Google and Telecoms vs. the 'Regulatorium'

NEW YORK (TheStreet) -- What VisiCalc co-founder and profound digital thinker Bob Frankston once called the "regulatorium"  -- a collection of cozy relationships between telecom regulators and the regulated meant to frustrate change -- may be about to break up.

It's being replaced by Internet property rights, a system that may benefit the formerly regulated even more than the regulations did, bringing monopoly rents and profits to their investors.

The break is being led from the top down by AT&T (T) and Verizon (VZ), and from the bottom up by Google (GOOG). Its chief beneficiary may turn out to be Comcast (CMCSA).

The top-down effort is called the "IP Transition" in which telephone-era regulation will wither away, to be replaced by Internet regulation. This could happen as early as next year, writes DSL Reports

Tom Wheeler, chairman of the Federal Communications Commission, said it would be "a good thing" if what he calls the "Network Compact" -- competition and the interconnection of networks -- is maintained. But it's a a pretty low bar when he adds that "regulating the Internet is a non-starter," as he did in a 2013 speech.

This means all the property built by phone and cable franchises, under regulation, over 100 years becomes private property. Rules designed to prevent abuse of market power are replaced by a vague regulatory yearning.

This sounds great to AT&T, which is already moving to change tariffs accordingly and grandfathering old agreements for no more than three years. Verizon is also on board with this view. Comcast may prove a bigger winner. After its purchase of Time Warner Cable (TWC) is complete it will be the unquestioned leader in local Internet services.

Lost amid the gold rush is any concept of a local network as a "common carrier," whose business relations are subject to public scrutiny. Former FCC member Michael Copps, now with Common Cause, wants the biggest Internet service providers (ISPs) such as AT&T and Verizon to be defined in this way, but his is a voice in the wilderness.

While the telecommunications companies bring down government from the top down, Google is looking to liberate them from the bottom up through its Google Fiber initiative.

Google Fiber was first deployed in Kansas City, where the company got free access to rights of way, office space, city employees, and an express lane for its permits. 

Now the company says it is "considering" nine other metro areas for its next buildout, and it wants similar deals.

The company has put together a "checklist" -- installing fiber conduit when streets are re-built, streamlining government processes and having up-to-date data on local infrastructure -- a consultant's wish list that the consultants call "Gigabit Communities." 

By piling on the deregulation pressure up front, Google maintains maximum leverage over its "chosen" cities, most of which are falling all over one another to comply with its requests.

Under Google Fiber, "universal service" -- the idea of serving every community within a region -- is dead. In Atlanta, for instance, Google is only offering to serve the central city and some nearby suburbs. The offerings in the other markets are similar, and in the more far-flung cities there are no suburbs being offered service at all. 

Back in the days of cable franchising, this would be called "cherry picking," and some jurisdictions not on the list are almost certain to make that charge. But more important than the where is the what: the promises of subsidy being made by local governments to Google, in the hopes of getting Google-controlled fiber.

The governments that fail to win Google Fiber will have created a bid that other fiber companies can answer. Cable or phone companies that want to "overbuild," investors that want to build their own fiber networks, or municipal efforts will have a road map to doing business cheaply. You can't offer Google one deal and then deny that deal to its competitors when Google doesn't take it. If "better service" is the result, why would you?

None of these promises break the oligopoly now found in last-mile Internet services. Only those with a line to the home can provide the service, and very few can afford to run that line. The way to create real competition would be, as Copps wrote, to enforce "common carrier" status on infrastructure owners and make the wholesaling of capacity a condition of doing business, as the 1996 Telecommunications Act contemplated.

But that's not going to happen. Infrastructure owners are not going to invest where their actions and rights are restricted in any way.

With telecoms leading the charge from the top and Google leading it from the bottom, regulations are being replaced by a corporate gold rush for assets and territory. Whether it works better for the customers than for the old regulatorium is unclear.

What is clear is that it's happening and smart investors can benefit.

At the time of publication the author had a position in GOOG.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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