Web Titans' D.C. Blues

Yahoo, eBay, and others just lost a key vote on "Net neutrality." Here's why they're likely headed for defeat on the whole issue

An impressive array of tech titans has joined the It's Our Net coalition. Among them: Google (GOOG), Yahoo (YHOO), Microsoft (MSFT), eBay (EBAY), Amazon (AMZN), and IAC/Interactive (IACI). They're banding together to fight for rules aimed at preventing what they say would be discrimination by telephone and cable companies in directing Web traffic. The group has enlisted a diverse cadre of supporters, from the conservative Christian Coalition, to the liberal MoveOn.org, to consumer-minded groups like the Consumer Union.

But for all that seemingly formidable firepower, the coalition has had a tough time finding support in Washington. In particular, it's struggled to enlist the aid of the many lobbyists who can make all the difference in getting a message to the right legislator at the right time.

Why? Established telecom and cable companies, well-versed in the ways of Washington, are sitting on the opposite side of the policy issue. And they have succeeded in locking up some of the lobbyists most qualified to tackle telecom issues on the Hill. It's difficult to find a top-notch telecom expert without a conflict of interest. "Even if they aren't working this issue for a cable [or telecom] company, they'll say they can't do it," says Maura Corbett, a partner with Qorvis Communications who is in charge of coordinating the tech companies' fight.

At stake are rules that would prohibit phone companies and cable-TV operators, which oversee the vast networks that send information around the Internet, from favoring some types of Web traffic over others. Google, Yahoo, and friends are pressing for what they call "Net neutrality" rules that would bar operators from charging different fees for varying levels of service. Phone companies like Verizon (VZ) and AT&T (T) and cable operators such as Comcast (CMCSA) oppose government restrictions on how they run their networks.


  Even in instances where Internet companies have worked with key lobbyists in the past, they're still unable to enlist help on this issue, since many lobbying firms have ties to Big Telco that date back further. That's happened in at least two cases, according to people familiar with the deals.

So it may come as little surprise that up to now, the Internet coalition is making little headway with legislators. It has failed to win the inclusion of Net neutrality provisions in the Communication Opportunity, Promotion, and Enhancement Act. The tech companies pushed to have the language included in the bill when it was in committee last March, but the motions were voted down (see BusinessWeek.com, 4/27/06, "Tech Giants' Internet Battles"). Late in the day on June 8, the House passed the legislation without the hoped-for Net neutrality provisions, in a vote of 321 to 101.

From there, the fight heads to the Senate. There, a piece of legislation introduced by Senators Olympia Snowe (R-Maine) and Byron Dorgan (D-N.D.), would mandate the Federal Communications Commission prohibit any blocking, degrading, or prioritizing of Web traffic on providers' networks. That's much tougher on telecom and cable than other bills wending their way through Congress -- the Barton/Rush bill in the House and the Stevens/Inouye bill in the Senate. Those give the FCC general guidelines, rather than enforceable mandates, on preventing traffic discrimination.

Analysts are pessimistic the Snowe/Dorgan bill will go anywhere. "There are only two [telecom] bills that should be considered as having serious likelihood of passage this year -- one is the Barton Bill [in the House], and the other is the Stevens bill [in the Senate]. Neither of those bills are likely to have a significant network neutrality piece," says Blair Levin, a managing director at Stifel Nicolaus and a former chief of staff at the FCC.


  And it's not helping the Internet bunch that they can't enlist the aid even of lobbyists already on the payroll. PodestaMattoon is the bipartisan firm retained by Google last year for $40,000 to help it address "Internet Access Issues" in Congress, according to public filings. But that's not keeping PodestaMattoon from working for BellSouth (recently purchased by AT&T), Alcatel (ALA), and the U.S. Telecommunications Assoc. on the Net neutrality issue. Google didn't respond to e-mails seeking comment.

Meanwhile, Ryan, Phillips, Utrecht & MacKinnon, which was paid $120,000 by Yahoo for lobbying services in 2005, will be representing the interests of its longtime client the National Cable Television Assoc. (NCTA), which paid it $160,000 in 2005. The NCTA had that firm on retainer for several years before Yahoo first retained it in 2003. A representative from Ryan, Phillips says that when Yahoo signed on, there was an explicit agreement that cable interests would come first if Yahoo found itself on the opposite side of an issue. "We have longstanding representation of the cable industry on public policy matters, and that's well-known in the industry here in town," the spokesman says. "We have no intention of changing sides."

Lobbyist insiders say the coalition has at least two problems. First, it has to convince top firms that it will be around for the long haul. "A coalition of several companies like this are by their nature very fungible...people are not going to disrupt current relationships for them," says one lobbyist, whose firm has done work for an Internet company on other issues, but will soon be fighting against Net neutrality.


  Also, the Internet companies simply need to pony up more cash inside the Beltway. "These companies are penny pinchers in this arena. I don't think they've been anesthetized to the price of doing business in Washington," the insider says. Investments from the companies so far have been lopsided compared with the efforts of the major telecom and cable companies. Last year Verizon alone spent $4.2 million on lobbying, not including lobbying for its 55-percent-owned Verizon Wireless division. Of that, Verizon spent at least $1.6 million with 24 different outside firms.

Some of the biggest Internet companies are downright stingy by comparison. Google spent approximately $160,000 on outside lobbyists in 2005, and Yahoo roughly $288,000. eBay's total lobbying budget was $600,000, Amazon's was $460,000, and IAC's was $270,000. And some Internet companies, notably Google, aren't exactly generous when it comes to contributing to Republicans, who control Congress (see BusinessWeek.com, 2/20/06, "Google: Searching For Respect On The Hill"). In the 2004 elections, for example, Internet companies made a majority of campaign donations to Democratic candidates, with Google donating only 1% of $251,679 to Republicans, according to the Center for Responsive Politics.

Telecom companies also aren't afraid to splash out on public advertising campaigns, hiring hotshots like Mike McCurry, the former White House press secretary under President Clinton, who now helps run Hands Off the Internet, an anti-Net Neutrality Web site, and Scot Cleland, a longtime telecom analyst who now runs Netcompetition.org, another site. Pair that with the fact that telecom companies have been successfully lobbying against regulation of their business for the last decade, and you have some pretty serious opposition. "The [Internet companies] are entering the ninth inning here, against some of the best in the business." says Cleland. As issues like these matured over the last 13 years, he said, "they haven't been anywhere -- they popped onto the scene a few months ago."


  The coalition has won some allies on K Street, however. Chief among them: Vin Weber, a partner of Clark & Weinstock. The former Congressman and his firm have been spearheading the lobbying efforts of the It's Our Net Coalition since February, according to a representative from the coalition. Last year, the firm terminated a multiyear relationship with AT&T. Clark & Weinstock is also getting assistance on the issue from a handful of agencies that do business for the Internet companies themselves, including Gage LLC, which works for Google, and Mehlman Vogel Castagnetti, which works for both Yahoo and EBay, as well as two other firms on contract with Amazon.

And the companies use different approaches, harnessing the technology they know best: the Net. "We don't want to do it the same way the [telcos and cable companies] do it," Corbett says. "Our greatest strength is our users." With the involvement of grassroots sites like MoveOn.org, Net neutrality has become a hot topic in the blogosphere. eBay CEO Meg Whitman in May sent an e-mail to eBay's users, asking them to contact their Congressional representatives. So far, says Corbett, the coalition has a petition of more than 800,000 people it plans to present before Congress.

Says Paul Misener, Amazon's vice-president of global public policy in D.C.: "Our battle plan is to simply make the case, describe the factual circumstances and implications of this issue. If there's an agreement on those basic facts, we feel the policy answer is pretty clear." But whether it's clear enough to result in a favorable outcome in the nation's capital is another matter altogether.

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