Perp Walk for Larry Page?

by on June 22, 2006 · 24 comments

Could Google execs go to jail for bit discrimination? Theoretically, yes, according to a proposal by Sen. Jim DeMint (R-SC). Submitted as an amendment to the telecom bill now being marked up by the Senate Commerce Commitee, DeMint’s proposal would make it unlawful to “prioritize or give preferential or discriminatory treatment in the methodology used to determine Internet-search results based on an advertising or other commercial agreement with a third party.” Any person found in violation would face a maximum fine of $5 million or imprisonment for up to one year.

The plan seems targeted at Google’s sponsored links system, under which users get prominently placed, paid for, links with their search results. (The paid content is separate from the non-paid results, which are not influenced by payments).

For the record, this is a terrible idea. And, I’m willing to bet that Sen. DeMint thinks so too. Instead, the amendment seems intended to underscore Google’s uncomfortable position in the net neutrality debate. While the company has spearheaded the call for net neutrality for telephone and cable firms, its own practices–and power–mirrors that of those companies.


In an online “Note to Readers,” Google CEO Eric Schmidt lays out the company’s position on neutrality regulation:

“Today the Internet is an information highway where anybody–no matter how large or small, how traditional or unconventional–has equal access. But the phone and cable monopolies, who control almost all Internet access, want the power to choose who gets access to high-speed lanes and whose content gets seen first and fastest. They want to build a two-tiered system and block the on-ramps for those who can’t pay.”

But take out the reference to “phone and cable monopolies” and this reads like a critique of Google itself. Google’s business model to a large degree is based on tiering–providing preferred ad placement for those who can pay for it. Its clearly not a system where anybody “no matter how large or small” has equal access. Its based, like it or not, on money.

This applies to political and policy-related advertisements as well. When Google users type in “net neutrality” its seems ads by a Google-supported coalition have been popping up. When asked about this, a Google spokesman explained that there were no special favors granted. As summarized by National Journal, the spokesman argued that “Google participated in its own auction for the keywords, “net neutrality,” adding that if opponents of the concept wanted their ads to appear higher in sponsored Internet search results, they could have decided to pay more.” Ability to pay, it seems, is important after all.

Pro-regulation supporters have also made much of the possibility that network owners could use their power to censor political speech, painting scenarios of websites being blocked because the networks didn’t like their views. However, while no U.S. broadband provider has actually blocked sites because of their content, Google has. Sites that, in the firms’ view, engage in “hate speech” are excluded from Google News. The definition of “hate speech” of course is subjective–and the rule has been used to exclude a number of (mostly conservative) websites that criticized Islam.

None of this matters, says Google. There’s a big difference, it says, between its actions and those of the “phone and cable monopolies.” But is there? The phone companies and cable companies do have an overwhelming share of broadband connections. But market shares in the search engine market aren’t dramatically different. Three firms–Google, Yahoo and Microsoft–account for 84 percent of all searches. Ninety-five percent of “toolbar” searches are by two firms, Google and Yahoo. Of course, these companies aren’t in lockstep–they compete among each other. And they may be challenged by newcomers, who now have small market shares. Yet, the same arguments, when raised regarding broadband networks, are rejected.

This certainly doesn’t mean that Google should be regulated. Or that it will be. Yet, there are some who have seriously proposed the idea. And once lawmakers start imposing mandates, its hard to predict where they will stop. Once network owners are regulated, it simply wouldn’t be that big a step to regulate other Internet players, starting with the biggest.. Sen. DeMint’s proposal may not be meant to be taken seriously. And this week it won’t be. But someday, thanks in part to Google, it could.

  • fishbane

    But is there? The phone companies and cable companies do have an overwhelming share of broadband connections. But market shares in the search engiine market aren’t dramatically different.

    …And how many search engines were built under federal subsidy and use regulation to exclude competitors?

    I’d be as happy as the next person to oppose NN if phone and cable operations were not government created monosonies who maintain position via regulation.

    Put another way, do you believe Google would exist if the Bells had realized in, say, 1992 what a big deal something like it would become?

  • http://lippard.blogspot.com/ Jim Lippard

    Apparently the Stevens telecom reform bill got hit with 200 amendments of which DeMint’s is only one. Any bets on whether this bill actually goes anywhere?

    I’m against it so long as it has the audio and broadcast flag requirements in it. (Sununu has two amendments pending, one to remove both, one to remove just the audio flag.)

  • fishbane

    But is there? The phone companies and cable companies do have an overwhelming share of broadband connections. But market shares in the search engiine market aren’t dramatically different.

    …And how many search engines were built under federal subsidy and use regulation to exclude competitors?

    I’d be as happy as the next person to oppose NN if phone and cable operations were not government created monosonies who maintain position via regulation.

    Put another way, do you believe Google would exist if the Bells had realized in, say, 1992 what a big deal something like it would become?

  • http://lippard.blogspot.com/ Jim Lippard

    Apparently the Stevens telecom reform bill got hit with 200 amendments of which DeMint’s is only one. Any bets on whether this bill actually goes anywhere?

    I’m against it so long as it has the audio and broadcast flag requirements in it. (Sununu has two amendments pending, one to remove both, one to remove just the audio flag.)

  • http://www.techdirt.com/ Mike Masnick

    Again? James, didn’t we discuss this last week when I pointed to your quote in the News.com article?

    The telcos were given GOVERNMENT GRANTED monopoly rights of way and subsidies IN EXCHANGE for certain guarantees. This helped keep out any competition.

    Go ahead and show us where Google got that sort of deal. Go ahead and show us what gov’t granted monopoly was given to Google that blocks out others from entering the space.

    This argument makes you look silly. I don’t support net neutrality regulation, but your argument here is not well thought out at all — and as a supposed expert in the area — does not speak very highly of your ability to understand the actual issues at play.

  • http://www.techdirt.com/ Mike Masnick

    Again? James, didn’t we discuss this last week when I pointed to your quote in the News.com article?

    The telcos were given GOVERNMENT GRANTED monopoly rights of way and subsidies IN EXCHANGE for certain guarantees. This helped keep out any competition.

    Go ahead and show us where Google got that sort of deal. Go ahead and show us what gov’t granted monopoly was given to Google that blocks out others from entering the space.

    This argument makes you look silly. I don’t support net neutrality regulation, but your argument here is not well thought out at all — and as a supposed expert in the area — does not speak very highly of your ability to understand the actual issues at play.

  • James Gattuso

    Thanks, Mike. Always nice to get positive feedback. Frankly, though, I don’t see the prior government monopoly on voice as being very relevant at all here. There is no legal monopoly today and hasn’t been since at least 1996. The overwhelming majority of the assets of telcos are due to post-1996 investment. (I can give you numbers on that if you wish). And there never was a monopoly in broadband. The relevant question, in any case, is what competition is there going forward, not who got what in 1913. You may disagree with my answer, but that is the actual issue in play.

  • James Gattuso

    Thanks, Mike. Always nice to get positive feedback. Frankly, though, I don’t see the prior government monopoly on voice as being very relevant at all here. There is no legal monopoly today and hasn’t been since at least 1996. The overwhelming majority of the assets of telcos are due to post-1996 investment. (I can give you numbers on that if you wish). And there never was a monopoly in broadband. The relevant question, in any case, is what competition is there going forward, not who got what in 1913. You may disagree with my answer, but that is the actual issue in play.

  • http://blog.pff.org Patrick

    And let’s not forget the billions and billions of dollars in investment by the cable companies, who built their private property networks from scratch so that Grandma over the mountains out of reach of over-the-air signals would be motivated to buy a TV set. The stories of the early cable entrepreneurs are just as inspiring as those of the Google founders, and all did it without government subsidies. In fact, the cable guys quickly found themselves paying ROW fees as well as 5% of their revenues to local franchising authorities, so they were a net payer to government.

  • http://blog.pff.org Patrick

    And let’s not forget the billions and billions of dollars in investment by the cable companies, who built their private property networks from scratch so that Grandma over the mountains out of reach of over-the-air signals would be motivated to buy a TV set. The stories of the early cable entrepreneurs are just as inspiring as those of the Google founders, and all did it without government subsidies. In fact, the cable guys quickly found themselves paying ROW fees as well as 5% of their revenues to local franchising authorities, so they were a net payer to government.

  • http://www.techdirt.com/ Mike Masnick

    James,

    That’s a misleading response as well. First, yes, I would like to see the numbers on how many assets are post-1996 — because the numbers I’ve seen are quite different. But, more importantly, whether or not it’s the physical assets, it’s the rights of way that are important.

    And, yes, I agree that the question is competition going forward — so I ask you who else can compete in this market? The rights of way that are used were gov’t granted.

    To Patrick’s point, the cable guys did build their networks privately, but they did have to get gov’t franchises, which kept out the competition.

    So, who, now can go in and get those same rights of way? What new upstart can effectively compete in the market?

    Either way, the point is that the broadband situation is MASSIVELY different than a search engine’s. There’s much more competition in the search engine space, and none of it involves rights of way that involve gov’t grants or franchises. It’s easy to see a new search engine coming in and taking away business should Google start treating its users badly. That’s not true in the broadband space. You claim there’s “competition.” Yet, every day we see stories of people who note there’s no competition at all. I’m in the heart of Silicon Valley and there’s no competition for broadband here.

    Yet there are about 20 different search engines out there, each of which I can go to and use should one cause me problems.

    So, explain to us how that’s a analogous situation? Explain how there’s any related point *at all* in this bogus amendment?

  • http://www.techdirt.com/ Mike Masnick

    James,

    That’s a misleading response as well. First, yes, I would like to see the numbers on how many assets are post-1996 — because the numbers I’ve seen are quite different. But, more importantly, whether or not it’s the physical assets, it’s the rights of way that are important.

    And, yes, I agree that the question is competition going forward — so I ask you who else can compete in this market? The rights of way that are used were gov’t granted.

    To Patrick’s point, the cable guys did build their networks privately, but they did have to get gov’t franchises, which kept out the competition.

    So, who, now can go in and get those same rights of way? What new upstart can effectively compete in the market?

    Either way, the point is that the broadband situation is MASSIVELY different than a search engine’s. There’s much more competition in the search engine space, and none of it involves rights of way that involve gov’t grants or franchises. It’s easy to see a new search engine coming in and taking away business should Google start treating its users badly. That’s not true in the broadband space. You claim there’s “competition.” Yet, every day we see stories of people who note there’s no competition at all. I’m in the heart of Silicon Valley and there’s no competition for broadband here.

    Yet there are about 20 different search engines out there, each of which I can go to and use should one cause me problems.

    So, explain to us how that’s a analogous situation? Explain how there’s any related point *at all* in this bogus amendment?

  • James Gattuso

    “I would like to see the numbers on how many assets are post-1996…”
    Here is a link to a paper I co-wrote a couple of years ago on capital invested by telecom firms since 1996: http://www.heritage.org/Research/InternetandTechnology/bg1745.cfm
    We found that new investment was about 77 percent of gross property, plant and equipment on the books in 1996. If you take net PPE, the new investment is twice the old assets. This is just one way among many that this can be calculated, but no matter how its done, the new investment is huge.

    “So, who, now can go in and get those same rights of way?”
    Anyone can get rights of way from a locality (paying of course the cost of tearing up streets, etc.). In cable, its harder to get a franchise, but that would be changed by the pending legislation.

    “…there’s no competition for broadband here” I can’t speak to your area, but cable modem service is nearly ubiquitous, and 77 percent of all households with telephones now have DSL access. In addition, there’s also satellite service, fixed wireless, broadband over powerline, and other technologies. Though now on the margin, these technologies play a real role, and promise to play a bigger one soon. I’d also note that the potential for any of these services to expand is lessened, not increased by regulation.

    “..the point is that the broadband situation is MASSIVELY different than a search engine’s.” Except for the the word “massively” in capital letters, I don’t really disagree. I’m not arguing that the markets are the same. Or that the search engine market is less competitive. But the difference isn’t market share, although that is endlessly cited (not from you I realize). And its not historical legal monopolies that are now gone. But, of course, there certainly are differences in terms of ease of entry — how much it costs to enter the market.

    But even here the situation is not as black and white as its portrayed — there ARE new entrants into the broadband space — even Google is rumored to be considering entering the field via the upcoming AWS auction. And new technologies that don’t require a shovel to install may change the upfront cost equation. Meanwhile, the cost of building a Google-class search engine is far from trivial.
    The differences are questions of degree, not kind. There’s seems to be an unwritten (well, sometimes written) assumption that the physical layer is per se not competitive. But that can’t be assumed. That’s why I prefer a case-by-case antitrust law model to address any problems, rather than the new regulation being proposed.

    Note, by the way, that I didn’t say the converse — that there is an assumption that the content layer is always competitive, or that it should not be regulated. While it seems remote now, I do believe that content providers could before too long find themselves facing the business end of regulation. Many of the advocates of net neutrality are already arguing for limits on AOL fees. France (though hopefully not a harbinger of future US policy)is using net neutrality principles to impose limits on Apple. Yes, I could be wrong, but its a possibility the folks in Mountain View should be putting into their political algorithms.

  • James Gattuso

    “I would like to see the numbers on how many assets are post-1996…”
    Here is a link to a paper I co-wrote a couple of years ago on capital invested by telecom firms since 1996: http://www.heritage.org/Research/InternetandTec
    We found that new investment was about 77 percent of gross property, plant and equipment on the books in 1996. If you take net PPE, the new investment is twice the old assets. This is just one way among many that this can be calculated, but no matter how its done, the new investment is huge.

    “So, who, now can go in and get those same rights of way?”
    Anyone can get rights of way from a locality (paying of course the cost of tearing up streets, etc.). In cable, its harder to get a franchise, but that would be changed by the pending legislation.

    “…there’s no competition for broadband here” I can’t speak to your area, but cable modem service is nearly ubiquitous, and 77 percent of all households with telephones now have DSL access. In addition, there’s also satellite service, fixed wireless, broadband over powerline, and other technologies. Though now on the margin, these technologies play a real role, and promise to play a bigger one soon. I’d also note that the potential for any of these services to expand is lessened, not increased by regulation.

    “..the point is that the broadband situation is MASSIVELY different than a search engine’s.” Except for the the word “massively” in capital letters, I don’t really disagree. I’m not arguing that the markets are the same. Or that the search engine market is less competitive. But the difference isn’t market share, although that is endlessly cited (not from you I realize). And its not historical legal monopolies that are now gone. But, of course, there certainly are differences in terms of ease of entry — how much it costs to enter the market.

    But even here the situation is not as black and white as its portrayed — there ARE new entrants into the broadband space — even Google is rumored to be considering entering the field via the upcoming AWS auction. And new technologies that don’t require a shovel to install may change the upfront cost equation. Meanwhile, the cost of building a Google-class search engine is far from trivial.
    The differences are questions of degree, not kind. There’s seems to be an unwritten (well, sometimes written) assumption that the physical layer is per se not competitive. But that can’t be assumed. That’s why I prefer a case-by-case antitrust law model to address any problems, rather than the new regulation being proposed.

    Note, by the way, that I didn’t say the converse — that there is an assumption that the content layer is always competitive, or that it should not be regulated. While it seems remote now, I do believe that content providers could before too long find themselves facing the business end of regulation. Many of the advocates of net neutrality are already arguing for limits on AOL fees. France (though hopefully not a harbinger of future US policy)is using net neutrality principles to impose limits on Apple. Yes, I could be wrong, but its a possibility the folks in Mountain View should be putting into their political algorithms.

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