LookFar Ventures25 May 2017
Net Neutrality in the Southeast: Why Emerging Hubs Should Fight for Title II
We all benefit from net neutrality, but many people don’t know exactly what it is.
So I’ve put together a brief write-up on what net neutrality is and why you should care (especially if you work with startups in the South and Midwest). We welcome your thoughts on net neutrality and the future of the internet. Feel free to reach out to me via email or on social media to keep this conversation going.
The Internet Today
Imagine you’re sitting on your couch happily looking for something to watch. First you watch a few episodes of Seinfeld on Hulu. Great! You used about 1GB of data on a show about nothing. Next you might venture over to Starz to check out the new series Outlander. Three episodes later you’ve used 3GB more of data. In today’s internet, whether you’re watching on Starz, Hulu, or Netflix the speed and data cap hit is the same. That’s net neutrality – all internet sources (whether they be websites, content providers, or software) must be treated the same in the eyes of the internet service provider (ISP).
To lose net neutrality means that ISPs (e.g. Comcast, Cox, AT&T, etc.) can, at their discretion, charge differently for different companies’ products or services. While no one can predict exactly what the post-net neutrality internet will look like, most people expect that it will mimic the model used by cable companies, who sell packages that include access to certain channels or content sources.
So perhaps Cox strikes up a deal with Yahoo (the horror!). According to this deal you can conduct unlimited internet searches with Yahoo as part of your monthly plan. However, if you decide to use Google, you’ll be charged a “market rate” which will count against a data cap. Not only does that hurt you, because you’re forced to use a substandard search engine, but it hurts Google, who is now operating at a significant handicap in the fight to win your business.
As you might imagine, ISPs spend a lot of money to influence legislation regarding net neutrality – far more than groups on the other side of the debate can muster.
Title II At Risk
Title II is the law that currently mandates net neutrality. Under Title II Comcast, Cox, and other providers are forbidden from making “any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services.” However the FCC is making moves to repeal Title II under the administration of new FCC Chair Ajit Pai.
Pai is essentially in favor of what most of us consider the core tenets of net neutrality: no blocking, and no discriminatory or anticompetitive throttling. However his proposed method for holding ISPs to these standards is to require them to place commitments in their terms of service. Enforcement of these terms of service will fall to the Federal Trade Commission, which essentially washes the FCC’s hands of safeguarding net neutrality.
Pai’s proposal is to hold notoriously large, aggressive companies accountable using an honor system. In practice it’s likely to be much too weak to keep ISPs honest. Terms of Service are incredibly mutable and difficult to enforce; while telecom companies may pay lip service to Pai’s code, there’s little legal incentive for them to do anything more tangible. Meanwhile, there’s endless financial incentive for them to instantly abandon what are, at the end of the day, suggestions rather than laws.
What This Means For Startups
Talking about companies like Google and Netflix actually misses the point when talking about net neutrality. These are giant, established corporations with deep pockets and connections. While the loss of net neutrality is a serious prospect for them, they do have the resources needed to adapt and fight back. It’s the little guys that really have to worry.
For example: CuriosityStream is a great young company that streams thousands of documentaries with a Netflix-style monthly subscription. CuriousityStream already has to deal with all the familiar challenges of startup marketing and production. But an hour spent watching documentaries on their platform costs the same as an hour spent watching Orange is the New Black. How will a startup like this fare when Netflix is part of your ISP package and CuriousityStream is not?
This argument applies not just to streaming services but to pieces of software (ex. Comcast offers a partnership with Spotify but not Apple Music) and apps on your mobile phone. In fact, T-Mobile is already doing this. Binge On is a service T-Mobile introduced that allows customers to view unlimited amounts of streaming content from participating providers without having it count against the data cap on their mobile plan. Most everyone agrees that Binge On is a clear violation of net neutrality.
Since most cities only have 1 or 2 choices of ISP, and there are essentially only 4 major wireless service providers in the U.S., the loss of net neutrality would turn over the entire startup landscape to only a handful of companies who have effective market monopolies. In New Orleans, for example, the vast majority of homes get their internet through Cox. And there is virtually no ability to select a different provider due to their market monopoly. If Cox decides to partner with, say, an edtech platform like Coursera, that essentially squeezes all Coursera competitors out of the New Orleans market.
Most geographic locations are heavily dominated by one ISP (due to the initial expense of laying cable) so scaling and expansion in a post-net neutrality landscape would become more onerous for startups, as they could be competing with different corporations in every market. Even locally, a startup may cut a deal with Cox, and then find themselves unable to acquire Northshore customers because St. Tammany Parish is monopolized by Charter.
The devastation that the repeal of net neutrality could cause in the startup landscape is well-known, which is why folks like Sam Altman, and a coalition of more than 1,000 startups and tech companies, have come out in favor of net neutrality. Simply put, net neutrality keeps the internet fair and ensure that anybody with an idea and an internet connection can enter the market. Repealing net neutrality puts control of the internet into the hands of a few corporations.
A Growing Imbalance
Net neutrality should concern everyone, but it is especially vital to those in smaller, less-developed ecosystems.
Developed coastal startup cities have an incredible head start on their cousins in the Midwest and Southeast. Regions like Greater New York and Silicon Valley are well-developed and have multiple billion dollar companies. Out of the 98 startups listed as unicorns in 2016, only 5 were in Southeastern states, and those five were concentrated in Georgia and Florida.
A free and open internet is a key factor in giving startups in states like Louisiana a decent shot at competing against better-equipped and funded peers. An app launched today in Louisiana is subject to the same regulatory oversight as an app launched by Oracle in San Jose. Consumer access is the same and speed is the same. However, the Louisiana company will lack the funding, network, and ready market access of the San Jose startup.
ISPs have incentive to maintain this imbalance. Comcast and other corporate giants have skin in the game in sectors far beyond telecom. Were we to lose Title II oversight, Comcast might suddenly become more aware that Magic Leap – Florida’s highest-valued private company and a tent-pole corporation in Dania Beach – is a direct competitor to Meta, a San Mateo company that counts Comcast Ventures among their investors.
What is to stop Comcast, the dominant ISP in Florida, from throttling Magic Leap operations to benefit their portfolio company? The answer: Title II. If Title II is repealed? Only a set of easily-broken clauses in Comcast’s Terms of Service.
Cities to Watch
There are a couple of things to note when talking about the impact of net neutrality on the Southeast. The first is fiber. Cities such as Lafayette, Louisiana and Chattanooga, Tennessee have already invested in municipal fiber. Atlanta, Austin, Kansas City, Raleigh, and – as of this week – Huntsville are all part of the Google Fiber network. High-speed fiber has been shown to be a huge boon for the local startup scene in Chattanooga, attracting a cluster of 3D printing startup and satellite offices for venture-backed companies. Huntsville seems to have attracted significant startup interest (including from Facebook) with only the speculation that Google might install fiber.
So what happens to the rest of us when there are only few select cities that have access to fast and unrestricted internet? Are New Orleans and Tampa and Memphis destined to watch from the sidelines as these Southern hubs outpace us? Will the brain drain of talent continue as promising computer scientists and engineers flee corporate controlled internet for places that give their startups a fair shot? As cities across America are struggling to redefine themselves for the 21st century it will be a huge blow to find the level playing field of the internet suddenly tilted in favor of a few select locations.
One of the great equalizers in modern business and society is free, unrestricted access to the internet. Net neutrality cannot instantly transform New Orleans into a tech hub on par with San Francisco or New York, but it at least ensures that innovative ventures in the South will have a chance to compete against startups from highly-developed ecosystems. The loss of net neutrality would be a blow to the opportunity share held by entrepreneurs across the Southeast and Midwest.
This is a fight we are currently losing. The FCC has been extremely transparent with their intentions to repeal net neutrality. The recent vote to begin potential rollbacks has been followed by a proposal of intended rule changes. The Commission is now accepting comments from the public, but with only one openly pro-net neutrality member in Mignon Clyburn on the three-person commission, it’s clear that we’re currently on a path toward an internet in which “fast lanes” and discretionary blockings will be a daily reality.