Life After Google

by George Gilder

  A sprucely bearded, good-spirited original thinker in his late forties, Berninger begins by seeking a more gregarious Web. Wouldn’t it be better if Web pages were hooked up with high-definition voice? You would click on an icon and be passed to a human operator, or in a world of Google “Home,” an automaton. The “operator” assigns you to a conversation in HD voice. At seven kilohertz (in contrast to the usual three kilohertz) and a doubled sample rate, the acoustics are uncannily clear and resonant. Unneeded are telephone numbers or traditional searches. You can speak or not as you wish. Clear as telepresence.

  Hello Digital is the name of the company with this idea. Berninger admits it might not be a good idea—“knowledge is about the past; entrepreneurship is about the future”—but surely it is not the role of the government to block it.

  Berninger arrives for dinner at the swank University Club in DC wearing Silicon Valley jeans and no jacket. That is a problem. Mama don’ ’low no denim at the U Club. Perhaps he would be better off as a virtual man on the University Club Web page. Perhaps not. Berninger is fortunate, the liveried host tells me earnestly: “There are no board members present tonight.”

  Gosh, would he have been arrested? No, but he risked being stopped at the entrance to the dining room.

  No sweat for Dan, though. He’s all smiles. He has an itch to defy authority, and the U Club was happy to oblige. He should grasp what these clubs are for—offering protocols for communication among kindred spirits—and most of us would not have them any other way, even if their rules occasionally provoke a contretemps with a Silicon Valley swashbuckler in blue jeans.

  A regulatory skeptic for decades, Berninger is currently taking his protest all the way to the Supreme Court. It turns out that the Hello Digital idea violates certain abstruse rules of the Federal Communications Commission. All such petitioners have to join the K Street law firm shuffle. Call Dick Wylie and Bert Rein and their 234 lawyers in the Federal Communications Bar Association.

  Squeezing into a dark jacket provided just in time by the University Club host, Berninger settles comfortably back into his chair, a rebel at rest in Washington, ready to tell his story. An electrical-systems engineer, Berninger has spent most of his business life as a cheerful disruptor of the telecom industry. He began at Bell Laboratories, where in 1995 he embarked on studies of how the voice-over-the-Internet protocol (VoIP) would affect the telecommunications companies. By allowing calls over the Internet, VoIP freed phones from some of the hustles and hassles of the public switched telephone network (PSTN).

  Beginning by occupying the circuitry of a large computer server at Free World Dialup in 1994, VoIP moved on to a small board in a network box at Vocaltec in Israel, which developed the first successful VoIP system in 1996. It finally migrated to single chips at Vonage. Berninger followed the technology where it led. Now on Broadcom chips for a few dollars, high-definition voice over IP could be discreetly available on every Web page. “Hello Digital.”

  As he worked on the contested borders between different networks—the then-unregulated Web and the pettifogged PSTN, “local” and “long distance”—the FCC hounded his every step. Launching ITXC out of Vocaltec with his AT&T colleague Tom Evslin, Berninger shook up the industry with the idea of long distance telephony as an Internet product. ITXC briefly spiked to an eight-billion-dollar market cap before the dotcom crash. Becoming a major supplier of VoIP, Berninger’s next venture, Vonage, reached a peak of 1.4 million customers in 2004. It was eventually palsied by specious but exhausting Verizon patent claims that extracted close to $150 million from the company.

  It was his experience with Hello Digital, though that made him a libertarian litigant.

  The existing Internet-only voice systems, such as Skype at Microsoft, Google Hangouts, and Facebook Messenger, work well enough, sometimes even superbly. But they fail to take advantage of the spontaneous convergence of interests on particular websites. They provide no additional sources of revenue for Web pages with independent content. And they fail to add the magic of high-definition voice. “People don’t know they want it, but when they get it all other telephony seems inadequate.”

  Reliable HD voice requires an end-to-end link, like a phone call, rather than a best-efforts, heavily buffered Internet connection. As he put it in his “Declaration of Daniel Berninger” before the FCC, “Because latency, jitter and packet loss . . . will threaten quality and destroy the value-proposition of HD service, it is imperative that network operators prioritize this traffic . . . ,” and they will “reasonably expect and demand compensation.”

  Berninger knew that, because of the FCC’s Open Internet Order of 2015, this new use of telephony on the Web would ring bells at the Commission. In that year, FCC chief Tom Wheeler declared the Internet part of the PSTN and regulated it as a public utility under Title II of the Telecom Act of 1996. But what could go wrong with Berninger’s little application? Hello Digital seemed just a new form of better voice acoustics and community spirit on the Net. But after a few months of waiting, Berninger learned that this was a bridge too far.

  Protecting an end-to-end link was illegal, said the FCC, under “network neutrality” rules, which arguably prohibited favoring some bits—time sensitive voice bits, say—over other bits, more forgiving text or email transmissions, for instance. So good-bye to Hello Digital.

  Berninger, however, is not one to be brushed aside easily, even by an en banc decision of the nation’s leading telecom authority. Extending federal telecom regulation to the Internet grated on him. The key step was the ruling that an Internet protocol address is just a different form of phone number.

  If the FCC was in charge of phone numbers, went the argument, it was in charge of IP addresses also. And if it was in charge of IP addresses, it was in charge of the Internet. With IPV4’s limited address space now being rapidly converted into IPV6 to accommodate the galactic billions of items in the Internet of Things, why shouldn’t the FCC rule over all those billions of things—a bright ever-expanding horizon for bureaucracy. And, said the FCC in its order, if any new forms of address are developed, we own them too! Falling under its communications jurisdiction is any new address scheme that may be introduced by insidious non-neutral entrepreneurs.

  Berninger decided to sue, but he learned that the cost of doing business on K Street was staggering. Hiring Wylie Rein, Washington’s premier communications practice, would jack up his annual legal bill from $200,000 to $500,000. The process would begin with a sequence of comment and response under the Administrative Procedure Act, followed up with begging and pleading for a stay-order after the routine plea was denied. He would have to wait for the suit to be listed on the Federal Register, and so on through rebuff by the regulation-friendly U.S. Court of Appeals for the D.C. Circuit. Finally in June 2016 . . . there it is! . . . on the docket of the Supreme Court: Berninger v. Federal Communications Commission. Berninger hopes that the Supreme Court, which has previously protected the Net from regulations, will rule in his favor. Even though Ajit Pai, the FCC’s new deregulatory chairman, suspended some of the network neutrality rules ad hoc in late 2017, Berninger wants to free the Net from FCC oversight for good.

  If the small step of high-definition voice requires the alignment of justices and administrators spanning much of the federal judiciary and likely the Congress and White House as well, what mazes will confront the historic transformations in life after Google? Now under way is the most far-reaching telecom upheaval since the creation of the Internet. Enabling the Bell’s Law change in computer architecture—dispersing the clouds of data center condensation and opening the skies of centrifugal blockchain links—is the radical infrastructure upgrade called 5G.

  Adopted in principle by telecom companies around the globe, 5G is the fifth generation of wireless technology standards. Expanding the network into several new high-frequency and millimeter-wave domains of spectrum and vastly multiplying antenna coverage, it promises a hundred-fold increase in wireless bandwidth over the
next five years. It also makes most of the spectrum-hustling of the FCC obsolete.

  Affording some twenty ubiquitous gigabits per second of capacity, 5G feeds on the invention of the Israeli company ASOCS, whose devices allow movement of baseband voice processing away from existing giant antenna towers back to cellular base-stations. By removing complex computations and weather protection from antenna systems, 5G allows the deployment of millions of concealed stripped-down antennas. Coverage can move from giant fenced-in towers to rural fence posts, telephone poles, parking meters, lighting fixtures, and walls of buildings, inside and out, around the country. Far more than the FCC-mandated and misnamed Universal Service Fund, which has become a feckless slush fund for politicians, 5G can make broadband as universal as TV and cellphones.

  Although reducing the cost per bit of communications by a factor of hundreds, these changes will not be cheap to deploy. The estimated cost of the 5G upgrade is $300 billion, which is close to the cost of the original buildout of the entire telecom plant.

  Far beyond mere high-definition voice, 5G is the technological infrastructure for a coming revolution in networks. It enables new distributed security systems for the Internet of Things, the blockchain ledgers of the new crypto-economy of micropayments, and the augmented and virtual reality platforms of advanced Internet communications. It is especially important for Urs Hölzle’s ambitious plans for Google.

  Raising capital on this scale is obviously incompatible with the static assumptions of Title II, which makes the Internet a public utility like the power grid. You can’t raise $300 billion to refurbish a regulated utility. FCC surveillance entails the threat of elaborate price controls and regulation of every new connection—Hello Digital!—under rules not only from the FCC but from local fiefdoms and metropolitan officials as well.

  Although communications infrastructure is among the most competitive of industries, the enormous size of its plant, equipment, and workforce makes it an inviting target for government at every level seeking fees, tolls, property taxes, “investments,” campaign contributions, and other indulgences. Bringing wireline service to rural outposts like Aspen, Colorado, and to ghettoes such as Palo Alto, the Universal Service Fund taxes every connection. The honey pot swelled to more than $160 billion between 2010 and 2018. In addition, the FCC mandate to maintain otiose landline service costs the telcos some $25 billion a year in electrical bills alone.

  “As an entrepreneur, the current telecom regulatory regime hurts me in two places,” Berninger says. “My efforts to pursue a business model, and potential funders. Regulation wipes out both. My new service putting voice behind websites looks a bit like a conferencing service. Currently Title II says telcos have to pay 20 percent from the top line to the government to pay for universal broadband. Well, that’s game-over. I have no company there.

  “Also, no funder wants anything to do with a regulated industry. Title II reclassification dried up investment funding. Say I have one million dollars and I want to invest it somewhere. I need to assess my prospects for success. These will be a function of the rules I’m facing. If the FCC is in there, then it’s game-over. I don’t know what the rules are.”

  FCC rules divide information technology into segments, whether software versus platforms, wireless versus wireline, applications versus carriers, or content versus conduit. Manifesting this great divide in capital markets are the valuations of the relevant companies. Massively favored are software and content apps over the regulated regime of conduit, manufacturing, and hardware that makes a network possible.

  Favored companies such as Google, Facebook, Netflix, Apple, and Amazon show a valuation of between eight and forty times their revenues. By contrast, companies such as AT&T, Verizon, T-Mobile, and the competitive local exchange carriers supplying the core of the network show valuations between twenty and eighty times lower—between 0.5 and 1.5 times their revenues. Yet the superb goods and services of Google et al. are utterly dependent for their performance on the investments of the infrastructure companies.

  One result of the regulatory and tax regime is that most of the manufacturing of telecom and computer hardware and infrastructure has been outsourced to China and other foreign realms. Silicon Valley today is a green sward with almost no silicon visible and no significant chip, fiber optic, or complex systems manufacturing. Because of the differential treatment, the telco hardware companies are throwing their investment funds into the green sward. Rather than an all-out drive to 5G, Verizon purchases AOL and the Huffington Post. AT&T romances Time Warner. These are mostly bandwidth users rather than bandwidth suppliers.

  Over the next decade, regulatory policy will largely determine whether 5G happens in the United States or is chiefly relegated to foreign countries, whether the promise of Internet security afforded by blockchain innovations will be realized in the United States or whether the Internet will continue to decline into giant walled gardens ruled by Google, Apple, and Facebook.

  The signs today are not promising. Google and Facebook currently handle close to 70 percent of all Internet communications, and Google’s internal links are larger in cross-section bandwidth than the entire Internet. But Google’s brief foray into local infrastructure—Google Fiber—launched with bravado as a national plan to bring gigabit-per-second links to the entire nation, has dwindled into a few embattled projects. Surviving are Google Fiber campaigns in Kansas City, Austin, Provo, Atlanta, Charlotte, and four smaller sites. Put together these projects failed to reach Google’s modest target of five million subscribers.

  Google began as an Internet company crawling the World Wide Web with its miraculous search capabilities. Today, as Eric Schmidt declares, it is moving from “search” to “suggest,” using artificial intelligence to disintermediate the Web. Rather than being referred to a Web page by Google’s system, you are increasingly provided with Google’s own targeted response honed by its deep learning systems, its super-intelligent adaptation to your every whim.

  All these Google ambitions depend on the rapid expansion of bandwidth through 5G and other ventures that are going to entail hundreds of billions of dollars of investment. Google needs the telcos and the infrastructure suppliers. It needs a thriving world economy full of entrepreneurs responding to real prices. It should abandon its self-indulgent politics and self-serving sanctimony.

  Hello Digital is the least of it.

  In 2002, Berninger identified ten “U.S. Telecom Policy Myths” that serve as rationales for increased government regulation.1 Sixteen years later, the most significant change is the enlistment of Google and its lobbyists behind this essential mythology.

  Berninger’s first myth was that policy is independent of technology—that communications service is defined by law rather than by engineering. Many analysts, such as the estimable Tim Wu in The Master Switch and The Attention Merchants, therefore seem to believe that carriers face an irresistible temptation to manipulate the content they carry unless government can enforce “network neutrality” rules.2 They see insidious forces at AT&T and Verizon, Comcast and Time Warner, reaching in and suppressing content they don’t like and favoring content that supports their interests. Without the constant vigilance of lawyers and FCC surveillance, all would be lost for telco critics on the Net.

  Although he makes a worthy effort to grasp technology, Wu is a law school professor and Federal Trade Commission counsel surrounded by lawyers who imagine they rule the world. But communications law is a mostly perverse and misconceived holding action against the constant upheavals wrought by engineers.

  Engineers know that voice, video, 3D interactive games, virtual reality, financial transactions, 911 calls, streaming music, messages, content delivery networks, email, radio ID systems, software downloads, the Internet of Things, and machine-to-machine links are technologically different in almost every respect. No carrier can treat them the same. A law that requires treating them the same is merely a mandate for constant litigation and thus Damoclean and arbitrary gover
nment power.

  In practice, these differences cause no problem. If you have the best conduit, you want everybody’s content to use it; if you have the best content, you want it to be on everyone’s conduit. So tendentious manipulation simply does not occur, despite opportune claims and hysterical fears. If, however, you put it into the law and have the FCC enforce it, K Street culture will ensure that networks become an arena of perpetual K Street activism, enriching Wu’s associates, whom only the leviathans can afford.

  In practice, the only factor that makes any serious difference for Internet neutrality is investment in bandwidth. If bandwidth is scarce, it will have to be allocated preferentially, regardless of the laws. Network neutrality is out the window. If bandwidth is abundant, neutrality laws are unneeded. Everything finds a conduit. Strangely enough, the key threat to actual network neutrality today is the national “network neutrality” campaign, which deters investment in bandwidth, driving telcos into feckless “content plays” and treating the Internet as a static, zero-sum system.

  Reluctant to pay other companies to deliver its panoply of free goods, Google supports Internet neutrality as a way to induce government intervention on behalf of Google’s free world. Google apparently thinks that it can manipulate government and the media more effectively than relatively penurious carriers can. It seems to be right. But Google’s interests ultimately depend on bandwidth abundance, which requires the very investment and innovation that is penalized by network neutrality laws.

  Berninger’s second myth was that the Internet is essentially an overlay on the PSTN and thus should be similarly regulated. Today, however, there is virtually no overlap. Most Internet links now use wireless spectrum and go to smart phones. The rest go over cable television coax, fiber connections, microwave, or satellite. The old copper cages of the PSTN have little to do with it. But because the PSTN is over-taxed and over-regulated and the Internet is much less regulated and taxed, advocates of big government, such as Google lobbyists, want the Net seen as a facet of telecom. It is an amazingly short-sighted stance.