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The End of Net Neutrality Regulation COULD Mean the End of Last-Mile Oligopolies

Tom Evslin

Landline networks like the old phone system and the new(er) cable systems do lend themselves to monopoly or at least duopoly outcomes. Building these networks is both very expensive and requires myriad government approvals. Once a system is in place, it is hard for anyone to raise the capital to duplicate it. Even a network of wireless towers is hard to compete with. It's hard enough to get a permit to build a tower to serve unserved areas ("it'll ruin my view"; "it will stop the wildebeests from migrating"). It's much harder to get permitted for a tower whose "only" purpose is to increase competition.

It is a fact that we have little competition for Internet access, especially in rural areas. This lack of competition and mediocre service from incumbents is why most of my friends in the tech world supported the "Net Neutrality" regulations promulgated in 2015, which allows the Federal Communications Commission (FCC) to regulate the Internet under the same terms as it regulated the phone network. The FCC did not regulate rates for Internet access, although it gave itself the authority to do so. They are furious that the FCC rescinded this regulation last month. They are right, in my opinion, that there is too little competition in access. They are wrong, also in my opinion, that regulation is the way to solve the local oligopoly problem.

Regulation acknowledges monopoly and protects it. Incumbents like utilities learn to live with regulation. They hire staffs of regulatory lawyers. They avoid innovation — it's expensive and may raise regulatory issues. If innovations succeed, the incumbents argue, the regulators will make the utility give back the profits. If innovations fail, the utility's shareholders will have to pay the cost. Most important, protected monopolies don't have to worry about competition in the marketplace. They can count on the burden of regulatory compliance and the relatively low return of regulated businesses to make it impossible for a would-be challenger to raise capital. These are the reasons why the regulated phone network was almost an innovation-free zone for sixty years.

But now the net neutrality regulations have been repealed. Ironically, startups in the last mile access business are using that repeal as a fund-raising pitch. Daniela Perdomo is the cofounder and CEO of goTenna, a company which provides meshed connectivity for messaging and location sharing without using any connections to commercial networks. She says "Society requires connectivity to function and to advance, but we are leaving telecommunications in the hands of a few large corporations. The lack of a choice is a problem." To an innovator, every problem is an opportunity,

GoTenna is no threat to AT&T — yet. But, because goTenna doesn't require any infrastructure, it was able to bring basic communication to parts of hurricane-damaged Puerto Rico immediately. Solar-charging is plenty of energy for goTenna to operate, so they require neither an electrical grid nor generators. Mesh networks like goTenna gain capacity with each user they add so they can grow without the enormous capital expense. Needless to say, no permitting required. So far goTenna users can only talk to other in their mesh. But if meshes connected by sat phone…

Veniam provides meshed networking between vehicles. This mesh does have access to the full Internet which it reaches through a combination of cellular connections and WiFi hotspots; among other uses are free WiFi for bus riders (and passenger information for the transit providers). At any moment a connection to the Internet may be directly to a hotspot or hopped through a mesh of vehicles. There are currently Veniam nets in Porto, Portugal, New York City, and Singapore. An obvious future use of Veniam is critical communication between autonomous vehicles.

I think that growth of companies like goTenna and Veniam will be super-charged by the end of Net Neutrality regulation. Lack of innovation and mediocre service from incumbents creates a need. Investors will like that there is no longer a threat, in the US at least, that regulators will decide that some service they are offering isn't properly "neutral". Even defending such a claim could stop a small company in its tracks. It's possible that one of these companies or a company like them will want to offer a "fast lane" for emergency service or communication between autonomous vehicles. Under the "net neutrality" rules they wouldn't have been allowed to. There is no longer a threat of "rate-of-return" utility price controls. Regulation smothers innovation.

I may be an optimist to think that deregulation will topple the access network oligarchies. But I know that regulation would preserve the unsatisfactory status quo.

Full disclosure, I am indirectly a very small investor in both goTenna and Veniam.

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Tom,What do you think of municipally-owned wholesale Larry Press  –  Jan 17, 2018 10:21 AM PDT

Tom,
What do you think of municipally-owned wholesale networks with competing retail service providers?

munis Tom Evslin  –  Jan 17, 2018 10:32 AM PDT

I think the option should certainly be left open; we need more competition. Some munis have succeeded; some have failed. It is not an easy service for a municipality to manage.I do think munis will do better at wholesale than retail but, as a practical matter, it is hard for the retailers to then offer the mix of "cable" and communication consumers want. with more direct access to content, however, Internet access by itself may be sufficient.

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