Innovation or Regulation?

Until a few years ago, Silicon Valley generally felt Washington, D.C., didn’t matter. Washington bureaucrats were writing rules for modern technologies while thinking about obsolete ones. That’s impractical, especially given the speed at which technology evolves. Now, leading Silicon Valley firms outspend Wall Street 2:1 on advocacy, with much of this focused on policies regulating their rivals. The current battle at the Federal Communications Commission over net neutrality and Title II regulation of the internet is a case in point.

It’s been suggested by many advocates in Washington that strong rules are needed to tamp down on internet service providers – namely AT&T, Comcast, and Verizon – so that edge providers that dominate Silicon Valley like Google can flourish. To do this, advocates sought for ISPs to be regulated under Title II of the Telecommunications Act, which harkens back to the monopoly telephone industry of the 1980s. “Net neutrality” via Title II regulation was done in the name of protecting edge providers, but what many advocates miss is that it is the freedom of the internet that allowed so much innovation on the edge to flourish. If fundamental network innovation comes to an end, America loses its long-term competitive position in the global internet ecosystem.

Take China for example. The Chinese are expected to eclipse the United States on the internet because they focus their industrial policy on global competitiveness, not network ideology. In barely a decade, seven Chinese internet companies have joined the global top 20. There are 800 million 4G smart phones users in China, which means the United States will never pass them in mobile capacity. Chinese mobile e-commerce passed $400 billion in 2016. Chinese apps get more downloads than American apps, and Alibaba is twice the size of eBay and Amazon combined and may be the first $1 trillion company. In addition, Tencent, Alibaba and Baidu are closing in on Apple, Amazon, Alphabet and Facebook, while WeChat— a sort of Facebook plus Twitter —has features far ahead of Facebook, such as a complete e-commerce capability. These companies develop solutions that will become the new global standards. And this is a result of the Chinese proactively avoiding rules that unnecessarily prohibit Chinese innovators from using the capabilities of networks.

Consider how the United States deters innovation in communications technologies. The first public voice over internet protocol services appeared in the mid-90s. In 1998, Dialpad.com, where I was webmaster and employee No. 12, offered free calls worldwide via VoIP. We grew to 16 million users in the first year. At the time, it was the fastest-growing company in history. But the FCC wanted to regulate VoIP as a rotary phone, which had been invented in 1891. What’s next? Regulate Tesla with rules for the horse-and-buggy? VoIP innovators had to secure the Pulver Order in 2004 to keep regulators at bay. The FCC continues to try to police other startups.

The consequences of unnecessary government oversight have been damaging. Co-inventor of VoIP Dan Berninger sued the FCC in 2015 and is now petitioning the Supreme Court to examine the Open Internet Order, which reclassified broadband as a public utility under Title II, because he claims it prohibits his ability to buy the network prioritization his app needs to work. SendHub, which offers enterprise SMS, was deemed by the FCC to be a common carrier, so it must file reports as if it is a telephone operator. This creates irrelevant and unnecessary regulatory compliance for SendHub.

Competition on the web is global, not national. Silicon Valley companies are using rearguard action when they focus on network regulation instead of fundamental innovation. Silicon Valley companies should work together with network providers to develop the next generation of connected innovation. Otherwise, we will be abandoning the internet to other global competitors.

Andreas Ramos has worked in Silicon Valley since 1992 at more than 25 startups, SUN Microsystems, SGI and Cisco. He now advises startups in the United States, Denmark, Germany, France and Spain.

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