Battle lines drawn over net neutrality

As the U.S. Congress argues the pros and cons of network neutrality, many companies doing business on the Internet say their very futures may be at stake.

Net neutrality supporters want new laws prohibiting Internet providers from blocking or degrading traffic from their competitors’ networks. If providers are allowed to give preferential treatment to some Web traffic, businesses using competing tools will find themselves in the slow lane, said Dave Greves, owner of Denver-based Faction Media, an advertising agency that focuses on online campaigns.

Greves’ 20-employee company uses Web analytics packages, an ad server product, a hosted e-mail service, and even Google for business-to-business advertising. Without Net neutrality rules, a broadband provider could block Google in favor of its own, or a partner’s, search engine, Greves said.

“Of course, it’s all speculation, but it could radically change the way we operate,” Greves said. “It would put us effectively back in startup mode.”

Determining the full effects of net neutrality can be difficult, however, in part because the concept is hard to define precisely. Most of the debate has taken place inside the Washington Beltway, where lawmakers and outsiders have proposed several different versions.

One proposal, from Massachusetts Representative Ed Markey and other House Democrats, would require broadband providers to offer the same enhanced routing for services such as television over IP to competitors that they set aside for themselves. That proposal represents one of the most specific — and, opponents say, regulatory — approaches to net neutrality.

Members of Congress have introduced three other bills, but none so far has gained broad support in either the House or Senate. Most recently, on June 28 the Senate rejected a proposal to add a net neutrality provision to a bill now under discussion.

Business in the cross fire

The neutrality issue pits large broadband providers such as AT&T, Comcast, and Verizon against consumer groups and large Internet-based companies such as Amazon.com, eBay, and Google. A neutrality law would create new regulations for the Internet, broadband providers say. They argue that they need to explore new business plans as a way to pay for next-generation broadband networks, and that they should be free to divide up their broadband pipes to offer new services such as television over IP.

One possible new business plan: Charging e-commerce companies fees to get preferential routing for traffic to their sites. Officials from AT&T and BellSouth have advocated such a plan in recent months. In November, AT&T CEO Ed Whitacre famously complained in a BusinessWeek interview that Google and VoIP provider Vonage were using “my pipes free.”

“I ain’t going to let them do that because we have spent this capital and we have to have a return on it,” Whitacre told the magazine.

AT&T, created when SBC swallowed up the old AT&T in a US$16 billion deal in November, had a revenue of $15.8 billion during the first quarter of 2006, with a net income of $1.4 billion. Verizon, which closed an $8.5 billion deal to buy MCI in January, had a revenue of $22.7 billion in the first quarter, with a net income of $1.6 billion.

Executives at Amazon.com and Google say they pay millions of dollars in Internet fees each year. They and other net neutrality advocates say the free-flowing nature of the Internet would fundamentally change without a new law after recent decisions by the U.S. Federal Communications Commission and Supreme Court effectively deregulated broadband.

The FCC freed DSL providers from sharing their lines with competitors in August 2005. An attempt by independent Internet service providers to share the lines of cable broadband providers was shot down by the Supreme Court in June of that year.

Because of those decisions, broadband providers will inevitably try to block or degrade Web content from competitors such as independent VoIP or video providers, net neutrality advocates say. Despite net neutrality opponents’ assertion that broadband competition is coming, advocates point to statistics showing large telecom and cable providers in control of 98 percent of the U.S. broadband market, with no more than two providers available to most U.S. residents.

For the free market to work, there needs to be healthy competition from multiple providers, said Paul Misener, vice president of global public policy for Amazon.com. True broadband competition for most U.S. residents is five to seven years away, Misener predicted.

“It’s just not happening. It may, but it’s not there now,” Misener said at a recent net neutrality debate at George Washington University. “When [opponents] say, ‘Let the free market work,’ ask them where that market is.”

Class struggle among ISPs

Broadband providers have repeatedly said they will not block or impair their customers’ existing access to competing Web content or services. But Pac-West, an independent telecom provider based in Stockton, Calif., fears that lack of a net neutrality law could lead to large broadband providers blocking Internet traffic from smaller providers. That could mean the end of many smaller providers, Pac-West officials said.

The FCC decision on DSL effectively ended so-called common carrier rules requiring broadband providers to carry all traffic, and it’s not a reach to predict large broadband providers will stop accepting traffic from smaller competitors, said John Sumpter, Pac-West’s vice president.

Sumpter compared the broadband market without net neutrality rules to the Web browser market. When Microsoft began to bundle Internet Explorer with its operating system, it nearly killed its top competitor, Netscape.

The current cable/telecom duopoly in broadband, coupled with telecom carriers AT&T, BellSouth, and Verizon controlling about 70 percent of the nation’s Internet backbone, means the large broadband providers have a advantage similar to Microsoft’s in the browser wars, Sumpter said.

“Left to their own devices, the larger carriers will be able to cripple all competition,” Sumpter said. “Customers attached to the smaller carrier will inevitably migrate to the larger carrier.”

On the other side, more than two dozen network equipment vendors have called on Congress to reject net neutrality rules. In a May 17 letter to congressional leaders, 35 manufacturers — including Alcatel, Cisco, Corning, and Qualcomm, among others — said there’s no evidence that broadband providers now block or impair competing content. The Internet doesn’t need the burden of new regulations, the letter said, adding that passing a bill risks “hobbling the rapidly developing new technologies and business models of the Internet with rigid, potentially stultifying rules.”

If net neutrality becomes law, broadband providers won’t be able to separate out new services such as video over IP, said Mike McCurry, co-chairman of the Hands off the Internet coalition, representing AT&T, BellSouth, and other net neutrality opponents.

“They want to make the Internet into one dumb pipe,” said McCurry during a debate with Amazon.com’s Misener. “There’d be no room for innovation.”

A net neutrality law passed in Congress would lead to a long proceeding in the FCC, causing a delay in new services offered by the broadband providers, McCurry said. New regulations would also discourage investment in broadband providers, he added.

“This regulatory scheme might, in fact, impede the kind of investment we’ll need to make if we’re going to have this Internet of the future,” McCurry said. “We know there are billions of dollars that are needed to get the enhancements and improvements we want on the Internet.”

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