Posts from policy

The Lesson Of Title II and Time Warner Cable: Markets Have Two Sides

On thursday of this past week, I attended a small gathering of academics and policy makers who follow the technology sector. During that gathering, the news came out that the Comcast acquisition of Time Warner Cable was falling apart due to regulatory opposition. The conversation turned to the reasons why this happened.

I surmised that the reason for both the failure of Comcast/Time Warner Cable and the success of the Title II debate several months ago is that regulators and policy makers now understand that markets have two sides and you can’t just look at the consumer facing side of a market.

Comcast was correct in its assertion that they have very little customer overlap with Time Warner Cable and therefore consumers were not being harmed by the consolidation of the two networks. But if you look on the other side of their networks, to the suppliers of applications (Amazon, Google, Facebook, etc) and content (Time Warner, News Corp, Netflix) you see that the consolidation was going to be very harmful. Netflix was going to have one company standing between it and possibly half of its customers in the US. Same with Facebook. And there is no way that was going to be good for them. They may not have come out publicly in opposition to the merger, but you can bet that they came out in opposition privately.

The same is true of Title II regulation of the last mile Internet access. This was not a consumer story either. Very few advocates of “net neutrality rules” believe that this is a consumer issue. Very few have advocated that Internet access prices should be regulated. The debate has always been about the supply side of the market. The side where applications and content live. And the decision to apply Title II regulation to last mile Internet access was essentially a recognition that both sides of a network matter and that it is bad for the economy, society, and innovation to have a network attain enough market power to control what happens on the supply side of a market.

I don’t know enough about communications policy and antitrust policy history to know whether the two sided market construct has played an important role in the past. I think it may well have been an important factor in breakup of AT&T’s monopoly on wired telephony. And I expect there have been other examples as well.

But the one two punch of Title II and Comcast/TWC is a reminder that both sides of a market matter and competition (or the lack thereof) will have an important impact on how these markets function. I am a fan of both decisions and believe that our regulators and policy makers are thinking about this stuff correctly.

Video Of The Week: Albert’s TEDx Talk

My partner Albert gave this TEDx talk earlier this year. Somehow I missed it until this morning when I was looking around YouTube for something to post. I’ve heard Albert articulate all of these ideas for years. He’s influenced my thinking on them greatly and I’ve gone from dismissive, to skeptical, to supportive of experimenting with them. I suspect you will move in that direction too after watching this short (17mins) talk:

Comments On The Proposed Bitlicense Regulations

Over the past year, the New York State Department of Financial Services (DFS), led by Superintendent Benjamin Lawsky, has been attempting to create a set of regulations for virtual currency services. They called this set of regulations the “Bitlicense.”

I have been following this issue closely and participated in public testimony before the DFS back in January 2014 that was a precursor to creating these new regulations.

While these regulations will only apply to businesses operating in New York State, they will naturally be a precedent for many other states who seek to regulate virtual currency services and as such, we should consider them a potential framework for all state regulation of virtual currency.

The initial proposed Bitlicense regulations were published last year and were subject to a comment period which produced more than 3,700 total comments. The DFS did an excellent job of working through those comments and came back with a revised Bitlicense draft early this year. The comment period for the revised Bitlicense started in late February and will end this friday, March 27th.

This blog post is being submitted as a public comment on the revised Bitlicense regulations and should be read as such.

While the DFS has taken great care to simplify the Bitlicense regulations and reduce the scope of them, there remain two fundamental and important problems with them, both relating to duplication of existing regulatory requirements.

Before I get into the specific issues around unnecessary duplication in the proposed Bitlicense regulations, I would like to speak about the issue of regulation and startups and high growth companies in general.

I believe startups and high growth companies are important to the US economy and US citizens for many reasons, but primarily because they bring important new technologies into our lives and improve them, and because they are engines of economic growth and jobs.

Startups and high growth companies should be required to comply with all existing laws and regulations. They should not be excluded from the laws that apply to all other businesses. However the arrival of new technologies should always be seen as an opportunity to review and update our laws and regulations in accordance with the benefits and challenges brought by these new technologies.

It is also true that startups and high growth businesses often start with a very small base of employees and capital and they cannot afford the compliance and regulatory affairs teams of much larger companies. Because of this, startups and high growth companies are more heavily “taxed” in their efforts to comply with regulations and we should be mindful of this “tax on innovation” that regulations place on the startup sector and high growth companies in general.

Duplicative regulatory requirements are a particularly harmful form of this regulatory burden. If one regulatory body is responsible for making sure that businesses comply with the rules, we should not force companies to comply with a redundant and duplicative set of rules and compliance requirements. This is particularly true of state regulations as duplicative compliance requirements could, at the extreme, require companies to do the same thing 50 times (once for every state). And small high growth companies are the ones who will feel the pain of this duplicative and redundant regulatory burden the most.

So, it is with that backdrop that I wish to highlight two such duplicative and redundant regulatory requirements in the Bitlicense. The first are the anti money laundering (AML) requirements in the Bitlicense regulations. Virtual currency exchangers and administrators  are already required to comply with federal AML regulations.  In many ways this is a good thing. FinCEN (the federal money laundering regulator) set a clear federal standard for all bitcoin companies in March 2013. New York State and all other states should require these virtual currency businesses  operating in their jurisdiction to comply with the federal AML regulations but they should not require duplicative and redundant AML compliance on a state by state basis.

The second duplicative and redundant provision in the Bitlicense is related to state money transmission regulations, which are already in place and are applicable to all virtual currency businesses. The Bitlicense requires similar provisions to what is already in place for money transmitters under state regulations, thus creating duplicative and redundant compliance obligations, which, again, could end up being replicated in all fifty states around the country. A better construct would be to exempt licensed money transmitters authorized by the DFS to engage in virtual currency business activity, just as the BitLicense has done for entities chartered under NY Banking Law.

The New York State Department of Financial Services has made a commendable effort to understand the risks posed by virtual currency and to construct regulations to protect society from them. There has been a lot of great work done in this effort. And it is particularly helpful to the startups and high growth companies operating in the virtual currency sector to know what is expected of them to operate legally and safely. I believe if the DFS addresses these two duplicative and redundant provisions, we will have a much better and more efficient regulatory structure for virtual currency providers and that will be a very good thing for all involved.

The Clinton Email Affair

The fascinating thing about the Clinton Email Affair is that it illustrates a central truth of our time; someone is storing and reading your emails. That someone could be your employer, your government, your email provider, or all of the above. A very small percentage of email users choose to run their own email servers and avoid this fate. It turns out that the woman who wants to be our next President is one of those very few.

What does this choice say about her and how she would approach digital privacy? If Edward Snowden is the person who told us what we always suspected but were in denial about, then Hillary Clinton is the person who opted out of the system and lived to tell us how she did it.

The media wants her to tell us why she did it. As if there is any question about that. She did not want the witch hunters in Washington to have access to her emails. That’s it. She has been there and has the scars to show for it and did what any intelligent person with balls would do. She opted out. And she got away with it for four years.

Of course, this affair could get in the way of her desire to get back to the White House. We will see about that. In which case she will have not gotten away with it.

But even so, I would hope that this affair, along with the Snowden revelations, clarifies things for people. Your emails are not private messages. They aren’t much different than posting on Twitter and Facebook. If you do anything that a lot of people care about, your emails will be read and shared. Unless you run your own email server and encrypt your messages.

Sadly this email affair is playing out like all other Washington scandals when it could be anchoring a much larger national discussion about the privacy of personal communications and what are our rights are in that regard. Maybe if this email affair blows over and Hillary ends up in the White House, she can lead that discussion. She will be well suited to do so.

Video Of The Week: Kara Swisher Interviews Hillary Clinton

I posted an interview that Kara Swisher did with President Obama a few weeks ago. Shortly after that interview, Kara interviewed Hillary Clinton. Kara is on a roll. I hope she interviews Jeb Bush next.

In any case, it is great to see a tech journalist interviewing the major national political figures. There are a host of important national tech issues and it is great to be able to hear these politicians address them.

Sadly the email scandal broke about a week after this interview so Kara was not able to ask about that. But otherwise, this is a great discussion and, as I said, I hope she does more of this.

Open Internet Rules

The FCC is expected to approve its Open Internet Rules today. This is a big deal and something we have been fighting for since former FCC Chair Michael Powell unfortunately and incorrectly ruled that Internet Access was an “information service.” We believe that last mile Internet Access is a natural monopoly/duopoly in most geographies and needs to be regulated as such.

My colleague Nick Grossman has a good quick read on usv.com about these rules, why we are strongly in support of them, and what this means.

As Nick says in his post,

We believe in markets. We believe that by recognizing that access to the Internet is an essential service, the FCC has moved to protect the free and open markets that depend on that access. Contrary to much FUD, this is NOT regulating the internet, it’s ensuring open access TO the Internet.

Utility vs Information Service

I saw this headline on the New York Times today:

F.C.C. Is Expected to Propose Regulating Internet Service as a Utility

Now you can argue whether regulating the last mile Internet is a good idea and we have done that ad naseum here at AVC over the years.

But if you accept that some regulations are necessary, you are then faced with the question of whether you should classify last mile Internet as a “utility” or an “information service” as is currently the case.

The decision by then FCC Commissioner Michael Powell to classify internet access (the last mile) as an information service a decade ago is really what’s at stake in this net neutrality debate.

An “information service” is something like AOL or maybe even Wikipedia. It is a service that provides information to a user. The wire (or fiber) that Comcast, Verizon, or some other telco runs from their network to your home or office is most definitely not an information service and should not be regulated as such.

To me it looks like a utility. Just like my electricity service, my water service, and my gas service. The honest to god truth of this matter is that last mile internet service is a utility and has been since broadband arrived a decade or more ago.

Again, we can argue about whether it should be regulated (as electricity, water, and gas are), but we really cannot argue with a straight face that broadband internet access is an information service. It never was and it never will be.

With All Due Respect

We spent the Christmas week on the beach with family and friends. Our friends John and Diana were with us and we talked about a lot of the things that are in the news at the intersection of tech and society. John asked me to take that conversation onto his TV show, With All Due Respect, and I did that yesterday. Here is the segment.

Veniam

I’ve been talking a lot and writing a lot about mesh networking. I think it has the potential to wrest control of the last mile of the wired and wireless internet from the carriers who mostly control it around the world. Peter Kafka noticed yesterday that we had finally put those words to work with a mesh networking investment:

We made this investment, in a neat company called Veniam that comes out of Porto Portugal, some time earlier this year but they finally got around to announcing it yesterday.

My partner Brad talked about it in a short post on usv.com yesterday. And our partner in the investment Om Malik talked about it here.

I had breakfast with Om in NYC earlier this year and told him about Veniam. Those breakfasts do pay dividends eventually. This is how Om describes that breakfast and what came of it:

Union Square Ventures’ Fred Wilson introduced me to João after a long, spirited discussion about network neutrality, new models of networks, and policies that will influence the future of the internet. As we walked back to our office (aka my favorite cafe), he said, “You should talk to this guy in Portugal that my partner Brad [Burnham] has been in touch with. He has some interesting ideas.” An email introduction with João followed, and we were soon talking to each other via Skype. He quickly came to San Francisco, and we met for coffee on the weekend and then again the next day. João likes to talk: It is his super power. And here we are.

So enough about all of that. What does Veniam do? They make a “stack” of wireless technology that lets moving objects (think buses, garbage trucks, cars, vans, etc) carry a wifi access point/router and mesh with each other and anyone else who wants to join the network. With enough density, buses driving around your city can provision a wireless mesh that anyone can use on their smartphone when they are out and about. It’s a big vision and will take a lot of work (and luck) to realize, but this or something like it is eventually going to work and we are going to have a better way to access the internet on our phones than we have today.

Here’s a video of Veniam’s technology in action in Porto. I suspect you will want this in your city too. I certainly do.