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Net Neutrality Restricts Smart Grid Deployment

03/12/11

Net Neutrality Restricts Smart Grid Deployment

President Obama announcing $3.4 billion of Federal investments into smart grid projects

The Federal Communications Commission began regulating the Internet last December to prevent anti-competitive practices, in a culmination of national network neutrality advocacy.  But there is evidence that some of the regulatory language around specialized services could actually discourage investment in breakthrough Internet applications like smart grid systems.

Flashes of misconduct by Internet service providers have reasonably concerned regulators.  Such events are typified by customer outrage over suddenly being unable to transfer data as desired, because of business supply-side decision making.  The FCC's Open Internet Report & Order was hence crafted as a reaction to fears of Internet providers leveraging their power in unfair ways.

But Verizon Wireless is clearly against such practices [1], and doesn't have the luxury of a monopoly, so why should its innovative applications of the Internet be restricted by a net neutrality regime?  Verizon doesn't think so, which is why it is now suing the FCC.

What's wrong with the new Internet regulation is that, in at least a few areas, it makes fuzzy threats.  This is by design: regulators want a flexibly enforceable regime in an ecosystem they know is dynamically evolving.  But the downside is that it makes the government's responses to market changes around Internet services very unpredictable.  Investment prospects in new Internet services become less attractive, because it becomes more difficult to quantize the risks involved.  Ultimately, the impact is “very harmful to consumers, companies, and the ability of this industry to create jobs, provide new services, and be an engine for economic growth,” according to Verizon [2].  The new services that Verizon refers to include modernizing electrical power grids.

Verizon plans to not only help American citizens communicate better, but also American energy systems. Last week, it agreed to provide some of its Internet services to Duke Energy, one of the nation's largest electric power companies, to deploy smart metering and home energy management systems in Charlotte, North Carolina [3].  By helping to modernize Charlotte's power grid, Verizon could enable residents there within the next few years to save millions of dollars, create hundreds of jobs, reduce tons of carbon emissions, and much more.

Early pilot projects have shown that consumers use the new insights and controls of Internet-connected power systems to cut their energy consumption by 15% on average [4,5].  Studies project that national deployment of these systems could provide savings to the US of $130 billion annually by 2020 [6], and create 280,000 high-value jobs for America [7].  Verizon is one company that has the infrastructure to help scale smart grid systems across the US – if only the FCC will allow it.

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The FCC warns that it would be concerned if capacity for broadband Internet access did not keep up pace with capacity for “specialized services” like smart grids and that it will be closely monitoring how these services may be constricting capacity available for broadband Internet access [8].

By the laws of physics, wireless data transmission capacity is limited.  And the more capacity devoted for a given Internet application, the faster that application can transfer data.  So, by investing network capacity into smart grids, and other Internet innovations, Verizon is directly reducing Internet capacity available for its smart phones and iPads.  This is a typical risk in supply-side optimization for a company in a competing marketplace to make.  But Verizon can’t optimize their supply chain safely under the new FCC Internet rules, because even the FCC doesn't know at what point it would disapprove of cross-market developments.

If these regulations are not reformed, or completely tossed out in court, companies like Verizon will feel very restricted in how much Internet capacity they can legally provide for catalyzing smart grid deployment, and other breakthrough innovations, across the US.  This would directly conflict with the FCC's thrust for modernizing key areas of the US economy energy, health care, education, civic engagement, public safety, government performance, and more through the National Broadband Plan.

We need the smartest Internet policies in the world if we want the smartest energy systems.  To modernize as quickly as China, which plans to invest $601 billion in smart grids over the coming decade [9], we need to adopt Internet regulations that dramatically accelerate economic growth, innovation, competitiveness, and job creation – in line with President Obama’s January 18th executive order [10].  The US government has already invested billions of dollars in smart grids [11], and yet, parts of the new FCC regulation appear to be counterproductive, and contradictory to even the most admirable intentions, in real-world practice.

When technology companies like Verizon Wireless are unable to make secure investments in the most game-changing applications of the Internet, because they are too nervous about how they will be monitored and punished for changes in the market place, then we all lose. 

No matter what happens in court, leaders in Washington DC need to quantitatively solidify their regulatory posture around “specialized services”, if they wish to accelerate investment of billions of dollars into radical Internet innovations.  They need to be much more explicit about technical guidelines explaining what degree of investment into “specialized services” is unacceptable.  Such guidelines would be based on diversified economic valuations of potential specialized services, relative to existing Internet services.  It would consider, for example, that the value added to the US economy from Internet-connected energy systems – $130 billion annually by the end of this decade [6]
is probably greater than the value added by faster Twitter speeds.

If our national prosperity depends on our ability to “out-innovate” the world for years to come, then we had better look more carefully at our Internet policies.  Applications of breakthrough Internet devices will increasingly shape what the coming years look like.  If partisan politics dominate this surprisingly critical issue, Americans may lose the global race to design and deploy the most innovative
Internet of Things.


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Lance Legel is a Digital Energy Fellow in the Interdisciplinary Telecommunications Program at the University of Colorado, Boulder.  He is on fellowship from a U.S. Department of Energy award, researching key enablers to mainstream deployment of smart grid systems.  He can be reached at lance.legel@colorado.edu.

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Sources:

[1] "Verizon's Commitment to Our Broadband Internet Access Customers". Verizon Wireless. 2011.

[2] "Verizon Comments on FCC Chairman's Proposed Net Neutrality Rules". Verizon Policy Blog. December 2, 2010.

[3] "Duke Energy, Verizon Link Buildings via LTE". Reuters. March 3, 2011.

[4] "IBM and Consert Help North Carolinians to Reduce Energy Consumption with Smart Grid Technology". IBM. September 21, 2009.

[5] "Illinois Households Save on Electricity Bills with Power Smart Pricing". CNT Energy. January 2011.

[6] "McKinsey on the Smart Grid". McKinsey & Company Electric Power & Natural Gas Practice. Summer 2010.

[7] "The US Smart Grid Revolution: KEMA's Perspectives for Job Creation". KEMA. December 23, 2008.

[8] "Open Internet Report & Order: Section III G". US Federal Communications Commission. December 23, 2010.

[9] "$601 Billion to Develop Smart Grid". The People's Daily. December 17, 2010.

[10] "Executive Order: Improving Regulation and Regulatory Review". The White House. January 18, 2011.

[11] "President Obama Announces $3.4 Billion Investment to Spur Transition to Smart Energy Grid". US Department of Energy. October 27, 2009.

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