The FCC, Google and the Reality of Net Neutrality

Includes: CMCSA, GOOG, PKT, T, VZ
by: Wisdom vs. Information

A little history to begin: Google (NASDAQ:GOOG) controls the money that is the Internet. They would like to keep it, apparently by any means possible.

Comcast (NASDAQ:CMCSA) had a problem with a service called BitTorrent that was interfering with most of its customers. Comcast decided to protect, favor, etc. the thousands of customers who were checking email and Facebooking over the handful who were choking the services of the entire neighborhood by throttling BitTorrent using a technology called deep packet inspection.

As a consumer who would like to choose the speed of various services, I applaud this move; as a business whose profits were threatened, Google attacked.

A quick diversion before we get back to the facts: Internet bandwidth is finite, thus control is inevitable, contrary to Google's "net neutrality" claims. In other words, Google is simply lying to you. WHY? Distraction. The real question is, who will do the controlling? Consumers, free to pick and choose the most efficient service for their needs, or the FCC, which will control the Internet depending upon which way the political wind blows: who has the most power? Right now, it's Google.

Back to the facts: Google has a long financial association with the current administration. They cashed in their chits and ordered them to attack Comcast. The FCC responded by ordering Comcast to halt throttling BitTorrent and fining them; Comcast responded by suing in Federal court and winning so decisively that the illegitimacy of FCC's power grab became apparent to all; the FCC responded by using an obsolete telephony law from the 1930s to declare they were taking over the Internet; and, so-called civil libertarians decided to back the federal government takeover of the Internet. (So, are Google's commercial interests freer than Comcasts, or are the civil libertarians hypocrits?) Apparently the FCC knows they have trouble legally because Google and Verizon are presently at the White House, dividing up the spoils of the Internet. At this point, the media and civil libertarians are confused, thus I am here to explain.

Some have tried to paint (more accurately, tar) this as a free speech issue. The only way to describe that arguement is stupid. Throttling BitTorrent is completely agnostic; think of it like your local book store deciding to discontinue distribution of magazines in general. BitTorrent is a service, and throttling it does not arguably slow down your ability to communicate on the Internet. There are still uncountable video services left unthrottled, some of which have much larger exposure. As long as Comcast provides unthrottled video services then no freedom of speech issue exists, period. Equally important, consumers presently have choice. if you do not like Comcast, get another service. I repeat: stupid.

Net Neutrality is about who will control the money on the Internet; who will receive the advertising dollars that companies receive for putting information, i.e. advertising, in front of eyeballs. Now, Google controls most of that money; this is their reward for building a search engine that blew the competition out of the water. Thus consumers ride the Internet on the Google 'engine' and Google gets paid for what they see on that ride.

Change is on the way. Deep packet inspection allows new, innovative companies to evaluate Internet users and market to them more specifically, which will allow them to offer cheaper, more efficient advertising than Google can. Consumers get cheaper products, and sellers can make more money at lower prices -- new jobs, new capital, new wealth, more total economic utility. Google has no legitimate defense against this change which will inevitably take advertising dollars away and give it to smaller, smarter, more nimble competitors. Since Google has no legitimate defense, they are doing the next best thing: distract voters from the true battle, advertising, and try to convince them that this is a free speech issue. Meanwhile, they are using the politicians they have bought and paid for to do their really dirty work, protecting them from competition.

Do not let Google's cries of freedom distract you from their monopolistic goals. They want to keep all the money and they do not care how long it takes for you to get your email. Deep packet inspection is a progressive improvement in the Internet, not a threat to your rights.

Google wants all the money, and the FCC wants all the power. Google controls the FCC, for now, so they are perfectly comfortable. Deep packet inspection is inevitable, but if Google can delay it for a few years then they will have an extra few billion dollars in their pockets. If Google and the FCC succeed in taking over the Internet, you will live under their thumb.

However, more shady characters have entered the debate: Verizon (NYSE:VZ) and AT&T (NYSE:T). I own AT&T, and I applaud their attempts to make me money, but what is the point of collecting a few extra cents here while dollars are destroyed elsewhere? Google and Verizon met in the White House to divide up the Internet for a simple reason: Verizon and AT&T also have a lot of control in Congress because their employees are unionized; that is a lot of political money and influence spread over both parties for a long time. If Verizon, Google and the FCC decide to divide up the Internet, you can bet you will be living under THAT massive thumb for a long time.

I expect that the FCC, Verizon and Google will come up with a way to limit deep packet inspection that is so heavily regulated that only the biggest companies like Google, Verizon, Time Warner (NYSE:TWX), etc. will be able to generate enough revenue to use it profitably. This will prevent new businesses and jobs from forming and it will prevent you, dear consumer, from buying cheaper goods and services, not to mention downloading your email quickly; meanwhile, everyone at the FCC is now more powerful and better paid. Hopefully, a more progressive administration that responds to small/medium business rather than the oligarches will someday win election and throttle back the FCC.

Every business needs to evolve or die. Ask yourself, net neutrality supporters, how is Google evolving now? The essence of Net Neutrality is the creation of a new federally protected oligopoly, and as you can see, it has NOTHING to do with free speech.

Disclosure: I own AT&T, Procera, and Google in a couple ETFs, and I know all (the ETFs, not Google) will be healthiest in the long run without net neutrality; I am not short GOOG presently.