as an information superhighway, also faces a condition of gridlock. But how should government regulators act to ensure that our soaring demand for mobile messaging, video, and other bandwidth hogging services can be met by the newly emerging technological infrastructure?

The Argument for Net Neutrality

Traditionally, the internet has been embraced as a medium in with any individual or organization can share information across the globe for little or no cost. Individuals, for instance, are free to use web services such as Facebook or Blogger to post the details of their lives and express their personal opinions. And organizations are welcome to use inexpensive web hosting services such as Microsoft’s Office Live to engage in e-commerce activities.

This tradition, however, has begun to fray in the face of the explosion of content that requires enormous amounts of bandwidth. Even a brief video, for instance, requires far more server storage space than hundreds (or even thousands) of text messages or static web pages. And with the advent of mobile devices such as the iPhone and iPad, the demand to stream such content over wireless networks has challenged the abilities of service providers such as AT&T to continue building accessible systems.

Proponents of net neutrality believe that all individuals and organizations should enjoy equal access to all commercial internet networks. By maintaining this principle, proponents argue, the next generation of inventors, innovators, and entrepreneurs will be able to reach their constituents and develop the new technologies that will be needed to ensure continued growth.

Google’s New Argument: A Nuanced View

Until this past week, Google has been the technology industry’s prime supporter of the principle of net neutrality. This is, of course, not surprising; after all, without having enjoyed equal access to internet users, Google may never have convinced the general public to give its once-new search engine a try. In other words, if not for net neutrality, we might all still be using Yahoo, Lycos, Alta Vista, and Ask Jeeves for our internet search activities!

That’s why so many industry pundits were stunned when Google and Verizon issued a joint proposal last week that appeared to refute the principle of net neutrality. Although they reaffirmed that this principle should continue to be applied to wired internet services, it unexpectedly advocated that wireless services — including Verizon cell phones that utilize Google’s Android operating system — should be permitted to offer individuals and organizations premium access to faster and more stable levels of internet service.

They argued, with some merit, that internet providers must find a way to raise the capital that will be required to continue building service capacity. Because the mobile industry is a highly competitive market, they asserted, developers and users of the most advanced web based services should be expected to pay for the premium levels of bandwidth that will be needed to operate them.

Private Service or Public Utility?

Although some skeptics complained that Google appeared to be shifting its long held position to advance its own private commercial interests, Google may simply have been responding to an evolving perception regarding the internet itself. As was the case with radio during the 1920s and then television during the 1950s, the internet was initially perceived as a radical new technology with immense power to educate mass populations through electronic global communications. Eventually, though, all three media channels matured into networks that were focused on for-profit commercial transactions.

Radio and television stations, for instance, were once expected or required to devote large amounts of air time to broadcasting current news stories, documentaries, and other public service features. Although the three legacy television networks in the United States still broadcast the evening news each day, they have dramatically redefined their news divisions to cover entertainment stories, and have long ceased broadcasting live performances of fine arts such as dramatic theater.

Net neutrality advocates appear to perceive the internet as a public utility that should be tightly regulated to ensure that citizens continue to enjoy equal access to its public benefits. They may find, however, that — like the communication media innovations of the twentieth century — the internet will inevitably age and increasingly focus on its role as a commercial distributor of private sector goods and services.