The Bells’ Home Turf

In case you missed it, Paul Kouroupas left a good comment following up on Thursday’s post:

What you (and others) are missing is an appreciation for the havoc the Bell Companies can wreak with regulation. Look at the experience of the VoIP providers. They launched an innovative product that competes well with Bell Company service. Just as they started gaining traction and attracting investment capital the Bell Companies claimed VoIP traffic should be subject to “access charges”. Most industry observers would tell you their argument was specious at best, but they made it anyway because it triggered a regulatory process that continues to this day and leaves a black cloud hanging over VoIP services. This cloud dampens investment enthusiasm and raises the costs of VoIP providers.

Fast forward to net neutrality. If Global Crossing launches a service that the Bell Companies don’t have a competitive response for, the easy response would be to raise a concern that the service violates net neutrality regulations. All of the sudden, Global Crossing is tied up in regulatory proceedings and litigation, the viability of its innovative service is in question, and the Bell Companies work furiously to develop a competitive response in the meantime.

I don’t want to give the Bell Companies that option. I am confident in the ability of this industry to out-compete the Bell Companies. I know we cannot out-regulate them. Yes I am concerned about the potential harm AT&T and Verizon can inflict on the market, but I believe commercial solutions to the problem are far superior than legislated or regulatory solutions.

An important point here is that when an incumbent tries to tie a challenger up in red tape, it often doesn’t matter who ultimately wins the resulting regulatory proceeding or court fight. The mere fact that you have to spend money on lawyers and lobbyists rather than engineers—and the fact that your customers can’t be sure your service will still be around in five years—can be enough to slow adoption of your technology. And as we saw in the CLEC fights of the 1990s, slowing a challenger down is often a death sentence.

So good network neutrality rules would have to not only reach the right answers, but they’d have to do so in a way that ensured that the right answers would be reached promptly and decisively. Otherwise, you’re giving incumbents a way to shift the field of competition away from technology (where challengers have some good weapons in their arsenal) and into the regulatory and legal realms (where the Bells have been building fortifications for a century). None of the network neutrality proposals I’ve seen come anywhere close to meeting this challenge.

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