Call Time Out on 'Net Neutrality’

6/23/2006 8:00 PM Eastern

Just call a time-out on “network neutrality” and make no legislation before it is time.

That’s a good general principle. But here, it’s hard to see where there is likely to be any damage to the Internet. Any more than, say, the addition of advertising to Web pages.

How soon we forget that the first ad on the Internet did not even appear until Jan. 5, 1996 (on, of all places, Wired magazine’s online site). And that the very commercialization of the Internet itself was hotly debated 15 years ago.

Somehow, the Web not only survived, but thrived. The ability of Web sites to make money produced a lot of failures in the dot.com rush. But it also produced lasting, powerhouse brands. Most notably eBay, Google and Yahoo.

Now, these Internet giants want to freeze the commercial Internet in place. They want Congress to legislate that the Web is equally open to all computer users everywhere, at all times.

They’re fearful that the two main providers of Internet access, telephone and cable companies, will block access to sites that somehow compete with services they also offer online. For a short time, Craigslist became the object lesson, supposedly blocked by Cox Communications Inc., which has its own classified advertising business.

But the air went out of that balloon when it became clear that Cox had nothing to do with the problem, which had to do with how Craigslist runs its Web site and a piece of security software.

The real issue behind network neutrality is cost-shifting. The Internet giants that grew large on the basis of charging sponsors fees (Yahoo, Google) or users for handling transactions (eBay) don’t want someone else to find a new revenue stream that, to them, becomes a new expense stream.

That’s what would happen if cable or phone companies introduced a service that guaranteed faster delivery of video or other massive data files. But whoever said there wouldn’t be charges — in a commercial Internet — for different levels of service? If you deliver better quality and it’s worth something, customers will pay. If not, they won’t.

The Wall Street Journal restricts Internet users from reaching all its content, but no one complains. If it charges $50, $75 or $100 for an online subscription, that’s fine. And if other news sites can’t get customers to pay, that’s their problem.

It’s hard to escape the feeling that this is not an altruistic fight for keeping the grounds fertile for the “next” Google to emerge. But to keep present business models intact.

Google’s greatest genius is its business model. It creates no content, but leads people to everyone else’s content. Content that other organizations have paid small or huge sums to create. And it delivers it over other organizations’ pipes, to boot.

With that formula, it cleared 26.3 cents on every dollar of revenue in the first quarter of this year. Its net income was $592.3 million on revenue of $2.2 billion. Not bad for a company born well after that first Wired ad appeared online.

Cry not for Yahoo either. It clears 10 cents on the dollar, about double what the typical industrial company does in this country. Or for “stodgy” old-age telecom AT&T Inc., which first brought up the idea that it should charge for use of its data pipes. It cleared 17 cents on the dollar in the first quarter.

And Comcast Corp.? The biggest cable operator, overall, only cleared 8 cents on the dollar.

But cry not here, either. Its biggest moneymaker probably is Internet access. On the $43.12 average monthly ticket, there’s probably about $5 of customer service cost and maybe another $7.50 on transportation of the data. Gross margin: 70 cents on the dollar.

Why would Cox or Comcast or AT&T want to kill the golden goose? It’s not in their interests.

If Google or Yahoo don’t want to pay for a concierge-level of delivery, they can absorb the cost, charge advertisers higher fees or find another way to pass along the cost. Or just not sign up.

They can even construct their own networks, if they want, to get past the problem. Seems like something Google plans to do in San Francisco.

Let’s tally it up. Last-mile wireless nets mean there can be alternatives to the two big wires of the present. There has been no blockage of sites to date by the big pipe operators. It’s in no one’s interests to make it hard for Web sites to flourish or to limit anyone’s access to them.

And everyone’s making big money.

So, isn’t that exactly when you let competitors slug it out in the marketplace, instead of Washington, D.C.?


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