The Eden Illusion

Monday, March 13, 2006

BACK IN 1984, AT&T Inc. was judged to be a competition-squelching monopoly. It was hanged, drawn and cut into eight pieces. Now, with a planned merger between AT&T and BellSouth Corp., the old monopolist is set to reemerge as the world's biggest telecommunications company, uniting four of the regional phone companies created by the breakup. The reaction to this merger shows how things can change. Cell phones and Internet telephony have created competition aplenty for traditional land lines, and there's no reason to object to the consolidation of BellSouth's customer base in the Southeast with AT&T's customer base in the West, Southwest and Midwest. To the extent that the proposed merger will generate regulatory questions, these hinge on an issue that didn't exist 22 years ago.

That issue is "net neutrality," the principle that cable and phone companies, which own the plumbing that connects you to the Internet, should make all Web sites equally accessible. The plumbers want the right to deliver some Web services -- Inc.'s bookstore or Yahoo Inc.'s search engine -- faster than others, and to charge Amazon or Yahoo for that privilege. Not surprisingly, Internet companies don't want to fork over money to the cable and phone guys. To discredit the plumbers' pay-to-play idea, they invoke the original vision of cyberspace: a democratic utopia in which surfers choose freely among a zillion sites, with humble hobbyists and multimillion-dollar firms competing for eyeballs on a level playing field. (The Washington Post Co. owns both cable and Web sites and so has commercial interests on both sides of this issue.)

Leave aside the irony that corporations such as Google Inc. are invoking the anti-corporate spirit of the Internet's founders. The vision of a neutral net has an intuitive appeal; if anyone anywhere can post opinions or sell T-shirts, choice, diversity and competition will flourish. But it would nonetheless be a mistake to force AT&T to promise net neutrality as a condition of its merger. Equally, legislative proposals to enforce net neutrality, including one introduced this month by Sen. Ron Wyden (D-Ore.), should remain just that: proposals.

The proponents of net neutrality exaggerate the purity of cyberspace. Big names on the Web already have a huge advantage over no-brand competitors: Surfers go to places that they trust, particularly to make credit-card purchases. Moreover, once you have an advantage on the Web, it becomes self-reinforcing: If your site is popular and many others link to it, search engines such as Google will direct more traffic your way. Corporations already strive mightily to make your Internet experience non-neutral. From the early days of the World Wide Web, America Online Inc. tried to keep customers within its own virtual "walled garden" of services. More recently, Google has elbowed out competitors by offering toolbars and other freebies that keep its friendly search box perpetually on computer screens. Meanwhile, big e-tailers have accelerated their service by paying to "cache" their Web pages on computers close to customers. So if cable and phone companies start delivering some Web content at premium speeds, they will be adding to an existing trend, not sullying Eden.

The proponents of net neutrality also understate the costs of regulation. If cable and phone companies are not allowed to charge Internet firms for fast delivery, they will be deprived of one source of profits. This will make it harder to raise capital to build the next generation of superfast Internet pipes, capable of delivering high-quality video. Moreover, any definition of net neutrality is likely to be contested in the courts, and legal uncertainty will further deter investment. As a result, net neutrality could end up meaning that all Web services get delivered at a similar but relatively slow rate.

If the cable and phone companies start blocking out chunks of the Web's content, there will be opportunities for Congress to weigh in. But it's hard to see how these firms can expect to win extra subscribers by doing that.

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