Wireless Technology

In business school, where I teach, students are often predisposed to see legal concepts as impenetrable and foreign. I watch the lightbulbs go on as they see that Microsoft's antitrust woes, RIM's $600 million patent infringement settlement, and Galleon's downfall due to insider trading say as much about strategic judgment and application of analytical tools as the cases that they study in marketing, management or accounting. The most successful businesses understand the non-market environment in which they operate.
Network neutrality is another good example. Business executives should recognize that the contours of broadband Internet access will affect them, both as customers and as providers. And for all the apparent complexity, the major issues are straightforward. Those reading recent headlines might be surprised to learn just how much agreement there is today on two fundamental points: the Internet fosters innovation and investment in new business opportunities because it's an open platform, and the network operators who build onramps to the Internet thrive when they maximize the returns on their invested capital.
The Federal Communications Commission (FCC), when proposing network neutrality rules last year, emphasized both dimensions. It offered a pragmatic framework that would put the United States in line with Great Britain, Canada, Japan, and other countries that have considered the issue. It proposed a set of basic principles — no blocking or degradation of traffic or devices, no discriminatory favoritism of affiliated services, and transparency — enforced through a case-by-case process that took into account the need for reasonable network management and the legitimacy of private "managed services" alongside the public Internet.
It's not hard to see why business should favor such a regime. Venture capitalists seeking the next YouTube or Twitter want assurance that a broadband access provider won't throttle the new application to advantage its own affiliates, and those broadband providers want certainty that they can use good engineering practices to manage their networks. The FCC's proposals were designed to foster clarity on both sides.
So, where is the controversy? The problem lies with those who see a religious conflict about whether the Internet will be "discriminatory" or "regulated." The simple truth is that it will be a little of both. We regulate the financial system, health care, electricity, and every other essential infrastructure for a modern economy. Pharmaceutical companies don't put drugs into the marketplace without FDA review of clinical trials, and startups don't launch IPOs without SEC registration. The success of those regimes is a big reason for America's global economic strength.
The FCC and other regulators can do a better or a worse job. It's certainly fair to talk about how to optimize the regulatory process. And it's appropriate to call for regulators like FCC Chairman Genachowski, a former venture capitalist and e-commerce executive, who appreciate the dangers of government over-reach.
It's not appropriate to disregard what the FCC actually said. Robert Litan and Hal Singer, for example, should feel reassured by the FCC's language on the concern they raise about "enhanced services" with special traffic handling: "We recognize that these managed or specialized services may differ from broadband Internet access services in ways that recommend a different policy approach, and it may be inappropriate to apply the rules proposed here to managed or specialized services." (Open Internet NPRM, paragraph 149).
This leaves plenty of important details to address. Can Sony's packets be prioritized without degrading the Internet experience for everyone else? Would Zynga have pioneered a multi-billion dollar social gaming market if it had to pay for priority delivery from day 1 to compete with Sony? What if Sony's agreement blocks Microsoft from receiving priority delivery for its competing online gaming portal? Should AT&T's prioritization of its own online gaming portal be viewed differently? Should the same rules apply to wireless broadband? How would enforcement work?
These are not new issues. There has been continuous debate at the FCC about network neutrality for six years. The absence of a comprehensive legal framework exerts a drag on the market. And with no enforceable rules, companies from Facebook to Foursquare have no confidence that discriminatory practices won't undermine their investments. Fortunately, over time, even as the rhetoric has ratcheted up, advocates on both sides have narrowed their differences substantially.
Verizon and Google have now issued a proposal that offers compromise solutions to the major disputed elements of a network neutrality regime. It's a flawed proposal, but it's a step in the right direction if it helps to break the logjam in Washington. Businesses can help achieve that result by supporting a solution that is workable in practice for the long run. For example, if the current wireless broadband market is too immature and different for the same rules to apply, what are the triggers for that to change?
The most valuable area where business can contribute is to support giving the FCC and other agencies the flexibility they need. A recent appeals court ruling called into question the FCC's legal authority over broadband access, opening the door to more years of lawsuits and Congressional lobbying. Such prolonged uncertainty benefits no one.
The FCC was established in 1934 because in complex, fast-changing industries, a body with expertise and open, transparent decision-making processes is the best forum to resolve contentious issues. That's still true. Chairman Genachowski has already proposed to "forbear" preemptively from FCC regulation of Internet content or business practices, outside the limited open Internet rules needed to promote competition and innovation.
The FCC should have the tools to do its job, now and as the marketplace evolves. Network neutrality is just one aspect of a vibrant environment of open, interconnected networks. One would hope that the 2008 financial crisis put to rest the spurious notion that business functions best when regulation functions least.
An open Internet is one in which investment is rewarded and the best innovations win. What could be more pro-business than that?
Kevin Werbach is an Associate Professor of Legal Studies at the Wharton School, University of Pennsylvania, and organizer of the Supernova technology conference. He served until recently as a consultant to both the Federal Communications Commission and National Telecommunications and Information Administration. (source: http://blogs.hbr.org )