ISPs, not edge providers, reflect the reality of communications and connectivity

Within the Communications Act of 1934, Congress created the Federal Communications Commission for the purpose of regulating interstate and foreign commerce in communications. Congress intended the Commission to make available a rapid,efficient, nation-wide, and world-wide wire and radio communications network and provide that network at reasonable rates for the nation-state’s consumers. Congress wanted a nation-state, barely a hundred years into its industrial revolution and in the middle of its worst recession, to have the ability to connect all of its citizens.

The episodes of connection via a phone call were not expected to take up the 135 minutes a day that the average person spent on social media in 2017. Earlier today in an op-ed on Axios.com, Evan Spiegel wrote about the difference between social media and his communications app, Snapchat. In his words:

“The personalized newsfeed revolutionized the way people share and consume content. But let’s be honest: this came at a huge cost to facts, our minds and the entire media industry.

This is a challenging problem to solve because the obvious benefits that have driven the growth of social media – more friends! more likes! more free content! – are also the things that will undermine it in the long run.

  • New alternatives for self-expression, including services like text messaging, WhatsApp, and Snapchat are part of a shift towards using communication applications to express yourself rather than posting on social media, because communication apps are oriented around talking with your close friends, free from judgment.
  • Social media fueled “fake news” because content designed to be shared by friends is not necessarily content designed to deliver accurate information. After all, how many times have you shared something you’ve never bothered to read?”

Social media is a bulletin board that you placed on the front of your dorm room, open to a myriad of Post-It notes left by dorm mates and easily read by everyone else, is my summation of Mr Spiegel’s distinction between his service and Facebook. Snapchat; another form of private communication similar to texting or voice calls versus the barroom brawl that is social media.

As concerned as progressive congressional Democrats appear to be about Russia’s ability to use the permeability of Facebook, Twitter, and Google to allegedly upend an election, they do not appear to be in any rush to apply onerous privacy rules to social media, a business model designed for fake news.

Social media was a “god send” for the State. Social media aggregates people into groups that can be operationalized and manipulated. A lot less expensive than tapping phone lines in order to get the pulse of society. Facebook, Twitter, and Google are media outlets and as such are in a position to create messaging and target it toward certain groups. Facebook doesn’t ask “What’s on your mind” for no reason.

Some consumers want balance. They are using the ear buds to create space in the real world and don’t mind connecting where there is value in social media exchange, but they want the option of withdrawing to a position where their smartphone, at the end of the day, is merely for texting and sending/receiving voice calls.

Congress and the Commission should keeps their focus on the infrastructure aspect of communications and leave the bulletin board behavior to the kids.

Google and Facebook: When humans are the fuel for social media farms

For several weeks, social media firms Facebook, Google, and Twitter have faced scrutiny from media and Congress over their alleged facilitation of Russian messaging during the 2016 presidential elections. Nitasha Tiku shared last month in an article for WIRED how social media companies have been catching heat from both sides of the aisle for allowing Russia-based or backed entities to buy ads on their platforms and direct subscribers to messages designed to misinform, mislead, or otherwise influence readers.

Facebook, Google, and Twitter are leaders in the “attention economy“, where social media companies buy (more like hack), package, and sell the attention they glean from their subscribers. Keeping your attention is their business, keeping it in sufficient quantities to attract advertisers who wish to market product to you. Attention, not information, is in short supply. That is the true gold nugget.

Congress, while not having yet passed any significant legislation, is still scrutinizing how social media companies manipulate consumer behavior. For example, today the U.S. House energy and commerce committee has a hearing on how companies use algorithms when making decisions on consumer behavior. This should provide some insight on where Congress wants to go next on the issue.

How does regulating Facebook optimize returns on resources?

Farhad Manjoo writing for The New York Times argued in a recent article for increased regulation of “The Frightful Five”; Amazon, Apple, Facebook, Google, and Microsoft. For Mr Manjoo, their increasing intrusion into personal privacy and growth in the retail sector market should raise concerns on the part of regulators.

My takeaway from Mr Manjoo’s article is that government is moving further and further away from the opportunity of being simply a fair allocator of capital to oppressively regulating its distribution to the point where growth in the value of capital is squashed.

In addition, the Frightful Five have no monopoly on natural resources. They do not control land or access to air or minerals. As demand grows for internet services so too does demand grow for electricity use of the part of internet companies. In an article for Forbes.com, Christopher Helman estimates that internet firms account for 1.8% of electricity consumed in the United States. On an annual basis, internet companies are spending $7 billion a year to consume 70 billion kilowatt hours per year of electricity.

And given their two percent contribution to total greenhouse gas emissions, companies like Google have been purchasing energy from renewable energy sources with a 2017 goal of going 100% renewable, according to a piece by Adam Vaughan for The Guardian.com. As a consumer, Google and other internet companies aren’t in the energy extracting and generation business, making them susceptible, like any other consumer, to the whims of energy companies that actually have a license to extract, generate, and distribute energy.

In terms of human resources they higher relatively few people compared to other large companies in different sectors. The data processing, hosting, and related services sub-sector, within which companies like the Frightful Five belong, employed 364,000 people in September 2017, according to data from the U.S. Bureau of Labor Statistics. This total represents approximately .23% of the approximately 156 million people employed in the United States.

What the Frightful Five are first and foremost are tax revenue generators. While not responsible for extracting and managing the United States’ natural resources, by employing 364,000 wage earners and providing platforms for the sale of goods and services including advertisement, internet companies are providing a tax revenue stream for the United States government that didn’t exist twenty years ago.

How much in taxes would the United States be willing to forego by regulating the profit centers of internet companies? For example, in 2016, Alphabet, the parent of Google, had tax expenses of $4.7 billion at a tax rate of 19%, while Microsoft posted tax expenses of $3.3 billion at a tax rate of 16.5%. Apple paid $15.8 billion in taxes at a tax rate of 25.8%.

As Congress considers a corporate tax overhaul and the impact reform may have on its coffers and the deficit, does Washington want to risk reducing the tax revenues that keep its bond holders calm?

Rather, a better scenario for bond holders would be for government not to interfere in the Frightful Five’s ability to generate taxable income. Since internet companies do not manage directly the United States’ natural resources via extraction or distribution, there should be less reason for regulating these entities.