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VCs: Net Neutrality Rules Needed to Encourage Web Investment

The U.S. Federal Communications Commission should move ahead with plans to create formal network neutrality rules in order to encourage investment and innovation in Web applications and content, three venture capitalists said Friday.

Without new net neutrality rules, innovative new Web companies could get buried by broadband providers that don't see their value, said Brad Burnham, a partner with Union Square Ventures, a New York City venture capital firm that has invested in Etsy.com, Foursquare and Meetup. Without net neutrality rules that would prevent broadband providers from selectively discriminating against Web content and services, a service like Twitter "would never have seen the light of day," he said during a Washington, D.C., forum hosted by the Open Internet Coalition, a group that supports net neutrality rules.

Allowing broadband providers to have control over Web content and applications is "fundamentally a bad idea," added Brad Feld, managing director of Foundry Group, a Boulder, Colorado, venture capital firm that focuses on technology investments. Also speaking in favor of net neutrality rules was Santo Politi, founder and general partner of Spark Capital, a Boston VC firm.

Burnham and Feld disputed the assertion by some broadband providers that net neutrality rules and the FCC's effort to reclassify broadband as a regulated common-carrier service would hurt investment from broadband providers. "Does anyone really believe that?" Feld said.

If broadband providers continue to insist that net neutrality and reclassification will hurt telecom investment, they will be sending a bad message about their business models to Wall Street, added Markham Erickson, executive director of the Open Internet Coalition. Some broadband providers have begun to downplay concerns about the effects of net neutrality rules on investment in their industry, he said.

But representatives of Broadband for America, a broadband deployment advocacy group with members including AT&T, Verizon Communications and Comcast, repeated their concerns about net neutrality rules and reclassification during their own press conference Friday.

If the FCC moves to reclassify broadband, that will "create a lot of uncertainty in the private sector," said Harold Ford Jr., co-chairman of Broadband for America, and a former Democratic representative from Tennessee.

Without new regulations, the broadband industry is projected to invest more than US$30 billion a year between 2010 and 2015 and create more than 500,000 jobs, said Hal Singer, managing director of Navigant Economics and co-author of a recent study on broadband investment. The FCC and Congress should consider the potential impact of new regulations on that investment, he said during the Broadband for America press conference.

"We're looking at sacrificing a prospective hundreds of thousands of jobs and tens of billions of dollars in investment," added Everett Ehrlich, president of ESC, a business consulting firm.

When asked how much telecom investment would suffer with net neutrality rules, Ehrlich said it would be a "substantial amount."

FCC Chairman Julius Genachowski has called for a limited reclassification of broadband as a common-carrier service in response to an April appeals court decision saying the agency did not have the authority to enforce informal net neutrality principles. After the appeals court ruling, the FCC's authority to pass any rules related to broadband, including a set of formal net neutrality rules Genachowski had earlier proposed, is in doubt until the agency reclassifies broadband from a largely unregulated information service to a regulated common-carrier service, FCC officials have said.

The FCC, meeting Thursday, is scheduled to vote on a notice of inquiry that would allow the agency to explore whether to reclassify broadband. The notice of inquiry, or NOI, would be the first step in a long process to reclassify broadband, if that's what the FCC chooses to do.

The reclassification is needed, said Burnham of Union Square Ventures. Broadband providers, by arguing against regulation, are asking for the U.S. government to subsidize their business model at the expense of Web application and content providers, he said.

"What they're really saying is, 'If we can control the relationship between the infrastructure and the applications layer, it directs the profits to us,'" he said. "Basically, they're asking society to subsidize their infrastructure investment with profits from the applications layer and to accept diminished innovation from the applications layer in exchange for that subsidy."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantusG. Grant's e-mail address is grant_gross@idg.com.

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