The battle over who picks up the tab for Internet traffic will rage on in 2007, with telcos pitted against the likes of Google and Microsoft
There's a high-stakes battle raging in Washington over who picks up the tab for the rising rivers of Internet data and the newly upgraded networks that deliver it. On one side are a host of tech companies—from Google (GOOG) to Yahoo! (YHOO) to Intel (INTC) to Microsoft (MSFT)—that specialize in Web-related content and technology, pushing for rules that they say would keep the Internet free from discriminatory pricing. On the other are the phone and cable companies that run the networks shuttling that information from place to place. They oppose regulation of the Internet. Last year, the skirmish ended in stalemate.
The battle will rage on again in 2007, with the Google camp likely to gain the upper hand. Both sides of the issue spent the better part of 2006 trying in vain to win over the then-Republican-controlled Congress to its vision of the Internet's future. A bill that favored telecom companies such as AT&T (T) and cable operators such as Comcast (CMCSA) was passed in June by the House of Representatives, but it went on to die in the Senate. Similarly, an amendment to that bill viewed as favorable to the opposite camp was also rejected, largely by Republicans (see BusinessWeek.com, 6/8/06, "Web Titans' D.C. Blues").
This year, the Democrats are in control, and they're seen as more sympathetic to laws favoring so-called network neutrality, which would bar phone and cable companies from erecting tiered pricing that favors some Web traffic or sites over others. On Jan. 9, Senators Byron Dorgan (D.-N.D.) and Olympia Snowe (R.-Me.), reintroduced the Internet Freedom Preservation Act, which would keep Internet service providers from prioritizing the traffic to some Web sites over others. An earlier version of the bill faltered in a Senate committee in June after receiving an 11-11 tie vote that split roughly along party lines, with Republicans largely opposing the measure.
New Day in Congress
In an e-mail, Snowe said she believed the bill should receive a warmer reception in 2007. "I do think this legislation has a better chance of being passed by the full Senate this year," she wrote, adding that more people understand the issue. "Also, with the shift of the majority in both the Senate and the House, I am optimistic that Senator Dorgan and I will be able to get the votes we need in the Senate Commerce Committee and on the Senate floor."
Outside supporters are no less sanguine. One of the movement's biggest proponents, Representative Ed Markey (D.-Mass.), is now chairman of the House Subcommittee on Telecommunications and the Internet, one of the groups that vets Web-related legislation. Markey has said he will reintroduce his own net neutrality legislation this year. House Speaker Nancy Pelosi (D.-Calif.) also has spoken out in favor of net neutrality, notes Craig Aaron, a spokesman for Free Press, a policy group that supports net-neutrality legislation. "We're moving from a leadership that was clearly against net neutrality in Congress to a new day," Aaron says.
A new day, perhaps—but not necessarily a new law. Lawmakers are likely to be focused on what many consider a more pressing legislative agenda that includes the war in Iraq, health care, and the environment. "There are much more important things for the Congress to pay attention to than net neutrality," says David Farber, professor of computer science and public policy at Carnegie Mellon University. "There are things going on in the rest of the world that are much more vital for this country."
That's not stopping proponents and opponents of net neutrality from girding for battle. Opponents of tiered pricing saw a victory late last year in concessions made by AT&T in exchange for government approval of its plan to buy BellSouth. The big telecom provider AT&T promised not to charge big customers, such as bandwidth-intensive video sites, premium prices for up to two years (see BusinessWeek.com, 12/29/06, "AT&T-BellSouth: Together at Last").
The gain may be short-lived, and net-neutrality proponents aren't resting on their laurels. Conventional wisdom holds that competing ISPs won't charge premium fees as long as AT&T is holding fire. But it's not a guarantee. And the agreement doesn't cover all bandwidth-hogging services, including Internet Protocol television and mobile services. "I believe it's imperative that we get this bill done even sooner than that [deal expires]," Snowe says.
That's because telecom and cable heavyweights are spending billions of dollars to upgrade communications networks and they're eager to recoup the costs. They won't quietly abide any laws that tie their hands when it comes to pricing, and they're making the appeal not only to legislators but increasingly to the public.
"This is a long-term battle for the hearts and minds of Washington and the American people," says Scott Cleland, chairman of NetCompetition.org, a group representing telecommunications companies, cable providers, and others against Net regulation.
Where the Buck Stops
The pitch? Consumers benefit from competition between cable and telecommunication Internet service providers. It's competition, coupled with the potential economic benefits of serving high-speed Internet to more consumers, that spurred ISPs to develop faster connections enabling consumers to take better advantage of the user-generated content, video, and social networking sites that have exploded on the Web.
If Uncle Sam reduces the potential profitability of developing such connections by forcing telecom and cable companies to shoulder the entire cost of the networks, the companies won't bother to upgrade connections—or so the arguments goes. "The goal is to keep the Internet free of regulation so that the continued growth and innovation in new services will happen and not be stifled," says Brian Dietz, a spokesman for the National Cable & Telecommunications Assn.
Another part of the argument: If Big Telco can't pass some of the cost of installing more cable and running bandwidth-intensive applications, such as streaming video and audio, to popular destinations for such activities, the cost will inevitably come to rest on consumers' shoulders, says Cleland.
Phone and cable companies that are already charging monthly bills for calling, Internet access, and other services may have a tough time winning over consumers who perceive services from the likes of Google as essentially free. Plus, Google and its comrades argue that they're making big investments too—in the servers that store mass quantities of Web content copies, as well as big access fees to carriers.
"The consumer is already paying and the content provider is already paying," says Free Press's Aaron. "And now the folks who have so much control over our residential access say we want more.… It seems grossly unfair."
More than a million users have signed a Save the Internet poll in favor of net-neutrality legislation. The concern for many Web surfers is that network operators will reserve the fastest connections for their own services or those companies that pay premiums, slowing down competitors by comparison and possibly even pushing some small companies out of the market entirely.
"Consumers will be subject to viewing Web sites based on the amount of money those Web sites pay to network operators," Snowe says, adding that some sites could be blocked entirely. "This will limit their ability to reach out to the Web-surfing community and limit consumers' ability to view content equally."
Verizon, AT&T, and major cable Internet providers say concerns that Web sites will be blocked are unfounded. "There's no record for showing this kind of abuse exists today," says AT&T spokesperson Claudia Jones. "There's already enough oversight, and business would be crazy if they would do that." Jones says there's enough competition for Internet service between telecommunications and cable companies that no one would want to block sites for fear the users would retaliate and sign up with other services.
Indeed, it's not clear exactly how aggressive the phone and cable companies will be in setting prices for Internet access. Some companies may only want to reserve enough high-speed capacity to ensure they can deliver quality television service to customers, enabling them to better compete with the cable companies that have recently moved onto telecom turf with digital phone and Internet plans. Other ISPs could plan, as net-neutrality advocates fear, to introduce everything from their own user-generated video service to search engines, stifling competition by relegating outside services to slower, more crowded connections.
Until ISPs settle on a business model, Congress will be unlikely to do much more than discuss what should be done, says Blair Levin, former chief of staff at the Federal Communications Commission and a regulatory analyst at Stifel Nicolaus. "There's a group [in Congress] that is ideologically in favor of network neutrality, and I think there's a group that is ideologically opposed to government intervention," says Levin. "Until there's clarity in the marketplace as to the business model and what that might be, the bulk in the middle isn't going to commit to one side or another."