How Should Trump's Administration Regulate the Internet?

By Larry Downes, The Washington Post | Updated: 1 December 2016 14:26 IST

How will the Trump administration regulate the Internet?

Donald Trump's transition team has yet to publish a technology policy and, as a candidate, the business mogul said little about the subject. On the one hand, the Republican platform called for a reversal of the FCC's controversial 2015 decision to apply outdated public utility regulations to broadband providers. But on the campaign trail, Trump was also critical of the announced merger of AT&T and Time Warner, which he threatened to block. His team has since named three critics of the FCC's net neutrality order to oversee the agency's transition.

The truth is that nobody really knows. With virtually nothing to go on, speculation about the new administration's approach to technology (and there has been a lot of it) is mostly just hot air rushing to fill a vacuum.

So perhaps the better question to ask is: How should the new administration approach digital innovation?

The short answer: cautiously.

The internet, media and content industries are already in the midst of dramatic transformation. Just look at what's happened in the last few months. Soon after the AT&T/Time Warner deal and Verizon's pending acquisition of Yahoo, CenturyLink acquired internet backbone provider Level 3 Communications.

Then, Google Fiber announced a sudden halt to nationwide expansion. Earlier this month, word that Comcast will offer direct access to Netflix through the cable provider's X1 software platform. Just Tuesday, AT&T rolled out an online streaming video service called DirecTV Now.

The source of all this disruption continues to be technological innovation unleashed by the internet, which gradually and then suddenly replaced disparate networking and distribution platforms with a single digital standard. One system is now capable of transmitting data, voice, video and other content over a combination of wired and mobile communications systems.

As a result, the communications, technology and media industries are being squeezed together, even as their individual supply chains are being pulverized and reconstructed.

Traditional media companies are competing with Internet-based streaming services that offer original content, including Amazon, Netflix, Apple, Hulu, and user-produced programming from YouTube. Broadcast, satellite, cellular, cable, copper and fiber-based internet providers, at the same time, find their separate services mutating into a single infrastructure, bringing some wired companies into both competition and collaboration with their own mobile offerings.

But digital convergence hasn't simply changed the roster of competitors. It has changed the nature of competition in these industries. The emerging information sector is now experiencing a sped-up version of what Harvard business professor Michael Porter long ago described as the "five forces," which extend the impact of industry competition to include not just direct rivals but also pressure from a company's suppliers, customers, disruptive start-ups and companies offering equivalent goods using new technologies.

In the communications and media worlds, these forces were kept at bay by legal barriers going back 100 years. But the internet has broken down all those barriers and then some, creating a dynamic internet ecosystem that constantly recreates itself. The digital revolution has put the Porter model on the super-spin cycle, leaving participants in a continuous scramble to gain and maintain fleeting competitive advantage.

Amazon, for example, is suddenly a major infrastructure company as well as a leading provider of original entertainment content. In only a few years, Amazon Web Services has evolved from supporting the company's e-commerce activity into a general cloud-based platform used by nearly everyone. AWS is a $10 billion venture, one that challenges the business models of pretty much every other company in the digital supply chain.

(Disclosure: Amazon Chief Executive Jeffrey P. Bezos owns The Washington Post.)

One side effect: Traditional communications providers, as Frost & Sullivan principal analyst Dan Rayburn puts it, "don't want to be dumb pipes anymore." And the success of AWS in particular, Rayburn says, makes dumb pipes look even dumber.

In that context, the AT&T/Time Warner deal looks less like a straightforward (if large) combination of content and communications assets - similar to the successful 2011 merger of Comcast and NBC Universal - and more like the next chapter in the former telephone company's ongoing reinvention.

Facing intense competition in its existing broadband, mobile and TV businesses from a variety of alternatives, AT&T hopes that acquiring the film and TV properties of Time Warner - notably HBO, CNN and Warner Bros. - will give it not only better cash flow but also more opportunities to combine its growing portfolio of assets with new innovations, particularly in mobile, to offer shared services to consumers.

These developments should all give the Trump White House pause. Why? In the final years of President Barack Obama's administration, regulators eager to ensure their own future relevance have inadvertently made things worse. The FCC in particular raced to cement traditional broadband and broadcast competition by limiting the ability of access providers to offer new services within the narrow and now meaningless classifications of an obsolete law.

As industries and technology converge, consequently, providers eager for growth are now forced to look outside the box. The Time Warner deal, along with Verizon's takeover of Yahoo and Comcast's new partnership with former adversary Netflix, dramatically highlight the unintended results.

Likewise, both industry change and regulatory mismatch are at the heart of CenturyLink's $24 billion dollar deal to acquire Level 3 - two companies facing existential threats. CenturyLink is stuck supporting dwindling telephone services the company is legally obliged to offer, while new cloud-based technologies threaten Level 3's business internet offerings. At least together, as some analysts see the deal, the companies might leverage their remaining profits in hopes of finding a more secure place in a new pecking order.

And Google Fiber's surprise decision to pull back from plans to offer ultra high-speed Internet to residential customers, finally, reflects in part the quickly-improving economics of alternative technologies, notably high-speed fixed mobile networks.

But a big part of the cost of fiber comes from wrestling with local authorities over rights of way, construction, and zoning. Navigating city bureaucracies, even those eager to cooperate, quickly multiplies the price of deployment. Perhaps the biggest component of that cost is simply wasted time and unnecessary delay - factors both unfamiliar and unpalatable to the formerly software-only company.

For now, at least, as Frost & Sullivan's Rayburn notes, "content is king." And while consumers care more about who has the programs they want than the technology that delivers them, it's also true that regulators have pressed a heavy thumb to the scale, making consumer and enterprise broadband less attractive businesses going forward. Content may be king in part because everything else has been reduced to the level of a pawn.

So as the Trump administration belatedly prepares its technology policy, the best Silicon Valley and its customers worldwide can hope for is a recognition that slow-moving regulators, even with the best of intentions, can do very little good trying to shape a digital revolution already in progress.

As new interns are told on their first day in the emergency room: "Don't just do something. Stand there."

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