Gay Marriage, Net Neutrality, and Dangerous Curves.

OK, I am not actually going to try and compare gay marriage to Net Neutrality.  But there is a link.  Profound social shifts in what seems like an instant.  In both cases, society is following its (predictable) hockey-stick adoption curve.  And in both cases, pundits, politicians, CEO’s, and Wall Street are scrambling to catch up.

Gay marriage is now legal in 36 states covering 70% of Americans.  That is awesome in the full sense of the word.  Yay America!

Net Neutrality started 2014 facing the (awful) idea of “fast lanes.”  Why awful?  It is technically hard to speed paid traffic, but really easy to slow un-paid traffic… Twelve measly months later, we have this last-ditch stand by telco lobbyists with their backs to the sea…

“(Reuters)  The draft legislation from [House and Senate Republicans] seeks to set new net neutrality rules, such as bans on data throttling and paid prioritization, but without resorting to the Title II regime. The Republican bill would ban blocking or slowing some downloads, unless required for reasonable network management, but would also restrict the FCC from expanding its authority over ISPs beyond enforcing existing rules.”

The battle is lost.  They have conceded the main point and just trying to minimize the damage.

  • The simple existence of this bill makes it pretty clear that insiders think the FCC is going to vote for Title II.  And the FCC will (eventually) win in court.  Because they have always had that authority.  They just haven’t had the guts…
  • Title II is a big deal.  It doesn’t change the existing situation.  But it codifes what has already happened in the mind of the public.  Broadband is a utility-like, “common carriage” service that must be regulated to ensure an even playing field.  It is like electricity, telephony, and water – too important and universal to leave to the (ahem) “free market.”
  • We just hit the tipping point.  This is a huge shift for the general public.  Internet advocates have been saying this for years.  But your average Joe was too busy watching cat videos to think about the pipes carrying them.  Until you hit that tipping point.  The FCC is only swinging behind this shift in perception (4 million public comments and countless in-beltway dinner/cocktail/bar party battles later).  Just like various court’s gay marriage rulings are weather-vaning after another massive shift in public perception.

The Title II battle is part of a longer, losing war for the telcos/cablecos.  We are only a hop, skip, and a jump from Universal Service.

  • This seems obvious to me, but to many it seems as far fetched as, say, gay marriage did 5-10 years ago.  Most of Wall Street is still there on the beaches fighting the telco’s rear-guard action.  Another Dunkirk awaits.  There is a lot of money to be made exploiting the blind spots of people who instinctively take the “producer” side in a battle with consumers.  Although try telling that to the people with the blind spots (grin).
  • To that end, note that one of Obama’s State of the Union “teasers” last week was about clearing the path for municipal broadband builds.  Wall Streeters are going to focus on the (admittedly insubstantial) proposals and dismiss the longer-term implications.  Why is the president using valuable airtime to talk about this?  When, not if, do these intentions become more substantial?  Who wins and loses?  
  • So Wall Street will be blindsided (yet again) by a wave of (mostly rural and 2nd tier city) Gigabit broadband builds.  Just like their forefathers were blindsided by a wave of telephony and electricity builds in the 1920’s-1950’s.  America’s thousands of small, rural, phone and electric companies came from those first grass roots utility builds.  Most of those thousands aren’t public.  A lot are municipally owned.  All of them came from local efforts to promote/sustain economic development.
  • The historical precedent is clear and direct.  Broadband today is treading that same path.  But a gut reaction against “socialism” often clamps down on higher order reasoning before you can get someone to see it…. Sort’ve like people used to react to the idea of gay marriage? OK, that was a stretch but trying to make a point here…
  • I’d guess Universal Service starts to get seriously underway in 3-5 years (2018-2020).  That is midway through a President Clinton II’s two terms.  That “President Clinton” forecast is not a partisan hope BTW.  Its a considered, analytical prediction that I’ll get around to exploring here at some point.  And probably another good place to make money betting investor hearts vs analytical minds (just like the Romney/Obama bet….).

Admittedly, gay marriage is a whole lot more important to a whole lot of people.  But Net Neutrality affects nearly everyone universally.  Hence (ahem) Universal Service…  In both cases, I see the same well-trod path.  Fringe ideas hit critical mass.  The leading edge suddenly becomes mainstream.  And pundits and forecasters are caught short on their (predictably wrong) linear projections.

Why?  People just hate curves.  Really they hate forecasts based on curves.  Most of my investing success has come from that simple insight.  Unfortunately people often reject the curve-based forecaster along with the forecasts.  I’ve taken a lot of flak* over the years trying to defend or even explain those forecasts.  Better to fail conventionally than succeed unconventionally I guess.  And I did manage to remain employed – for which I am grateful to several long-suffering bosses.  But I digress.

If you want to take something to the bank, we will start to build “real” wire-based broadband (probably Gigabit) to the same 98% of America that is currently covered by wire-based telephony.  Probably starting within the next 5 years and taking 15-20 to complete.   Although if you take this to a major Wall Street bank now, they’d probably bet against you.  Which is a pretty good sign you’re right but early.

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I have a few more posts marinating.  Hopefully I’ll get them out shortly.  Busy now helping my parents move house.  And I can only type so much before my fingers stiffen up in what my father considers a comfortable indoor temperature.  Some things never change…

*  As a fun aside, the term “flak” actually derives from the German abbreviation for an anti-aircraft gun – “Fliegerabwehrkanonen.”  No wonder they abbreviated.  I’ve always been a little disappointed we didn’t go with the anglo version – ack-ack.  It just has a nice ring to it…

 

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