An Internet Struggle with Bandwidth Aplenty

The fight over regulating the Internet has become the engine for a perpetual Washington fund-raising machine. By definition, this means the battle won't end anytime soon.

On May 6, Julius Genachowski, chairman of the Federal Communications Commission, announced that his agency would move toward crafting new restrictions on high-speed service providers such as Comcast (CMCSA), AT&T (T), and Verizon (VZ). As he sees it, the FCC is defending the status quo of a free and open Net. Preserving what fans call "net neutrality" would mean barring service providers from favoring their own online offerings and those of business partners. It would also mean stopping the providers from slowing or blocking content from rivals like Google's (GOOG) YouTube video empire.

Rather than settling the issue, though, Genachowski's move may guarantee years of jockeying in all three branches of government. Among the K Street law and lobbying firms, it means plenty of lucrative paydays ahead.

Victor E. Schwartz, who chairs the Washington policy group at Shook, Hardy & Bacon, has seen this drill before. "You have a Washington game with certain perennial issues important to business," he says. "They come back again and again. Why? They're fund-raising gushers." Members of Congress see little reason to resolve the clash quickly, so long as conflicting interests fill their campaign coffers.

Schwartz served as an industry field general in a 20-year war against the plaintiffs' bar over product liability restrictions. That scorched-earth exercise in the courts and Congress finally burned out in 2005. Business interests won selected litigation curbs, including limits on state court class actions and securities suits. Total victory—broad federal "tort reform"—eluded Schwartz and his allies.

Net regulation could be the new product liability. The FCC announcement "is likely to set off a politically charged conflagration and deep-pocketed lobbying war," pitting the digital service providers against Google, Amazon (AMZN), and others that want their content disseminated free of special charges or limitations, says Jeffrey Silva, a Washington-based analyst with Medley Global Advisors.

Genachowski, 47, a Harvard Law School classmate of President Barack Obama, began fleshing out his vision for the broadband future by claiming authority to regulate the Net under statutory provisions long applied to phone companies. His May 6 declaration was an attempt to salvage an ambitious agenda from a potentially crippling ruling in April by a federal appeals court in Washington. The court had said the FCC lacks authority under a different set of provisions governing "information services." The high-speed providers that favored the court decision will almost certainly steer the dispute back to the judicial branch while simultaneously seeking aid in Congress.

As occurred in the product liability hostilities, the Internet struggle is breaking down along partisan lines. Republicans sided with business on litigation curbs; Democrats linked arms with plaintiffs' lawyers and consumer groups. Today, the GOP has signaled its eagerness to back the service providers. Representative John Boehner (R-Ohio), the House Republican leader, calls the FCC net neutrality plan "a government takeover of the Internet," words echoed by conservative groups led by Americans for Tax Reform. Consumer advocates and Democrats such as Representative Edward J. Markey (D-Mass.) back the FCC.

Among major companies favoring the FCC's net neutrality initiative, Google boosted spending on lobbying in the first three months of 2010 by 59 percent, to $1.4 million, compared with the same period a year earlier. Amazon's lobbying expenditures rose 46 percent, to $540,000. AT&T, which has told the FCC that net neutrality rules could discourage important investment in digital infrastructure, has also increased lobbying. It spent $5.9 million through Mar. 31, up 16 percent. Comcast boosted its spending 11 percent, to $3.1 million.

All that money points to a protracted slog with an uncertain ending. One thing is for sure: Prospects are brightening for the capital's influence-peddling elite.

The bottom line: A quick fix in the net neutrality debate looks unlikely if the issue becomes a proxy battle for larger Democratic and GOP agendas.

    Before it's here, it's on the Bloomberg Terminal.