January 2014

[Commentary] After a federal appeals court swept aside rules that required Internet service providers to share their networks equally with all users, I wondered whether Netflix might become the next Covad Communications, a failed poster child of the late-1990s telecommunications investment boom. Now that Netflix has reported another quarter of healthy subscriber growth, I'm reminded that the chances of it happening are slim. Yet, the chances of large telecom and cable providers cutting into Netflix's future growth are much higher than that, thanks to that court ruling, and a brief history of Covad shows how it could happen.

Like Netflix, Covad had a pioneering online business model that required the help of federal government regulation to get off the ground. For Covad, that regulation was the Telecommunications Act of 1996 and subsequent Federal Communications Commission rules that required Verizon, AT&T and the other regional Bells operating companies (RBOCs) to share their networks to competing broadband service providers for a nominal cost. Netflix was similarly protected by the FCC's so-called network neutrality rules, which prevented large Internet service providers from charging more to Netflix, Google's YouTube unit and other firms that hog lots of bandwidth on their broadband networks. That protection has allowed Netflix to become the No. 1 provider of online movies and TV shows. Netflix, though, has one strategic advantage lacked by Covad, whose main value proposition was that it could deliver the same service as its larger rivals for a fraction of the cost. By contrast, and thanks to its wide assortment of licensing deals, Netflix has access to movie and TV content that Verizon and the other giants can't offer. At least, not yet. No sooner had the ink dried on the appeals court ruling than Verizon agreed to buy the Web TV assets of chip giant Intel, in a move to help it expand its own digital entertainment offerings. If the giants can soon offer what Netflix can, the upstart's key differentiation will be on price alone. Sound familiar?

In our hyper-wired world, it’s hard to imagine that just a skimpy 35% of the global population has Internet access. The promise of getting that remaining 65% -- or at least some of it -- is a cornucopia of economic temptation.

“Broadband is one of the most enabling technologies of our lifetime,” says Steve Collar, CEO of O3B Networks. “But you can’t run fiber through the Amazon, or through the mountains of Pakistan.” Instead, by the end of 2014, Collar’s Stockholm-based company plans to put 12 satellites into orbit that will deliver 3G networks to large swaths of emerging markets. But unlike the satellites that already deliver a connection, O3B’s infrastructure will live much closer to Earth’s surface. So while Direct TV’s satellites hover at 22,500 miles away from Earth, O3B’s are at 8,000 -- cutting down costs. That proximity eliminates the signal delay, but still offers enough coverage per satellite. “We can just get more data through and more bandwidth through,” Collar says. “We’re really in the sweet spot.” O3B is testing in the Cook Islands in March, with a projected launch in May 2014.

Google, through its plan to link Gmail addresses to its Google+ social network, is violating a privacy agreement the company made with the Federal Trade Commission, a longtime critic of the company's privacy practices said in a complaint to the agency.

Google+ also has a "flagrant and fundamental privacy design flaw" because it allows any user to add other users to his circles without their permission, Consumer Watchdog said in the complaint. "A user can be forced to be publicly associated with someone with whom they do not wish to be associated," wrote John Simpson, Consumer Watchdog's Privacy Project director. Compounding the problem is Google's plan, announced in early January 2014, to merge Google+ and Gmail contact lists, Consumer Watchdog said. The change will allow a Gmail user to send an unsolicited e-mail message to another user without knowing the second person's Gmail address, by adding the intended recipient to his Google+ circles. That merger of Google+ and Gmail accounts violates a March 2011 privacy settlement between Google and the FTC over Google Buzz, the company's failed first social networking experiment, Consumer Watchdog alleged.

Chinese authorities moved aggressively to block online access to news reports exposing the secrecy-cloaked offshore holdings of China’s political and financial elites.

Internet censors prevented readers in China from seeing investigative stories by the International Consortium of Investigative Journalists and several of its publishing partners, including Spain’s El País, Le Monde, Süddeutsche Zeitung in Germany, the Canadian Broadcasting Corp., and the UK and US editions of The Guardian, according to reports from news organizations and analytics by GreatFire.org, which monitors web censorship in China. China routinely censors online domestic content and blocks foreign social networking websites such as Twitter and Facebook, but the broad news blackout targeting so many international media outlets was unusual in its scope. Individual sites have been targeted in the past, including The New York Times and Bloomberg, which separately saw their sites blocked after releasing reports on elite wealth in China. In Beijing, a spokesman for the Ministry of Foreign Affairs Qin Gang dismissed the story calling it “hardly convincing” and said it raises “suspicions over the motives behind it."