At Stake: The Net As We Know It
The internet has always been a model of freedom. Today the Web is flourishing because anyone can click to any site or download any service they want on an open network. But now the phone and cable companies that operate broadband networks have a different vision. If they get their way, today's Information Highway could be laden with tollgates, express lanes, and traffic tie-ups -- all designed to make money for the network companies.
That prospect is the worst nightmare of Internet stars such as Google (GOOG ), Amazon (AMZN ), and eBay (EBAY ). They're gearing up for a clash with the phone and cable giants early next year as Congress begins to redraft the telecom laws for the broadband era. The Internet gang fears that unless they get lawmakers to intervene, the network operators will soon be able to put a chokehold on the Web. "The issue is about the future of the Internet," says Alan Davidson, Google Inc.'s Washington policy counsel.
Doug Herring, 48, got a glimpse of that specter last November. Traveling on business in Tennessee, the General Electric Co. (GE ) sales manager phoned his wife at their Elberta (Ala.) home. Herring had just signed up with Web-phone provider Vonage Holdings Corp. and was pleased with the service. But this time, he couldn't get through. He switched Web-phone providers, but still couldn't make calls.
Frustrated, Herring contacted Madison River Communications LLC, the rural phone company that provides his digital subscriber line (DSL) connection. The company said it was blocking calls from Internet phone companies. Outraged, Herring and Vonage complained to federal regulators. "For me to get the Internet where I live, [Madison River] is the only provider," Herring fumes. In March the Federal Communications Commission fined the company $15,000, and the carrier agreed it would no longer block Internet-calling services.
Most phone and cable companies are no longer content just to sell Web access to consumers. After investing in high-speed pipes, they also want to peddle more lucrative products, such as Internet-delivered TV programs, movies, and phone calls. "Building these networks is expensive," says Link Hoewing, vice-president for Internet policy at Verizon Communications Inc. (VZ ). "If I can find new ways to pay for this network, it's gravy for everyone."
But selling those extras puts the phone and cable companies in competition with Web services big and small. The network operators could block consumers from popular sites such as Google, Amazon, or Yahoo! in favor of their own. Or they could degrade delivery of Web pages whose providers don't pay extra. Google's home page, for instance, might load at a creep, while a search engine backed by the network company would zip along. "This new view of the world will break apart the Internet and turn it into small fiefdoms" divided between the network providers' friends and foes, says Vonage Chief Executive Jeffrey A. Citron.
That's just crying wolf, retort the Bell and cable operators. The Web companies' push for rules requiring "network neutrality is a solution in search of a problem," says Daniel Brenner, senior vice-president for regulatory policy at the National Cable & Telecommunications Assn. But recent court and regulatory rulings have given the carriers more room to discriminate. In June, the U.S. Supreme Court ruled that cable broadband services were almost free of regulation. Two months later, the FCC granted the same liberty to the Bells' broadband services. The FCC made two newly merged megaphone companies -- created from AT&T (T ) and SBC Communications Inc. and Verizon and MCI (MCIP ) -- vow to keep their Internet lines open to all for the next two years. But FCC Chairman Kevin J. Martin favors a light regulatory touch until he sees widespread abuse by the networks.
Lawmakers updating the telecom laws are more likely to act. The House Commerce Committee will probably vote early next year on whether to require net neutrality. And while Google and its Internet brethren are the darlings of Wall Street and a Web-wild public, these New Economy powerhouses could find themselves outgunned in Washington. After decades as regulated carriers, the Old Tech phone and cable companies employ legions of lobbyists and funnel hefty checks into Congress's campaign coffers. Google, by contrast, just hired Davidson, its first lobbyist, in June.
BANDWIDTH ROAD HOGS
For their part, the phone and cable companies protest that they have no plans to use their pipes unfairly. Madison River is the only carrier known to have blocked rivals or degraded their service. "We have no intention of controlling where you can and can't go on the Internet," says Bill Smith, chief technology officer at BellSouth Corp. (BLS ). "If [phone companies] restrict where people go on the Net, they'd leave in droves" for cable competitors.
Yet in a Nov. 7 interview with BusinessWeek Online, AT&T CEO Edward E. Whitacre Jr. declared: "What [Google, Vonage, and others] would like to do is to use my pipes free. But I ain't going to let them do that." Whitacre and AT&T argue that they need flexibility to exact a toll from Web services that hog bandwidth. As broadband use grows, the Bells and cable companies say that intensive users aren't paying their fair share. File-sharers swapping music and movies account for 60% of North American residential broadband use, estimates Dave Caputo, CEO of Sandvine Inc., in Waterloo, Ont., which sells technology to manage network traffic. "Your overeaters get preferential treatment over weaker ones," he says.
Carriers could raise their prices for consumers who clog the network. But when Korean phone giant KT Corp. (KTC ) noted that 5% of its users accounted for half of its traffic and floated the idea of volume pricing earlier this year, the public outcry quickly quashed any plan.
So the network operators figure they can charge at the source of the traffic -- and they're turning to technology for help. Sandvine and other firms, including Cisco Systems Inc. (CSCO ), are making tools that can identify whether users are sending video, e-mail, or phone calls. This gear could give network operators the ability to speed up or slow down certain uses.
That capability could be used to help Internet surfers. BellSouth, for one, wants to guarantee that an Internet-TV viewer doesn't experience annoying millisecond delays during the Super Bowl because his teenage daughter is downloading music files in another room.
But express lanes for certain bits could give network providers a chance to shunt other services into the slow lane, unless they pay up. A phone company could tell Google or another independent Web service that it must pay extra to ensure speedy, reliable service.
That could result in an Internet of haves, who can afford to pay the network operators more to ensure smooth service, and have-nots. Trouble is, those have-nots may include the Next Big Thing -- whether it be mom-and-pop podcasting or video blogging. The fewer innovative services on the Net, the less reason Web users have to want broadband. Both the network operators and the Internet could lose out in the end.
By Catherine Yang, with Roger O. Crockett in Chicago and Moon Ihlwan in Seoul