Explaining Net Neutrality

Last week, the Federal Communications Commission (FCC) voted 3-2 to open the debate over net neutrality to the public. The fundamental question at hand is whether or not companies can pay to have Internet Service Providers (ISPs) deliver their information faster than other Internet users, including bloggers, new businesses and independent online media. The implications for ending net neutrality are far reaching, which address key issues regarding the democratic nature of the Internet as a socio-political, cultural and commercial space.

Internet map 1024 - transparent

A partial map of the Internet from 2005 based on lines drawn between nodes. Each node represents an IP address; the length of the lines represents the delay between them. December 1, 2006 (The Opte Project/Wikimedia Commons).

If one accepts that the public has a right to send mail using a common carrier that does not discriminate, then a natural extension of those rights is the right to send information over the Internet without any kind of discrimination. Basically, if I send mail from my local post office in South Central Los Angeles, then I will get the same quality of service as the rich and famous at their local Beverly Hills post office. On the Internet, this translates to content from Bloomberg News being delivered just as fast as the content from the independent blog I follow to stay up to date on French Politics.

Proponents of net neutrality maintain that the Internet was intended to be an open, free democratic space. In the US, supporters appeal to civil liberties such as the freedom of speech. Those arguing against net neutrality in the US, such as Viacom, Verizon and Time Warner, make the case that net neutrality laws place an undue regulatory burden on their industry. They also argue that being able to allocate bandwidth would help spur innovation and help recoup investments in developing networks. However, companies such as Amazon, Facebook and Google stoutly reject these notions. Google has even begun providing network neutral Internet Service with Google Fibre which currently exists in select American cities.

Where does the US compare to other countries when it comes to net neutrality? The debate internationally has taken place over a similar timeline. Chile was the first country to pass laws explicitly upholding net neutrality in 2010. Shortly thereafter, most of Europe followed suit as well as Brazil, Israel and Japan. Brazil went as far as to enshrine net neutrality in an “Internet Constitution” – a Bill of Rights for citizens on the Internet, the first of its kind.

The two countries that do not uphold net neutrality are the Russian Federation – on the grounds of “security” – and the People’s Republic of China. China has always tightly controlled the flow of information within its borders to preserve political stability and authority. So, even if the US ends up striking down net neutrality in the interest of private telecommunications companies, the “City on the Hill” would join a list of countries that, quite frankly, it should not be on.

The views expressed by the author do not necessarily reflect those of the Glimpse from the Globe staff and editorial board.

Xiaomi’s Expansion and the Test of Chinese Soft Power

Xiaomi is outselling Apple in the Chinese smartphone market, and recently announced its plans to expand globally. You may be asking: “Xiao-who?” Well, here is an introduction to the hottest tech company in China, their blueprint for expansion, and what this means for China’s growing “soft power” – a construct that emphasizes a state’s economic and cultural influence.

Xiaomi Founder at the Fortune Global Forum 2013. (via flickr: Fortune Live Media/ Creative Commons some rights reserved)

Xiaomi Founder at the Fortune Global Forum 2013. (via flickr: Fortune Live Media/ Creative Commons some rights reserved)

Ascent to Stardom

Xiaomi Inc. is an Internet service and consumer electronics company founded in April 2010 by Steve Job’s Asian twin, Lei Jun (see photo). Selling high-end smartphones at near production costs, Xiaomi has challenged Asia’s top smartphone providers in the Chinese, Taiwanese, and Hong Kong markets. In the second quarter of 2013, Xiaomi became the fifth-largest supplier of handsets in Mainland China. In August, Lei poached top Google executive Hugo Barra to orchestrate Xiaomi’s global expansion. And shortly thereafter, a “flash sale” of 100,000 Hongmi-model smartphones ($135 compared to the $750+ iPhone) sold out in 90 seconds. In October, Xiaomi sold 100,000 of the luxury Mi3-model smartphones ($327 for 16GB or $410 for 32GB) in 83 seconds. Less than four years after incorporation, Xiaomi has gained Apple-like popularity and a market valuation at $10 billion (equal to Lenovo or double that of Blackberry). Xiaomi executives project smartphone sales in the neighborhood of 20 million units by year’s end.

International Expansion

But they aren’t satisfied. At a recent media event in Taiwan, Lei and Barra announced their expansion into the Southeast Asian market, specifically Singapore and Malaysia. Why? Singapore and Malaysia have the necessary technological (network coverage) and regulatory (welcoming governmental and legal institutions) infrastructure for Xiaomi’s entry. Further, the people of Singapore and Malaysia are smartphone fanatics. Smartphone penetration in Singapore and Malaysia is at 87% and 80% respectively. Comparatively, the United States is at 60%.

Xiaomi may succeed in its initial expansion—despite entering a saturated market—for four reasons:

  1. Fandom: “Flash sales,” and the social media blitzkrieg surrounding these events, have generated frenzy among middle-class shoppers eager for the newest smartphone. Further, Xiaomi allows its customers to actively shape its software platform. Miui, a spinoff of Google Android software, is updated nearly every week based on the suggestions of its 5.1 million members. Client-customer collaboration has boosted Xiaomi’s popularity in China and promises to do the same in Southeast Asia.
  2. Increased competition: Samsung has run a near monopoly in the Southeast Asian smartphone market. But three Asian companies, Huawei, Lenovo and LG, are challenging its dominance and eating away at its market share each successive quarter. Xiaomi could benefit from an increasingly diverse market.
  3. Subsidies: Singaporean and Malaysian telecom operators offer smartphone subsidies. Thus, Xiaomi phones could be free with the purchase of a contract—an enticing offer for those who disheartened by the larger sticker price of a Samsung or Apple handset.
  4.  Apps: Singaporeans and Malaysians love apps. In fact, they score highly (Singapore at number one) in the World Mobile Readiness Index, a metric that calculates a population’s willingness to pay for mobile apps. Singaporeans’ and Malaysians’ willingness to pay for apps perfectly accommodates Xiaomi’s business model. Xiaomi has razor-thin profits on smartphones (compared to a company like Apple that has a 55% profit margin on the iPhone) and therefore relies on apps and accessories to generate profit.

Litmus Test

Xiaomi’s success in Singapore and Malaysia will be indicative of its potential success outside the Chinese mainland. Xiaomi has thrived in the Chinese market where Apple holds less than 5% market share and Google Play (Google’s “App Store”) is not officially available. How Xiaomi competes in areas where Apple and Google have a stronger grip will be telling. If unsuccessful, Xiaomi will likely retreat to China. If successful, look for Lei and Barra to deepen expansion in Southeast Asia, particularly in the Philippines—a country with a higher Mobile Readiness score than Malaysia and Hong Kong yet with only 15% smartphone penetration. The Filipino market would be wide open to an injection of Xiaomi products.

China’s difficulty in accumulating soft power has been well documented. However, much to the chagrin of some Americans, China’s soft power, particularly its global economic influence, is on the rise. A burgeoning tech market has begun to stimulate international growth for a number of Chinese companies (think Lenovo, Baidu, and Haier). Xiaomi’s success in Southeast Asia could demonstrate or precipitate greater success of Chinese companies in foreign markets. As a result, Chinese communication technology may attain the “cool factor” of Apple or Samsung products—which are widely regarded as fashionable and reliable. In short, Xiaomi may trigger consumers of Chinese tech products around the world to begin prizing the “Made in China” tag rather than associating it with mediocrity. And such a rise in economic influence is a necessary characteristic of any great power.