Venture capital investors weigh in on FCC's net-neutrality plans with differing views
Venture capital investors are closely following the Federal Communications Commission’s net neutrality proposal and offering differing opinions on what the rules could mean for their investments.
Brad Burnham of Union Square Ventures in New York thinks his portfolio companies that include Twitter and Foursquare won’t be protected by the current proposal. He says the FCC falls short in prohibiting cable and telecom firms from charging fees to Web firms to access customers and for faster lanes on the Internet.
Weaker wireless protections mean those firms' applications could be blocked on future smart phones and tablets, Burnham says. And without clear definitions on what “unjust and unreasonable” management of networks means, he says cable and telecom Internet service providers can use their own loose interpretations to discriminate against competing services.
“I remember too well, the experience of investing in cable television programming start-ups back in the 90s when there was limited channel capacity on cable networks and the companies that controlled access to consumers made it very clear that they would need to own 20% of your company before they would agree to carry your programming on their network,” Burnham wrote in an entry on his company's blog on Sunday. “The Internet we know today exists only because, until now, there have been no gatekeepers between consumers and service providers. We need to keep it that way.”
Not all Web investors agree. Silicon Valley venture capital investors including John Doerr of Kleiner Perkins Caufield & Byers, angel investor Ron Conway and Ram Shriram, an early investor in Google, have all sent out releases of support of the FCC rules which are scheduled for a vote by the commission on December 21. Doer called the proposal pushed by FCC Chairman Julius Genachowski a “pragmatic balance.”
Broadband services investor Gillis Cashman, of MC Venture Partners in Boston, likes some components in the plan. Usage-based pricing, blessed by Genachowski, give cable companies leeway to charge the heaviest users more and return investment into their networks, Cashman said in an interview.
Cashman, who has invested in fiber-optic network providers and wireless firms such as Baja Broadband and Metro PCS, is also relieved that Genachowski’s proposal does not entail reclassifying broadband as a telecommunications service. As more video is watched on the Internet through land-line connections and over wireless networks, the costs of beefing up fiber and wireless networks becomes huge.
“When you think of video and the huge economic bandwidth hog it is and that consumers pay much less per megabit for video, the model has to change dramatically,” Cashman said.
Then there's the perspective of a young startup such as online video rental service Zediva, which is just a few weeks old and already getting skeptical looks from venture capitalists who fear it would be overwhelmed by video-delivery giants, including Comcast and Time Warner.
"Since we started working on our product over two years ago, this concern has come up repeatedly in conversations with potential investors who point this out as one of the risks associated with investing in our company,” Zediva wrote in a letter to Genachowski late last week.
“The very real potential for unfair competition by incumbents who control the networks (ISPs and wireless providers alike) causes great uncertainty about the size of the market and therefore reduces the confidence of investors in their ability to secure a reasonable return on their investment,” the firm wrote.
Stanford University law professor Barbara van Schewick has researched investments in Internet firms and found that one-time upstarts such as Google and Facebook were able to thrive because they didn't have to pay for their Web sites to have priority in reaching consumers. As drafted, the rules could make it easier for existing Web's giants to thrive, while making it harder for startups to reach customers. Those startups, she says, also won't have the funds to fight any discriminatory action.
"It is not just an accident that small, low-cost innovators were so important," Van Schewick told us. "There is something systematically different that established companies look at -- with return on their investments -- with applications than upstarts."
Here's a video from June in which Burnham discusses reclassification of broadband by the FCC. Genachowski had proposed such a move, but has since indicated he would prefer not to redefine broadband as a telecommunications service.
| December 15, 2010; 7:00 AM ET
Categories: AT&T, Comcast, FCC, Mobile, Net Neutrality, Sprint Nextel, T-Mobile, Verizon
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