The Telco Luddites and their effect on innovation - time to relocate Silicon Valley?

The issue of net neutrality is also an issue that affects innovation. Without an open Internet it will be harder for startups to succeed...
Written by Tom Foremski, Contributor
If we had real competition in the Telco industry we wouldn't need to fuss over net neutrality because the competition would force all the Telcos into a race to offer the best services at the best prices. But the Telcos act like Luddites. As Danny Sullivan over at Search Engine Land points out:

The mobile marketplace... where providers unilaterally add on $10 surcharges just because you're using a smartphone, regardless of you actual data usage?

Where you can't take your expensive device and go elsewhere?

Where they deliberately cripple parts of a smartphone's OS?

Where they decide to charge you more for using your device as a modem even if that usage still comes under the same data cap as allowed by native use of your device?

And the government and various agencies are willing participants in the Telco Luddite strategy. Take a look at your cell phone bill as an example. The last time I looked about 50% of my bill for Telco services was added on as taxes and various mandatory fees. We pay so much yet the US has some of the worst broadband services in the world.

A recent FCC report found that there are 14 million Americans without access to any high speed Internet service.

S. Derek Turner, Research Director of Free Press, a lobbying group advocating universal access to communications, said:

"The facts present a sobering reality of our broadband problem. We pay far too much for far too little, and the lack of meaningful competition among Internet service providers leads to delayed investment and slow technological progress."

The high cost of Telco services and now the issues over net neutrality are bad news for startups. Mobility and wireless are key to many startups and they are key to exisiting businesses and their services.

In yesterday's NYTimes.com, Brad Burnham and Fred Wilson, partners at Union Square Ventures, an early stage venture capital fund wrote: A Threat to Startups.

"Between the lack of any protection on the wireless side and the qualifiers and complexity on the wireline side, young startup companies will have difficulty finding financing and building businesses of scale. If an Internet access provider discriminates against a startup directly or through its network management practices, it is unlikely the startup could afford a long and expensive process to seek redress. So this proposal favors the incumbent applications and access providers."

It is worth pointing out that Google, Yahoo and Microsoft have little to gain from net neutrality. I explained in a post from May, 2006:

Why risk an open and neutral Internet and become vulnerable to smaller, swifter competitors? ...

If you are a well established Internet services company such as Google, it doesn't pay to expose yourself to any disruptive, innovative startups. Why make it easy for your future competitors by fighting for their right to an open Internet?

That is why you should not look to Google et al, to save the Internet from the gatekeeper telcos and cable companies.

The big boys can afford to pay the Telcos and in exchange the Telcos keep the startups at bay. If I were a shareholder of Google, I'd be against net neutrality and I would campaign for Google to make deals with all the Telcos.

It's clear that's where Google is headed anyway...

I can't see an easy way out of it.

Luddite Telcos seem bent on keeping us in the Internet dark ages with slow connections and expensive services that will drive innovation out of the US. Government regulation has no teeth and our politicians have incentives to keep the status quo.

The situation for startups and innovation in the US doesn't look good. Maybe it is time to relocate Silicon Valley elsewhere.

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