Steps to Create a Knowledge Economy
Why Net Neutrality is Important
A Small-Cap Technology Company
Earlier this month, I wrote here about why I think the future of the American economy depends on the ingenuity of the American people. Today, I’d like to share some steps I think our country can take to ensure that future is a bright one.
The most obvious step, to me, is ensuring we have the best public education system in the world, from kindergarten to college. We already have many of the best universities in the world, which is why many of the best and brightest young people from around the world come to the U.S. to study. But we need to be putting more of our own students on track, earlier, to make it to those institutions. That means improving our elementary, middle and high schools. It’s not an easy task, but we could start by compensating teachers better, so more talented people will consider the job, and by making it easier for schools to fire bad teachers.
I’d also like to see more middle and high schools offer classes in areas such as computer programming and engineering, which are relevant to jobs in the knowledge economy. Most kids today have no opportunity to study these subjects before college, so they don’t know if they’re interested in them. Strengthening our science and math programs wouldn’t hurt either.
Finally, keeping the Internet equally accessible to all, especially small content producers, is key to ensuring tomorrow’s inventors and entrepreneurs have the same opportunity to succeed as their predecessors. To me, that means passing a law to protect net neutrality, the principle that all Internet traffic should be treated equally, regardless of content or origin.
We have net neutrality now—Internet traffic isn’t sped up or slowed down, or blocked, based on what it is or where it came from. If you own a small business, your website loads at the same speed as your larger competitors’. This has allowed small and non-profit websites to stay competitive with those backed by giant companies, even as the Internet matured. And it has allowed for the rise of user-driven sites like Wikipedia and CouchSurfing, not to mention millions of blogs. However, net neutrality is not protected by law, and any one of the companies that control Internet traffic could abandon it at any time.
A recent “policy proposal” put forward by Google and Verizon is the first step toward an Internet where all traffic is not created equal. Though their proposal would only change things for mobile Internet service at this time, it confirms that the Internet’s gatekeepers are thinking about these issues, and that the time to act is now. The gatekeepers I refer to are Internet Service Providers, or ISPs, of which Verizon is one of the largest. ISPs are the companies that own the Internet cables coming into your house.
When you type a web address into your computer, or click on a link on a website, that request gets sent through your ISP’s cables, to the provider of the content you have requested, and the content gets sent back through the cables to your computer. Right now, that content travels through those cables at the same speed regardless of where it is coming from. Content from Amazon.com will travel through the cables at the same speed as content from your sister’s blog. However, ISPs currently have the very real option of treating some content differently from others.
One possibility is that ISPs could strike deals with content providers, like Google, to give their content preferential treatment, by delivering it faster than other content. That might not seem so bad: Verizon giving YouTube videos priority over other content probably wouldn’t affect how quickly you could load other sites, even if Verizon is your ISP. It would make YouTube videos load a little faster. However, that almost certainly would not be the end of it.
What happens when Vimeo, a YouTube competitor, realizes that YouTube’s videos are loading faster than its own? If they’re smart, they’re going to strike a similar agreement with Verizon and other ISPs, to give their own content the same preferential treatment as YouTube’s. So now there’s two companies’ content being given preferential treatment, but other sites probably still load at just about the same speed.
Until 500 other companies come along, and say, hey, maybe we can get an edge on our competition by making our sites load faster. At this point, there are essentially two tiers of Internet traffic: There’s content from big companies, with lots of money, who can pay ISPs for preferential treatment. And then there’s content from individuals, like you, and non-corporate or non-profit entities, like Wikipedia and The Pirate Bay and universities, and just plain small websites that don’t have the money to pay ISPs for top-tier service.
This would be a tragedy, not just for users of those small and non-profit sites, but for everyone who ever had a dream of starting his own business on the Internet. As the founders of Google have said themselves, net neutrality is key to ensuring that the next two kids in a garage with an idea have their own chance at success.
Furthermore, prioritizing content from certain companies isn’t the only thing ISPs could do once they abandon net neutrality. They could also slow down or block some content entirely. That could be for pay, as with prioritizing YouTube content. For example, CNN.com could pay Verizon to speed up its content, and delay content from NBC.com. Or it could be for the ISP’s own benefit—Comcast, one of the largest ISPs, has a division called Comcast Interactive Media. Comcast Interactive Media owns movie ticket site Fandango.com, a social network called Plaxo, and a TV streaming site called FanCast.com that is similar to Hulu.
Comcast could easily deliver content from its own sites—Plaxo and Fandango and FanCast—faster than content from others. But the company could just as easily throttle, or even block, traffic from competing sites, like Hulu. Or, Comcast could just charge users extra for access to competing sites, while including its own sites in base-rate services. Not a member of Plaxo? How does an extra $10 a month for access to Facebook, MySpace and Linked In—let’s call it the “Social Networking” package—sound?
Finally, though profit incentives are the most likely reason for ISPs to take such steps, they might not be the only ones. Ideologically-motivated discrimination would be just as easy. If the New York Times publishes a story critical of Comcast, the ISP could easily block access to the story or slow down traffic to the site. An ISP with conservative management could just as easily block NYTimes.com altogether, or a liberal one could block Fox News.
The obvious argument against ISPs taking such steps is that they’d lose their customers. And that would certainly be true in some places. But in many other places, people have no or little choice of ISP. My last two apartments were served by Time Warner alone, and only in the last year have I had a choice: between Verizon and Time Warner. But many entire cities are served by a single ISP. And introducing competition isn’t easy, when it means installing new Internet cables under streets and in buildings.
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Of course, none of this is a reality yet—but it isn’t science fiction either. ISPs have the ability to start filtering, blocking and throttling traffic based on its content or origin any time they want to. They’re already inspecting the content that travels over their networks, in part to provide users with targeted ads. One of the leaders in this industry was actually recommended in the most recent Dick Davis Digest by Ian Wyatt, editor of the SmallCapInvestor PRO. Allot Communications (ALLT) is an Israeli company that specializes in Deep Packet Inspection, a technology that allows ISPs and others to peek at the content that travels over their networks. The company reported better-than-expected earnings on August 10, and Wyatt recommended buying up to $5.35.
Technology like Allot Communications’ has made the Internet experience better for users in many ways. By giving ISPs, wireless companies, governments and businesses more information, it allows them to tailor the online experience to users’ needs. And more information is almost always good. But unless the government passes legislation making net neutrality—the principle that all Internet traffic is treated equally—the law of the land, ISPs could start using this information in malicious ways any day.
American capitalism is great, but corporations already have plenty of ways they can turn their money into power. They already decide what we see on TV and read in newspapers and magazines. And they have unprecedented leeway to spend on political campaigns, thanks to January’s Citizens United v. Federal Election Commission decision. It would be unwise to allow the Internet to become one more place where rich corporations can buy influence.
To learn more about Allot Communications and other top stocks featured in Dick Davis Digest, click here!
Wishing you success in your investing and beyond,
For Cabot Wealth Advisory