Google's coup: The internet's first rule book

Last month Viviane Reding, the Commissioner for Information Society & Media, put the issue on the agenda:

"A cynical observer may note that in the end this whole Net Neutrality debate is about hard cash. Dollars and Euros. That it is about trying to use regulation as a means to get a better position around the negotiation table. That this is just about arm wrestling between big network providers and successful providers of internet services," she said, accurately.

An accurate summary indeed. But observers noted that rather than dispassionately viewing the competing interests, Reding has already anointed one side as the Good Guys.

"Net Neutrality is seen as the Guardian Knight that will allow the proverbial '2 guys in a garage' to be able to amaze the world with the next big thing."

(One of the guys in the garage she referred to was Skype. Last year eBay wrote off over $1bn from its books and admitted that Skype had never been profitable and would never become a significant business.)

What it means for you

Not surprisingly, one of the few voices raised in objection to the change is from the Free Software movement.

The Foundation for a Free Information Infrastructure (FFII) which fights software patents, says "net neutrality" is false marketing. "This is an invasion of the regulator in the software market, and it should be fought back vigorously" the group says in a statement.

Better no rules, than rules that are decided undemocratically, by powerful lobby groups behind closed doors.

Others fear opening a Pandora's Box, too.

Pierre Larouche, Professor of Law at Tilberg University, in the Netherlands, is a veteran of legal skirmishes with large telcos in Europe, and remembers the disdain with which they viewed the new internet.

"Edge innovation was disbelieved by the big telcos."

However he's skeptical that tentative regulation will help.

"We're defining it in terms of a regulation: but it's a nothing.

"There are fears of vertical integration - but if the retail access market is competitive, the people will jump over the Walled Garden."

Abuses of power that historically have been dealt with by Competition Law, become "consumer issues", justifying ever-deepening intervention. So the rules become ever more detailed and prescriptive.

"It's the Dangerous Dogs Act," thinks Martin Cave, Professor at Warwick Business School and the leading authority on regulation practice.

"The case for legislation is at best not proven."

But in practical terms, it's a power play. Richard Bennett, the American engineer, who helped draft the twisted-pair Ethernet and Wi-Fi standards, was also in Brussels this week to discuss the regulation.

He noted that private internets now deliver much of the new video content, by bypassing the public internet. Akamai has 34,000 servers installed at ISPs' data centres delivering 20 per cent of internet content by volume.

Another is Google, which is investing $1.5bn a year in infrastructure.

"Why is it OK for Google, Akamai and Limelight to build fast lane access but not legitimate for telecom operators to build infrastructure that does the same thing?" he asks.

"Preserving the value of that infrastucture is important to Google. If a telco introduces QoS (quality of service), that nullifies it."

He describes pre-emptive legislation as "the prohibition of a sale". Examples of services prohibited by the neutrality legislation including Gaming ISPs which guarantee low ping times for gamers. Leave it to the customers and they'll decide which network architecture works best for them: Google's, a Telco's or some combination.

"The consumer is the ultimate regulator."

What happens next?

EU politics is always more complicated than it appears. Pierre Alexander, a lawyer at Gibson Dunn and Crutcher and editor of European Intellectual Property Law Review, explained that the Commission has no real power here, and may not actually want it. Then again, he points out, its sometimes hides behind the "mandate" of Parliament, and its apparent reluctance to intervene is not always sincere.

The move heads to the Council of 27 members, which can approve it with a Qualified Majority, or reject it with a unanimous vote. The latter is unlikely, he predicts.

The strongest opposition is likely to come from OFCOM, which regards explicit neutrality legislation as unnecessary. Like all NRAs, OFCOM would prefer not to engage in a turf war with a super-quango.

So why did Google blink first?

Left unregulated, we're likely to see the mutual dependence between content providers like Google and telcos continue. Yet there's no doubt Google feels the pressure more urgently. While the web advertising market is now comparable to TV in the UK, Google, unlike others, needs to maintain the spectacular growth of the early years, and it has no particular advantages in serving brand advertisers. Given the general difficulty of monetizing web content, you can see how Google feels it needs a helping hand from bureaucrats.

By posing as the consumer's champion, Google can start to implement its plan for the destruction of value in European telecoms. ®