Opponents can shed their rhetoric and reveal new depths to their thought when you bring them together for rapid-fire exchanges, sometimes with their faces literally inches away from each other. That made it worth my while to truck down to the MIT Media Lab for yesterday's Workshop on Innovation, Investment and the Open Internet, sponsored by the Federal Communications Commission. In this article I'll cover:

• Context and background

• Two kinds of investment

• The pocket protector crowd versus the bean counters

• Is network competition over?

• What to regulate

Context and background

The FCC kicked off its country-wide hearing campaign almost two years ago with a meeting at Harvard Law School, which quickly went wild. I covered the experience in one article and the unstated agendas in another. With a star cast and an introduction by the head of the House's Subcommittee on Telecommunications and the Internet, Ed Markey, the meeting took on such a cachet that the public flocked to the lecture hall, only to find it filled because Comcast recruited people off the street to pack the seats and keep network neutrality proponents from attending. (They had an overflow room instead.)

I therefore took pains to arrive at the Media Lab's Bartos Theater early yesterday, but found it unnecessary. Even though Tim Berners-Lee spoke, along with well-known experts across the industry, only 175 people turned up, in my estimation (I'm not an expert at counting crowds). I also noticed that the meeting wasn't worth a mention today in the Boston Globe.

Perhaps it was the calamitous earthquake yesterday in Haiti, or the bad economy, or the failure of the Copenhagan summit to solve the worst crisis ever facing humanity, or concern over three wars the US is involved in (if you count Yemen), or just fatigue, but it seems that not as many people are concerned with network neutrality as two years ago. I recognized several people in the audience yesterday and surmised that the FCC could have picked out a dozen people at random from their seats, instead of the parade of national experts on the panel, and still have led a pretty darned good discussion.

And network neutrality is definitely the greased pig everyone is sliding around. There are hundreds of things one could discuss in the context of innovation and investment, but various political forces ranging from large companies (AT&T versus Google) to highly visible political campaigners (Huffington Post) have made network neutrality the agenda. The FCC gave several of the movement's leaders rein to speak, but perhaps signaled its direction by sending Meredith Attwell Baker as the commissioner in attendance.

In contrast to FCC chair Julius Genachowski, who publicly calls for network neutrality (a position also taken by Barack Obama during his presidential campaign), Baker has traditionally espoused a free-market stance. She opened the talks yesterday by announcing that she is "unconvinced there is a problem" and posing the question: "Is it broken?" I'll provide my own opinion later in this article.

Two kinds of investment

Investment is the handmaiden, if not the inseminator, of innovation. Despite a few spectacular successes, like the invention of Linux and Apache, most new ideas require funding. Even Linux and Apache are represented now by foundations backed now by huge companies.

So why did I title this article "Innovation Battles Investment"? Because investment happens at every level of the Internet, from the cables and cell towers up to the applications you load on your cell phone.

Here I'll pause to highlight an incredible paradigm shift that was visible at this meeting--a shift so conclusive that no one mentioned it. Are you old enough to remember the tussle between "voice" and "data" on telephone lines? Remember the predictions that data would grow in importance at the expense of voice (meaning Plain Old Telephone Service) and the milestones celebrated in the trade press when data pulled ahead of voice?

Well, at the hearing yesterday, the term "Internet" was used to cover the whole communications infrastructure, including wires and cell phone service. This is a mental breakthrough all it's own, and one I'll call the Triumph of the Singularity.

But different levels of infrastructure benefit from different incentives. I found that all the participants danced around this. Innovation and investment at the infrastructure level got short shrift from the network neutrality advocates, whether in the bedtime story version delivered by Barbara van Schewick or the deliberately intimidating, breakneck overview by economist Shane Greenstein, who defined openness as "transparency and consistency to facilitate communication between different partners in an independent value chain."

You can explore his papers on your own, but I took this to mean, more or less, that everybody sharing a platform should broadcast their intentions and appraise everybody else of their plans, so that others can make the most rational decisions and invest wisely. Greenstein realized, of course that firms have little incentive to share their strategies. He said that communication was "costly," which I take as a reference not to an expenditure of money but to a surrender of control and relinquishing of opportunities.

This is just what the cable and phone companies are not going to do. Dot-com innovator Jeffrey Glueck, founder of Skyfire, would like the FCC to require ISPs to give application providers and users at least 60 to 90 days notice before making any changes to how they treat traffic. This is absurd in an environment where bad actors require responses within a few seconds and the victory goes to the router administrators with the most creative coping strategy. Sometimes network users just have to trust their administrators to do the best thing for them. Network neutrality becomes a political and ethical issue when administrators don't. But I'll return to this point later.

The pocket protector crowd versus the bean counters

If the network neutrality advocates could be accused of trying to emasculate the providers, advocates for network provider prerogative were guilty of taking the "Trust us" doctrine too far. For me, the best part of yesterday's panel was how it revealed the deep gap that still exists between those with an engineering point of view and those with a traditional business point of view.

The engineers, led by Internet designer David Clark, repeated the mantra of user control of quality of service, the vehicle for this being the QoS field added to the IP packet header. Van Schewick postulated a situation where a user increases the QoS on one session because they're interviewing for a job over the Internet, then reduces the QoS to chat with a friend.

In the rosy world envisioned by the engineers, we would deal not with the physical reality of a shared network with our neighbors, all converging into a backhaul running from our ISP to its peers, but with the logical mechanism of a limited, dedicated bandwidth pipe (former senator Ted Stevens can enjoy his revenge) that we would spend our time tweaking. One moment we're increasing the allocation for file transfer so we can upload a spreadsheet to our work site; the next moment we're privileging the port we use for an MPMG.

The practicality of such a network service is open to question. Glueck pointed out that users are unlikely ever to ask for lower quality of service (although this is precisely the model that Internet experts have converged on, as I report in my 2002 article A Nice Way to Get Network Quality of Service?). He recommends simple tiers of service--already in effect at many providers--so that someone who wants to carry out a lot of P2P file transfers or high-definition video conferencing can just pay for it.

In contrast, network providers want all the control. Much was made during the panel of a remark by Marcus Weldon of Alcatel-Lucent in support of letting the providers shape traffic. His pointed out that video teleconferencing over the fantastically popular Skype delivered unappealing results over today's best-effort Internet delivery, and suggested a scenario where the provider gives the user a dialog box where the user could increase the QoS for Skype in order to enjoy the video experience.

Others on the panel legitimately flagged this comment as a classic illustration of the problem with providers' traffic shaping: the provider would negotiate with a few popular services such as Skype (which boasts tens of millions of users online whenever you log in) and leave innovative young services to fend for themselves in a best-effort environment.

But the providers can't see doing quality of service any other way. Their business model has always been predicated on designing services around known costs, risks, and opportunities. Before they roll out a service, they need to justify its long-term prospects and reserve control over it for further tweaking. If the pocket protector crowd in Internet standards could present their vision to the providers in a way that showed them the benefits they'd accrue from openness (presumably by creating a bigger pie), we might have progress. But the providers fear, above else, being reduced to a commodity. I'll pick up this theme in the next section.

Is network competition over?

Law professor Christopher S. Yoo is probably the most often heard (not at this panel, unfortunately, where he was given only a few minutes) of academics in favor of network provider prerogatives. He suggested that competition was changing, and therefore requiring a different approach to providers' funding models, from the Internet we knew in the 1990s. Emerging markets (where growth comes mostly from signing up new customers) differ from saturated markets (where growth comes mainly from wooing away your competitors' customers). With 70% of households using cable or fiber broadband offerings, he suggested the U.S. market was getting saturated, or mature.

Well, only if you accept that current providers' policies will stifle growth. What looks like saturation to an academic in the U.S. telecom field looks like a state of primitive underinvestment to people who enjoy lightning-speed service in other developed nations.

But Yoo's assertion makes us pause for a moment to consider the implications of a mature network. When change becomes predictable and slow, and an infrastructure is a public good--as I think everyone would agree the Internet is--it becomes a candidate for government takeover. Indeed, there have been calls for various forms of government control of our network infrastructure. In some places this is actually happening, as cities and towns create their own networks. A related proposal is to rigidly separate the physical infrastructure from the services, barring companies that provide the physical infrastructure from offering services (and therefore presumably relegating them to a maintenance role--a company in that position wouldn't have much incentive to take on literally ground-breaking new projects).

Such government interventions are politically inconceivable in the United States. Furthermore, experience in other developed nations with more successful networks shows that it is unnecessary.

No one can doubt that we need a massive investment in new infrastructure if we want to use the Internet as flexibly and powerfully as our trading partners. But there was disagreement yesterday about how much of an effort the investment will take, and where it will come from.

Yoo argued that a mature market requires investment to come from operating expenditures (i.e., charging users more money, which presumably is justified by discriminating against some traffic in order to offer enhanced services at a premium) instead of capital expenditures. But Clark believes that current operating expenditures would permit adequate growth. He anticipated a rise in Internet access charges of $20 a month, which could fund the added bandwidth we need to reach the Internet speeds of advanced countries. In exchange for paying that extra $20 per month, we would enjoy all the content we want without paying cable TV fees.

The current understanding by providers is that usage is rising "exponentially" (whatever that means--they don't say what the exponent is) whereas charges are rising slowly. Following some charts from Alcatel-Lucent's Weldon that showed profits disappearing entirely in a couple years--a victim of the squeeze between rising usage and slow income growth--van Schewick challenged him, arguing that providers can enjoy lower bandwidth costs to the tune of 30% per year. But Weldon pointed out that the only costs going down are equipment, and claimed that after a large initial drop caused by any disruptive new technology, costs of equipment decrease only 10% per year.

Everyone agreed that mobile, the most exciting and innovation-supporting market, is expensive to provide and suffering an investment crisis. It is also the least open part of the Internet and the part most dependent on legacy pricing (high voice and SMS charges), deviating from the Triumph of the Singularity.

So the Internet is like health care in the U.S.: in worse shape than it appears. We have to do something to address rising usage--investment in new infrastructure as well as new applications--just as we have to lower health care costs that have surpassed 17% of the gross domestic product.

Weldon's vision--a rosy one in its own way, complementing the user-friendly pipe I presented earlier from the engineers--is that providers remain free to control the speeds of different Internet streams and strike deals with anyone they want. He presented provider prerogatives as simple extensions of what already happens now, where large companies create private networks where they can impose QoS on their users, and major web sites contract with content delivery networks such as Akamai (represented at yesterday's panel by lawyer Aaron Abola) to host their content for faster response time. Susie Kim Riley of Camiant testified that European providers are offering differentiated services already, and making money by doing so.

What Weldon and Riley left out is what I documented in A Nice Way to Get Network Quality of Service? Managed networks providing QoS are not the Internet. Attempts to provide QoS over the Internet--by getting different providers to cooperate in privileging certain traffic--have floundered. The technical problems may be surmountable, but no one has figured out how to build trust and to design adequate payment models that would motivate providers to cooperate.

It's possible, as Weldon asserts, that providers allowed to manage their networks would invest in infrastructure that would ultimately improve the experience for all sites--those delivered over the Internet by best-effort methods as well as those striking deals. But the change would still represent increased privatization of the public Internet. It would create what application developers such as Glueck and Nabeel Hyatt of Conduit Labs fear most: a thousand different networks with different rules that have to be negotiated with individually. And new risks and costs would be placed in the way of the disruptive innovators we've enjoyed on the Internet.

Competition, not network neutrality, is actually the key issue facing the FCC, and it was central to their Internet discussions in the years following the 1996 Telecom Act. For the first five years or so, the FCC took seriously a commitment to support new entrants by such strategies as requiring incumbent companies to allow interconnection. Then, especially under Michael Powell, the FCC did an about-face.

The question posed during this period was: what leads to greater investment and growth--letting a few big incumbents enter each other's markets, or promoting a horde of new, small entrants? It's pretty clear that in the short term, the former is more effective because the incumbents have resources to throw at the problem, but that in the long term, the latter is required in order to find new solutions and fix problems by working around them in creative ways.

Yet the FCC took the former route, starting in the early 2000s. They explicitly made a deal with incumbents: build more infrastructure, and we'll relax competition rules so you don't have to share it with other companies.

Starting a telecom firm is hard, so it's not clear that pursuing the other route would have saved us from the impasse we're in today. But a lack of competition is integral to our problems--including the one being fought out in the field of "network neutrality."

All the network neutrality advocates I've talked to wish that we had more competition at the infrastructure level, because then we could rely on competition to discipline providers instead of trying to regulate such discipline. I covered this dilemma in a 2006 article, Network Neutrality and an Internet with Vision. But somehow, this kind of competition is now off the FCC agenda. Even in the mobile space, they offer spectrum though auctions that permit the huge incumbents to gather up the best bands. These incumbents then sit on spectrum without doing anything, a strategy known as "foreclosure" (because it forecloses competitors from doing something useful with it).

Because everybody goes off in his own direction, the situation pits two groups against each other that should be cooperating: small ISPs and proponents of an open Internet.

What to regulate

Amy Tykeson, CEO of a small Oregon Internet provider named BendBroadband, forcefully presented the view of an independent provider, similar to the more familiar imprecations by Brett Glass of Lariat. In their world--characterized by paper-thin margins, precarious deals with back-end providers, and the constant pressure to provide superb customer service--flexible traffic management is critical and network neutrality is viewed as a straitjacket.

I agree that many advocates of network neutrality have oversimplified the workings of the Internet and downplayed the day-to-day requirements of administrators. In contrast, as I have shown, large network providers have overstepped their boundaries. But to end this article on a positive note (you see, I'm trying) I'll report that the lively exchange did produce some common ground and a glimmer of hope for resolving the differing positions.

First, in an exchange between Berners-Lee and van Schewick on the pro-regulatory side and Riley on the anti-regulatory side, a more nuanced view of non-discrimination and quality of service emerged. Everybody on panel offered vociferous exclamations in support of the position that it was unfair discrimination for a network provider to prevent a user from getting legal content or to promote one web site over a competing web site. And this is a major achievement, because those are precisely the practices that providers liked AT&T and Verizon claim the right to do--the practices that spawned the current network neutrality controversy.

To complement this consensus, the network neutrality folks approved the concept of quality of service, so long as it was used to improve the user experience instead of to let network providers pick winners. In a context where some network neutrality advocates have made QoS a dirty word, I see progress.

This raises the question of what is regulation. The traffic shaping policies and business deals proposed by AT&T and Verizon are a form of regulation. They claim the same privilege that large corporations--we could look at health care again--have repeatedly tried to claim when they invoke the "free market": the right of corporations to impose their own regulations.

Berners-Lee and others would like the government to step in and issue regulations that suppress the corporate regulations. A wide range of wording has been proposed for the FCC's consideration. Commissioner Baker asked whether, given the international reach of the Internet, the FCC should regulate at all. Van Schewick quite properly responded that the abuses carried out by providers are at the local level and therefore can be controlled by the government.

Two traits of a market are key to innovation, and came up over and over yesterday among dot-com founders and funders (represented by Ajay Agarwal of Bain Capital) alike: a level playing field, and light-handed regulation.

Sometimes, as Berners-Lee pointed out, government regulation is required to level the playing field. The transparency and consistency cited by Greenstein and others are key features of the level playing field. And as I pointed out, a vacuum in government regulation is often filled by even more onerous regulation by large corporations.

One of the most intriguing suggestions of the day came from Clark, who elliptically suggested that the FCC provide "facilitation, not regulation." I take this to mean the kind of process that Comcast and BitTorrent went through, of which Sally Shipman Wentworth of ISOC boasted in her opening remarks. Going through the IETF (which she said created two new working groups to deal with the problem), Comcast and BitTorrent worked out a protocol that should reduce the load of P2P file sharing on networks and end up being a win-win for everybody.

But there are several ways to interpret this history. To free market ideologues, the Comcast/BitTorrent collaboration shows that private actors on the Internet can exploit its infinite extendibility to find their own solutions without government meddling. Free market proponents also look to anti-competition laws to hold back abuses. But those calling for parental controls would claim that Comcast wanted nothing to do with BitTorrent and started to work on technical solutions only after getting tired of the feces being thrown its way by outsiders, including the FCC.

And in any case--as panelists pointed out--the IETF has no enforcement power. The presence of a superior protocol doesn't guarantee that developers and users will adopt it, or that network providers will allow traffic that could be a threat to their business models.

The FCC at Harvard, which I mentioned at the beginning of this article, promised intervention in the market to preserve Internet freedom. What we got after that (as I predicted) was a slap on Comcast's wrist and no clear sense of direction. The continued involvement of the FCC--including these public forums, which I find educational--show, along with the appointment of the more interventionist Genachowski and the mandate to promote broadband in the American Recovery and Reinvestment Act, that it can't step away from the questions of competition and investment.