In the early 1990s, I visited billionaire George Soros’ office in New York City to provide some direction on an investment his firm had made in a technology startup run by senior Israeli Air Force officers. Their technology was something akin to an iPod, and this was almost a decade before you could store your entire music collection on a device the size of a bar of soap.
The officers had the prescient concern that the internet was not designed to be secure and that this vulnerability would eventually lead to cybercrime and espionage. They believed there would come a time when we would customize the part of the web we needed and keep it secure in our own pocket. These brilliant innovators had a solution, except it was 25 years before we knew there was a problem.
Well, as they say on Broadway, everything old is new again.
Recently, the Federal Communications Commission decided to eliminate most of the net neutrality regulations that required broadband providers to inform customers about how they manage their networks. The commission is now led by Ajit Pai, the former legal counsel for Verizon. Apparently, this appointment isn’t seen as a conflict of interest.
The upside of this decision is that it may provide economic incentives for investing in innovations that improve network connectivity and speed. The downside is that it will cede control of who has access to the net, and at what price, to the largest broadband carriers.
While government officials and public advocacy groups are waging a war of words in the media, little attention is being paid to the opportunity this creates for more disruptive technology companies like that little Israeli startup from the 1990s.
In President Trump’s first address to a joint session of Congress, he repeated his campaign pledge to spend $1 trillion revitalizing the nation’s infrastructure. But infrastructure is more than just roads, bridges, and airports. It’s also digital.
Over the past 50 years, taxpayers have invested billions in the development of the internet. That makes us majority shareholders. Why should the rights of the telecom shareholders be well represented with these changes to net neutrality, and not ours? It’s hard to imagine anyone investing in a company without some form of control or transparency. But that’s exactly what our government is now demanding that we do.
The convergence of delivery options such as cable internet, DSL, 4G wireless and satellite drives today’s competition. Add to this mix upstarts with radical new technologies, low-cost providers from other regions, and fluid pay-as-you-go business models, and the market looks very different than today’s oligarchy of sluggish behemoths.
But is the net really being deregulated? Are the barriers of entry really being lowered to encourage true free market competition, or are these simply different rules to protect the interests of a few incumbents? Look at who receives the best government contracts. They are not the most innovative companies. Instead, they are the largest. The fix is in.
If you’ve visited Delhi or Seoul lately, you probably noticed how much better their service is than here at home. These cities see their investment in digital infrastructure as an engine of economic growth. The number of high tech start-ups growing to over a billion dollars is also following this trend. They are now creating larger numbers of tech jobs faster than we are in the U.S.
Given that we can’t even get sufficient funding for passable roads and drinkable water, what hope is there that our government will adequately support the development of a superior digital domain? The irony is that smaller organizations are far more likely to introduce breakthrough innovations than their larger rivals because they lack the resources to compete on scope or scale. Ingenuity is all they have. They are the seedlings that grow into larger job producing companies.
When the next breakthrough communications technology emerges, we can only hope that people like George Soros allow us to invest in it. That way, we have a reasonable chance of being treated like shareholders, and getting some real return on our investment.
Jeff DeGraff is a clinical professor of business administration at the University of Michigan Ross School of Business.
The Next Idea is Michigan Radio’s project devoted to new innovations and ideas that will change our state.