Out of Control

Here’s where Wu begins to jump through hoops. To justify the call for neutrality regulation, he tries earnestly to make a case that the “Bell System” (which he otherwise admits is really just two companies among four national wireless players) still controls the Internet and is on a position to crush Google, which, in terms of market cap, is only slightly smaller than AT&T and much bigger than Verizon.

Google’s truest and most formidable foes are much older and more powerful. Today we call them Verizon and AT&T, but their real name is the Bell system. Their ideology, which today governs the cell phone world, is called "Vailism," and it can be traced back to 1907 and the origins of AT&T's domination of American telephony. The Bells' philosophy, as promulgated by AT&T's greatest president, Theodore Vail, is based on closed systems, centralized power, and as much control as possible over every part of the network. Vailism is the antithesis, in short, of everything Google stands for. It is this—conquering the business culture of the telephone, as opposed to the computer—that is Google's great challenge.

If that sounds abstract, we can make it more concrete. Over the coming years we can expect the Bell system to do everything in its power to destroy or subjugate Google. That's what history suggests; for since 1894 or so, the Bell system has swallowed or eliminated almost all of its would-be rivals. As one historian writes, in the early 1900s Bell would bankrupt competitors, and then "in truly medieval fashion, pile the instruments in the street and burn them, as a horrible example for the future."

As that suggests, bad things tend to happen to firms that challenge Bell. While actual burning of equipment is rarer these days, the Bells do still run the industry, in part, through terror. Almost every firm in the wireless world is, somehow, connected to AT&T or Verizon, and to defy them or even speak out is to risk retaliation. That's why Google's venture might be compared to trying to start a new waste management firm on Tony Soprano's street.

Apple, a $167-billion company in its own right, “bows” to no one. If Apple chose to do an exclusive deal with AT&T, it was because it served Apple’s interest. And it worked. The company hyped its introduction enough to assure initial demand exceeded supply to justify a $500 price tag (reduced by 40 percent just weeks later). Yet beloved by the tech left, Apple got a pass when, after the code that locked the iPhone to AT&T was cracked, it broadcast a software update that essentially rendered all unlocked phones useless.

As for general market power in the Internet space, let’s not forget that Apple’s iTunes is the leading online music retailer, yet provides downloadable music in a format that can be played on no other portable digital music player but an Apple iPod. Let’s also not forget that Apple CEO Steven Jobs, is the largest shareowner in Disney, which is now a major supplier of content to–you guessed it—iTunes.

Yet to get the network neutrality agenda accomplished, proponents like Wu must try to convince legislators that the telephone companies are in the same dominant position they were 20 years ago. This means doing backflips and cartwheels do portray Apple and Google as vulnerable market weaklings. If lawmakers simply were to examine the business section of their local papers, they’d realize that neutrality has become a battle between a group of Internet goliaths attempting to get a government-sponsored boost to their business plan.

It’s true that AT&T and Verizon have control of a lot of spectrum. This is indeed an advantage, but it’s offset by the advantages that Google and others have in the applications space. Google’s chief advantage is dominance as a Web search engine. Its ability to use proprietary techniques to deliver web ads, combined with its forays into personal email and messaging (Gmail), programming delivery (YouTube) and Web ad tracking and management (its pending deal with Doubleclick) and, if Android proves out, mobility, is making it the most powerful force in Web commerce.

AT&T and Verizon’s strength is in the transport area. Their business depends on maximizing the value of their networks, which they built and own. Google’s strength is Web applications, and its business depends on maximizing the scope, volume and reach of its online applications and services, because they are paid for by advertising, and to do so for as low a cost as possible. At the end of the day, Google is a bandwidth user and AT&T and Verizon are bandwidth providers.

This is a buyer-seller relationship that should be settled by the market. Instead, Google is rather crassly promoting a misguided network neutrality notion that it’s somehow unfair for transport companies to monetize their investment.

I say rather crassly because at the end of the day we don’t know how “open” Android is going to be. My guess is that as a wireless operating system, it is going to have to constrain or manage certain types of bandwidth-rich applications. Watch out for the “Humpty Dumpty” clause here. When Google defines “open,” it will mean it’s just as "open" as Google wants it to be.

But Google’s concepts of “open” will only be contentious if Congress starts dictating open networks and applications via legislation. This is enough of a reason for it to steer clear. Besides, Google is a big boy now. If it’s convinced that it’s pursuing the model customers want, it should be allowed to do so without government help.