The Only Republican in San Francisco

Net neutrality bonanza for lawyers

Peter Huber has an article in Forbes about how net neutrality's primary beneficiaries will be lawyers like himself. The funny thing about our little two-word catch-phrase is that...

It will be a 2 million-word law by the time Congress, the Federal Communications Commission and the courts are done with it. Grand principles always end up as spaghetti in this industry, because they aim to regulate networks that are far more complicated than anything you have ever seen heaped up beside an amusing little glass of chianti.

As with everything in politics, it all comes back to constituencies, which is a noble-sounding word for special interest groups. It should not be surprising that the majority of those arguing for neutrality are on the political left -- specifically, Congressional Democrats, one of whose largest constituencies is the bar.

Importantly, Huber points out the companies who are arguing for "neutrality" are already using decidedly non-neutral means for making sure their traffic gets to you quickly:

The network that's lighting your screen today isn't neutral at all. Google, Amazon [...] Citicorp--all pay a privately negotiated price for better connections from their huge banks of servers to the Internet. What they get are fast connections from their premises--and for just their content--to one of the several dozen "network access points" that channel data into the Internet's sprawling, ultrahigh-speed backbone.

Then they buy still more speed--for their content and no one else's--from companies like Akamai. Akamai provides neutrality-busting service. The company has deployed a global array of servers that cache content supplied by its customers so that it's sitting out there when it's needed, much closer to the people who need it.

This is important to point this out, if one is prone to making pro-neutrality arguments on the basis of fairness. The companies arguing most loudly for net neutrality are those who can afford to supersede it. In essence, their argument for neutrality is a business proposition -- neutrality will hamstring potential competitors while the big guys like Google zoom right past.

Now, to be clear, I think these companies should use any and all means to make their products more attractive. Of course they should be able to buy faster delivery systems like Akamai. It benefits consumers, it drives novel technology, it makes the web better for those who use their services.

The problem is, these companies don't believe that others should enjoy such advantages.

(h/t Adam Thierer)

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Here is a bit more from Adam about how new laws turn into massive employment opportunities for lawyers. He studies the effect of our last big telecoms law, from 1996:

[...] let's take a quick tally of the paperwork burden the FCC managed to churn out in just three major "competition" rules it issued in an attempt to implement the Telecom Act [...]

1,575 pages and 6,770 footnotes worth of regulation in just three orders [...]

this was all implemented following the passage of a bill (The Telecom Act) that was supposed to be deregulatory in character [...]

Lawyers, in particular, did quite well thanks to the FCC's endless stream of litigation-prone rulemakings during the 1996-2003 period. Greg Sidak of Georgetown University Law School found that the number of telecom lawyers--as measured by membership in the Federal Communications Bar Association--grew by a stunning 73 percent in the late 1990s. That was largely driven by a 37 percent hike in FCC spending and a tripling of the number of pages of regulations in the FCC Record in the post-Telecom Act period. [emphasis in the original]

Now, imagine if we mobilized that sort of talent to, you know, build new networks. Read the whole thing.

Sarbanes-Oxley chases away Silicon Valley legend

Jim Clark, one of the founders of Netscape, has resigned his position as chairman of the board at Shutterfly, saying that Sarbanes-Oxley has removed his incentive to be in that position:

In his resignation letter, he cited "the constraints imposed by Sarbanes-Oxley on (his) having any significant role on the board" as one of the primary reasons for departure.

This is becoming increasingly common in the venture capital-driven technology world. Ultimately, companies will act according to their interests, and for small startups, going public is no longer their best choice.

Restrictions on public companies' activity can be so stringent for an entrepreneurial culture like Silicon Valley's that some tech insiders think that the average company is better off not going public in the first place.

"Clearly being public today is a greater burden on younger companies and their executives, so it's probably better for everyone that these companies stay private," said blogging entrepreneur Jason Calacanis, former head of Weblogs Inc. and current "Entrepreneur in Action" at investment firm Sequoia Capital.

The implications of this are manifold. Not least, it makes it much harder to capitalize small companies. Imagine if Google (or Netscape or Microsoft or Intel or Apple) had never gone public. Would we be where we are today?

Further, when companies decide to go (or stay) private, many fewer people participate in their financial success. Right now, tens of thousands of regular, middle-class people own a piece of Google, due to their participation in public markets (via 401k's, mutual funds, etc).

For companies that stay private, a much smaller fraction is able to be part of it, and those people are limited to well-heeled private investors.

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On a more personal note, I report to the Chief Technology Officer at my firm of ~800 people, which in turn is owned by a large publicly-traded company. When he first hired me 8 years ago, we did technology, and we changed our company in big ways.

Since the advent of Sarbanes-Oxley, I do technology and he does paperwork. He's paid six figures to ensure compliance with laws that have little to do with the business we are in. His considerable creative skills are wasted.

Not only does this remove any ambitions I might have had to become a CTO, it also means that our company has become less competitive due to the effective loss of a talented executive.

Multiply this out to other industries, and you understand the problem: in 2006, the NY Stock Exchange fell to third in the world:

As a result of the law's costly regulatory burdens and stiff civil and criminal penalties for unintentional corporate behavior, American capital markets have seen a competitive decline marked by a steady flow of foreign initial public offerings. The year 2006 marked a milestone in the decline of American capital market supremacy — the New York Stock Exchange, the world's leader before Sarbanes-Oxley, dropped to third in the global market for initial public offerings, behind London and Hong Kong. The financial secretary of Hong Kong, Henry Tang, recently thanked Messrs. Sarbanes and Oxley for sending so much business his way.

Always an advocate of clarity, here is my man Milton:

Sarbanes-Oxley says to every entrepreneur, "For God's sake, don't innovate. Don't take chances because down will come the hatchet. We're going to your head off." We want a risk-taking society, not a society afraid of taking risk.

'Father of the Internet' against net neutrality

Here's Bob Kahn, one of the early inventors of the Internet, on the folly of net neutrality:

[...] Kahn warned against legislation that inhibited experimentation and innovation where it was needed.

Kahn rejected the term "Net Neutrality", calling it "a slogan". He cautioned against dogmatic views of network architecture, saying the need for experimentation at the edges shouldn't come at the expense of improvements elsewhere in the network.

"If the goal is to encourage people to build new capabilities...you want to incentivize people to innovate, and they're going to innovate on their own nets or a few other nets,"

"I am totally opposed to mandating that nothing interesting can happen inside the net," he said.

I've been against net neutrality for many reasons, but the most compelling of those is that it makes many kinds of experimentation illegal. Of course that's not the ostensible goal ("fairness", doncha know), but net neutrality legislation would make certain technologies, and the pricing models that go with them, against the law. And, more importantly, it would give the government a toehold for further legislation.

Anyone who is forward-looking in the world of technology should support freedom on all parts of the network. To support regulations that limit this is simply technophobic.

(h/t Glenn)

New Washington Post editorial on net neutrality

Professors David Farber and Michael Katz have a new editorial at the Washington Post on net neutrality. They argue many of the things I've been arguing all along, and they lay it out quite clearly.

The Internet needs a makeover. Unfortunately, congressional initiatives aimed at preserving the best of the old Internet threaten to stifle the emergence of the new one. [...]

Network neutrality is supposed to promote continuing Internet innovation by restricting the ability of network owners to give certain traffic priority based on the content or application being carried or on the sender's willingness to pay. The problem is that these restrictions would prohibit practices that could increase the value of the Internet for customers. [...]

Blocking premium pricing in the name of neutrality might have the unintended effect of blocking the premium services from which customers would benefit. No one would propose that the U.S. Postal Service be prohibited from offering Express Mail because a "fast lane" mail service is "undemocratic." Yet some current proposals would do exactly this for Internet services.

Read the whole thing.

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The ever-sensible Cynthia Brumfield has more.

San Francisco Wi-Fi politics

Cynthia over at IP Democracy has a good summary of the current state of SF’s municipal Wi-Fi project. The current deal proposes that Earthlink and Google will have exclusive rights to build and support a new wireless network.

On the uspide, I am glad that the city is not trying to build its own network, which would be an underperforming, wasteful boondoggle. Mayor Newsom agrees:

But Newsom rejected alternatives, saying San Francisco has neither the expertise nor the money to spare.

"I'm not going to take $10 million from poor people to pay for something that a private company has offered to pay for," he added, suggesting money for a system owned or part-owned by city government would take money from social programs.

However, granting exclusive rights to Earthlink/Google raises problems of its own, as Cynthia points out:

Aside from limiting competition due to EarthLink’s control of the unlicensed radio bands, not to mention Google’s role as sole ISP, the deal won’t even help the city’s low-income residents, who might have to shell out $80 to $200 for [home equipment] plus pay $21.95/month for relatively low-speed broadband service

I’ve said before that it’s not even clear there is a verifiable demand for this, which is to say customers who will pay for the network in such a way that supports itself. I also think it’s far from clear that Wi-Fi is the best technological choice (with WiMax on the horizon) or that blanket coverage of the city is a good allocation of resources.

For example, why would we blanket every residential neighborhood with Wi-Fi? I can buy DSL or cable for Internet access, and I doubt that a Wi-Fi antenna sitting down the block will offer anything that’s as reliable or fast. Plus, I can buy a 3G wireless plan for Verizon or Sprint if I need the mobility. So exactly what gap is being filled by muni Wi-Fi, at the end of the day?

The only argument I can see is for true public spaces, which is to say, the city might consider Wi-Fi as part of its parks and libraries budgets. Those are places that residents actually expect municipal services. And if coffee shops and shopping malls want it, those businesses can do it themsleves. Many already do, of course.

Seems to me the city should simply be non-discriminatory and let any company that wants to come in and build a network to do so, with the same rules applying to all comers. It would obviate the politics and offer a true test of the viability of municipal Wi-Fi.

A bit of clarity on the trade deficit

Here's an interesting article on what a trade deficit is and isn't, by John Stossel of all people.

Trade statistics obscure reality. Individuals exchange only when each expects to benefit. If they didn't expect it, they wouldn't trade. That's true even if one party is American and the other Chinese. Trade is trade. [...]

In fact, it's a good thing. Foreigners trade cool products (and capital goods) for paper money. They can do only three things with our dollars: buy American goods and services, save them, or invest in the United States (including buying U.S. government debt).

In other words, most of what foreigners don't spend here, they invest here. The trade deficit is mirrored by the capital-account surplus .

A large trade deficit is more associated with successful and mature economies, and the converse is true as well:

What the trade fearmongers don't say is that countries with trade surpluses often don't do very well. Japan had a trade surplus all during its long recession, which began in 1990 and is only now ending. By contrast, countries running trade deficits often experience economic booms. A Cato Institute study shows, "Contrary to prevailing assumptions, 'worsening' trade deficits are associated with faster GDP and manufacturing growth and more rapidly declining unemployment, while 'improving' trade deficits are associated with slower GDP and manufacturing growth and rising unemployment."

(h/t Mankiw)

Google vs. neutrality, part 3

[nerd stuff, bear with me]

Richard Bennett points out that Google has applied for a patent on QoS, which for non-techies means a way of making sure certain Internet traffic has priority over other traffic. Seems to be the precise opposite of net neutrality, no?

The present invention provides efficient and effective quality of service for information that is time sensitive (e.g., real time data) [...]

In one embodiment of the present invention time sensitive information is cut through routed on a virtual channel and pre-empts non time sensitive information.

Interesting: information that "pre-empts" and "cuts through". I wonder whose traffic they intend to give this sort of priority treatment?

Google has no interest in neutrality of any sort, be it on the content level or the physical network. By cynically backing net neutrality regulation, they hope to subdue potential competitors through force of government. At the same time, they work to build advantages that are theirs alone.

If you believe that net neutrality is in some way a noble or progressive concept, take some time to understand the goals of its biggest proponents.

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As much as I love to bash Google's hypocrisy, I support their right to develop any and all technology that gives them advantage. They understand the technical advantages of being able to prioritize traffic. The best way to tune this priority is to let folks pay for it to the extent they believe it important.

You might recognize this as "the market". In the real world, the market ain't neutral. It makes real decisions, all day, every day, to express the pluralistic will(s) of the people. The result is wealth and freedom for more people than any other system, plus an extraordinary ability to adapt to changes.

I'd like a similar wealth and dynamism on our networks. In the same way that socialism helps to ensure a roughly equal level of poverty across a society, network neutrality promises a similar stasis for the Internet. I think we can do better.

Economists envious of physicists? Don't be.

Steven Postrel has an interesting post up about economists' supposed envy of physicists. I am the opposite of this: a physics guy who wishes he knew more about economics.

I suspect the thing economists wished they had was a level of determinism that physicists enjoy. Which is to say, a law of physics might approach 100% accuracy while a law of economics never can. But this is a false competition.

Economics is much more like medicine than it is like physics. At its best, economics is prescriptive: take these steps and you can hope for a certain outcome to greater or lesser levels of confidence. As time goes by and we gain a greater history of experiments and outcomes, we can increase our assurance that certain decisions will lead to certain results.

Like medicine, economists go by an artful combination of science, experience and hope to improve our odds of success. Physicists operate on these things as well, but their experiments are much more likely to give us a yes-or-no answer.

And, perhaps most like medicine, economic outcomes are ultimately based on the will of the human animal, whose predictability eludes us too often.

Physics was incredibly valuable to me educationally, as it taught me a way of understanding systems and their dynamics. It's the ability to characterize how different forces interact as part of a whole. There is no right and wrong so much as there are dynamics to be understood.

I suppose this is what attracts me to economics, because in and of itself, it does not determine right and wrong. Rather, like physics, it describes the systems and the relationships among its members.

Increase the minimum wage, expect a decrease in employment. Increase the money supply, expect that money to be worth less (aka inflation). These things do not describe right and wrong, but rather the fundamental economic precept of the trade-off. Only when we decide that one side of the equation is more important than the other do economic ideas gain moral weight.

Another thing I learned in physics (and philosophy) is that the more you learn, the more you realize how little you know. I am something of a free-market ideologue, an unattractive quality. But I will be the first to tell you that, for all my wonky economics reading, the sliver that I understand pales in comparison to the bulk that I don't.

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Here is some of that wonky sexy econ stuff, I suggest checking them out.

Greg Mankiw (former Bush guy, too smart for me)
Econlog (Arnold Kling and Bryan Kaplan)
Asymmetrical Information (Jane Galt aka Megan Mcardle, erstwhile anonymous Economist writer)

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PS, did I say dynamics a few times? Mr. Postrel happens to be married to this person.

Google gets less neutral

You may have seen my previous post about how Google is not interested in any concept of content neutrality that applies to itself. As if to further prove the point, Google today stopped providing links to competitive mapping sites.

Now, for me, that's fine. Totally within their rights. But I wonder how net neutrality advocates -- with their love of line-sharing -- feel about this. As a dominant provider of search, shouldn't Google open up their network to their competitors?

The Fairness Doctrine and net neutrality, natural partners

I've said many times that net neutrality regulations are tantamount to the Fairness Doctrine, an old law wherein the government determined what amounts to "fair speech". Dennis Kucinich, with the help of two FCC commissioners, has now made this explicit:

In addition to media ownership, the committee is expected to focus its attention on issues such as net neutrality and major telecommunications mergers. Also in consideration is the "Fairness Doctrine," which required broadcasters to present controversial topics in a fair and honest manner.

As a reminder, net neutrality legislation aims to regulate how Internet traffic flows over private networks. That traffic is, of course, your speech.

Similarly, net neutrality rhetoric often mentions "fairness", but the real goal is advantage for certain (for-profit) organizations at the expense of other organizations, their constituents, and their customers. The government picks winners, in other words. The ultimate loser is the public, in the form of diminished freedoms and a less dynamic media marketplace.

Here is a reminder of the bad old days under the Fairness Doctrine:

This doctrine grew out of concern that because of the large number of applications for radio station being submitted and the limited number of frequencies available, broadcasters should make sure they did not use their stations simply as advocates with a singular perspective. [...]

The fairness doctrine ran parallel to Section 315 of the Communications Act of 1937 which required stations to offer "equal opportunity" to all legally qualified political candidates for any office if they had allowed any person running in that office to use the station. The attempt was to balance--to force an even handedness. Section 315 exempted news programs, interviews and documentaries. But the doctrine would include such efforts. Another major difference should be noted here: Section 315 was federal law, passed by Congress. The fairness doctrine was simply FCC policy. [emphases mine]

In other words, the Fairness Doctrine grew out of a perception of scarcity of media outlets, based on limited radio frequencies. To say that this is an antiquated concept in a time of several-hundred-channel cable TV, satellite TV, satellite radio, and of course our little Internet, is to state the obvious. And yet, such regressive concepts are held in high esteem by folks like Kucinich.

Further, the Fairness Doctrine was enacted by the unelected FCC, above and beyond laws passed by Congress. If it were simply one elected official advocating this idea, we might not be so worried. But joining him are two current FCC commissioners who share his enthusiasm:

FCC Commissioner Michael Copps was also on hand at the conference and took broadcasters to task for their current content, speaking of "too little news, too much baloney passed off as news. Too little quality entertainment, too many people eating bugs on reality TV. Too little local and regional music, too much brain-numbing national play-lists." Commissioner Jonathan Adelstein also spoke at the event.

You read that right. Mr. Copps believes he is in a position to determine what there is "too much" and "too little" of on TV. Perhaps you can sense his hand on your remote.

Let's be clear: net neutrality and the Fairness Doctrine are two sides of the same coin, which is government regulation of speech. If anyone can explain to me how this comports with the First Amendment, I am all ears.

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Not surprisingly, the Daily Kos loves the idea. After all, free speech only makes sense so long as we all agree, right?

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Hello Slashdotters, welcome. If you have the patience, here are some extended rants on the subject, just keep scrolling.

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Captain Ed has more. What is interesting is that most media leans left-of-center. If the Fairness Doctrine were enforced, might we see a little more balance toward the right? But then again, with gov't making the rules, "fair" is fair game.