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The Coming Tug of War Over the Internet

(Optic Cable Fibers, By Dennis Brack -- Bloomberg News)

It was a stunner. Whitacre had apparently declared that AT&T planned to unilaterally abandon its role as a neutral carrier.

Whether or not you agree with Whitacre, you can understand his frustration. Companies like Google and Yahoo pay some fees to connect to their servers to the Internet, but AT&T will collect little if any additional revenue when Yahoo starts offering new features that take up lots of bandwidth on the Internet. When Yahoo's millions of customers download huge blocks of video or play complex video games, AT&T ends up carrying that increased digital traffic without additional financial compensation.

But for public interest advocates, Whitacre's outburst was a Clint Eastwood moment. "Make my day," said Gigi Sohn of Public Knowledge, which focuses on defending consumer rights in the digital world.

Previously, the group had been having trouble convincing members of Congress that there was a network neutrality problem. Legislators and staffers repeatedly had noted to Sohn that no major telephone company had ever used its network to discriminate against other companies. "Whitacre just made the case for regulation," said Sohn. "This was as good as it can get."

Other AT&T executives and spokesmen later said that Whitacre had only been talking about access to a new high-speed broadband network. Industry executives also assured critics that despite Whitacre's bluster, AT&T would never block any Web site, or even degrade the service of a company doing business on the Internet -- even if that service was a voice-over-Internet company such as Vonage, which competes directly with AT&T's core telephone business.

But the blog storm over Whitacre's comments had hardly died down when an executive with BellSouth was quoted saying that the company would consider charging Apple five or 10 cents extra each time a customer downloaded a song using iTunes. Bloggers erupted again, saying that this would certainly drive up the cost of the hugely popular music downloading service.

Google and others say that the prospect of telephone companies imposing new fees on innovative and successful ventures is exactly the kind of thing that deters online commerce. "If carriers are able to control what consumers do on the Internet, that threatens the model of Internet communications that has been wildly successful," said Alan Davidson, Washington policy counsel for Google.

Cable companies abhor the idea of enforced network neutrality just as much as the telephone companies. But so far their executives have remained silent, and stayed out of the crossfire.

The Republican-led Congress is struggling with the issue. On one hand, it has taken a deregulatory approach to the Internet, but on the other, it can't ignore the concerns of Google, Yahoo and eBay, some of the most successful companies of the last 10 years. These companies alone have built up businesses worth hundreds of billions of dollars on an unfettered Internet. Moreover, unfettered Internet access has come to be seen by Americans in general as not just a privilege or a product, but a right akin to free speech and free association.

Over the coming months, the Telecommunications Act will take shape as several different legislative proposals are combined to create a final law. Some of the proposed bills include language on network neutrality, others don't.

The conventional wisdom is that the recent statements by Bell company executives have given network neutrality some momentum. But the bill is not expected to be completed until 2007, leaving lots of time for lobbyists to battle over the strength of the final language.

The FCC, spurred by Commissioner Michael Copps, acknowledged the importance of the issue last October, when it approved two mammoth mergers in the telecommunications industry -- Verizon's $8.5 billion purchase of MCI and SBC Communications' $16 billion purchase of AT&T (SBC quickly assumed the more widely known brand name of AT&T).

One of the few conditions that the FCC put on the merged companies was that they abide by the concept of network neutrality for at least two years. But it's not clear if companies would even be in violation of the relatively vague FCC language if BellSouth or AT&T proceeded with their plan to give one company "priority" over others on the Internet. Last week I asked several telecommunications lawyers, including some FCC staffers, if AT&T would be in violation of its merger agreement if it granted "priority" status to some companies for a fee. The consistent response I got was, "That's a really good question."

At the end of the day, Google's Davidson says that his biggest worry is not for Google but for the prospect of bringing fresh innovation to the Internet. After all, if worse comes to worst, Google can pay AT&T or BellSouth to maintain its role as the Internet's dominant search engine. But the bright young start-up with the next big innovative idea won't have that option.

Author's e-mail:

cstern@medleyadvisors.com

Christopher Stern is a media policy analyst with Medley Global Advisors.


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