Reality Check: The Internet needs a new roof, not another layer of shingles

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
Greetings from the heart of America, where temperatures are finally dropping and kids are headed back to school.
Several of you urged me to write about the Google Inc. (GOOG)/Verizon Communications Inc. (VZ) net neutrality proposal this week. Comments on the Google/Verizon framework have been predictable – TheWall Street Journal lambasting the Federal Communications Commission, the tech blogs and advocacy groups rejecting any proposal formed by non-governmental authorities, and reporting on protestors who delivered 300,000 signatures to Google HQ on Friday urging them to reconsider their position.
Leadership has its costs. And it is the duty of every company to move forward with proposals it believes are in the best interests of its shareholders and society. The Google/Verizon plan, however, is the product of two non-traditional bedfellows – capitalism and universal/equal infrastructure (which I’ll term the Internet for ease of discussion).
Consider the flashpoints that this column has addressed in the past year:
1. State budget shortfalls lead to taxation of Amazon.com Inc. (AMZN) marketing affiliates, rendering the tax-free basis for some of Amazon’s business obsolete. This is really a tax exemption argument, and that’s been a big issue since the “dot com” era. The argument was that in order to grow the use of the Internet, we needed to provide an incentive (and besides, those billing systems for state taxes – very complex and costly).
2. The enhanced services provider (ESP) exemption for Voice over IP. This clause allowed VoIP providers to pay lower access costs for voice minutes terminating to traditional landline phones. Without the “VoIP clause” we might not have as many cable VoIP customers, Cisco Systems Inc. (CSCO) and Juniper Networks Inc. (JNPR) would have sold fewer routers, there would be no Magic Jack service, and the telecom carriers would have far more access revenues they could use to build out infrastructure (or pay even higher dividends than today’s 8%-12% yields). The ESP is not a recent target – earlier interpretations of the ESP exemption allowed dial-up Internet providers to charge the phone companies access for their networks. If the FCC could tackle one issue, it would be the ESP provision.
3. Google Voice terminating call discrimination. Remember the blocked calls to the nuns, mechanics, and even (gasp) local Congressional offices in Iowa and South Dakota? That was the hot topic last August-October. While Google took action to minimize the incidents of blocked calls, can you make a call to an Iowa or South Dakota free conference calling service over Google Voice? No. Has the FCC ruled on Google’s continued call discrimination now that their service is open to all participants? No. Do these calls still need to be terminated by competitors AT&T Inc. (T), Verizon, Sprint Nextel Corp. (S), Qwest Communications International Inc. (Q) and T-Mobile USA Inc. (DTEGY)? Yes. The FCC, with the Google indecision, has created a new class of service called “domestically free user software services” and, since telecom loves its acronyms, I’ll leave it to the DFUSS experts to figure out how to separate it from today’s traditional services.
There are many more bogs of muddy water between capitalism and access where the FCC has declined opportunities to clarify – the Rural Universal Services subsidy and 4G land grab that resulted, the Subscriber Line Charge rules, the “too big for 3G” discrimination against Skype Ltd. and FaceTime by AT&T as they continue to pay $9 to $10 billion in annual dividends. We could even go back to the very early days of the Internet when the government created the original backbone peering and routing system – without WorldCom’s importance to the IP community, they would likely have been liquidated (Chapter 7) rather than allowed to live in Chapter 11 after they committed the largest fraud in business history.
These examples clearly show that our nation’s attempts to regulate the Internet have failed. We have a patchwork of location, activity, and technology-based regulations. The Google/ Verizon approach asks the FCC to add another layer of complexity to the equation, picking technologies (wireless vs. wireline), activities (premium/pay vs. standard/included services), and location as the bases of net neutrality regulation. It adds patchy complexity to our already leaky roof.
At some point, you need to strip off the old shingles and start fresh.
Here are five ideas about how to build a new roof:
1. The FCC should set a 365-day clock on all decisions. Make a call. Clear the docket. This applies to net neutrality, special access reform, inter-carrier compensation, and the Google Voice issues. If someone disagrees, it’ll end up in court (that’s how we got here on net neutrality, after all). Make the rules simple to follow and easy to understand. Defer to the free markets as much as possible.
2. If any carrier is employing a rate limiting or blocking device, make them tell the consumer when it is happening. If Google and their on-line marketing partners can use deep packet inspection to deliver advertisements based on searches less than an hour old, broadband users should be able to receive messages indicating “Your computer’s performance has been degraded because your carrier, , is currently using Internet management tools to rate limit certain sites.” Terms and conditions only get you so far. The more I am reminded, in real-time, that my carrier is using these tactics, the more I’ll look around for other wireline and wireless options if that’s an issue for me.
3. Sunset the Internet tax exemption status by 2016. Tax-free status was good 15 years ago in the Internet’s infancy. The Internet is more mature now, and 1990’s catalyst has become 2010’s crutch. Level the playing field and give taxation authority back to the states where it belongs.
4. Treat wireless and wireline equally whenever possible. If the consumer sees Clearwire Corp. (CLWR) as a wireline substitute (and, according to last week’s post, Clearwire retail was 36% of net adds for the broadband industry last quarter), the FCC should as well. When next-generation technologies are introduced this fall and in 2011, by Verizon Wireless and other LTE providers, the first products will not be devices like HTC Corp.’s EVO 4G smart phone, but devices that attach to your computer. If the b
andwidth is as copious as predicted, many consumers and small businesses will see these services as a wireline replacement, not a complement. This is precisely the wrong time to begin to delineate wireless from wireline services.
5. Stop any new form of federal rural subsidization or incentives. Keep existing promises, but push any future decisions back to the states who can deal with local issues. Admittedly, a few states have done a poor job of handling intra-state voice access issues and subscriber line charges, but I’d rather have them make the call on metropolitan vs. suburban vs. rural development than a distant bureaucracy.
All parties agree that the consequences are enormous. Our world is dependent on secure, fast, and connected networks. We have come a long way over the past two decades. But it’s time for vision and leadership, not management indecision. We need a new roof for the Internet, not another layer of TARP.
Jim Patterson is CEO & co-founder of Mobile Symmetry, a start-up created for carriers to solve the problems of an increasingly mobile-only society. He was most recently President – Wholesale Services for Sprint and has a career that spans over eighteen years in telecom and technology. He welcomes your comments atjim@mobilesymmetry.com.