Battle lines drawn over net neutrality

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

Net neutrality supporters want new laws prohibiting Internetproviders from blocking or degrading traffic from theircompetitors’ networks. If providers are allowed to givepreferential treatment to some Web traffic, businesses usingcompeting tools will find themselves in the slow lane, said DaveGreves, owner of Denver-based Faction Media, an advertising agencythat focuses on online campaigns.

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

“Of course, it’s all speculation, but it could radically changethe way we operate,” Greves said. “It would put us effectively backin 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 differentversions.

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

Members of Congress have introduced three other bills, but noneso far has gained broad support in either the House or Senate. Mostrecently, on June 28 the Senate rejected a proposal to add a netneutrality provision to a bill now under discussion.

Business in the cross fire

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

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

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

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

Executives at and Google say they pay millions ofdollars in Internet fees each year. They and other net neutralityadvocates say the free-flowing nature of the Internet wouldfundamentally change without a new law after recent decisions bythe U.S. Federal Communications Commission and Supreme Courteffectively deregulated broadband.

The FCC freed DSL providers from sharing their lines withcompetitors in August 2005. An attempt by independent Internetservice providers to share the lines of cable broadband providerswas shot down by the Supreme Court in June of that year.

Because of those decisions, broadband providers will inevitablytry to block or degrade Web content from competitors such asindependent VoIP or video providers, net neutrality advocates say.Despite net neutrality opponents’ assertion that broadbandcompetition is coming, advocates point to statistics showing largetelecom and cable providers in control of 98 percent of the U.S.broadband market, with no more than two providers available to mostU.S. residents.

For the free market to work, there needs to be healthycompetition from multiple providers, said Paul Misener, vicepresident of global public policy for True broadbandcompetition 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 WashingtonUniversity. “When [opponents] say, ‘Let the free market work,’ askthem where that market is.”

Class struggle among ISPs

Broadband providers have repeatedly said they will not block orimpair their customers’ existing access to competing Web content orservices.But Pac-West, an independent telecom provider based inStockton, Calif., fears that lack of a net neutrality law couldlead to large broadband providers blocking Internet traffic fromsmaller providers. That could mean the end of many smallerproviders, Pac-West officials said.

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

Sumpter compared the broadband market without net neutralityrules to the Web browser market. When Microsoft began to bundleInternet Explorer with its operating system, it nearly killed itstop competitor, Netscape.

The current cable/telecom duopoly in broadband, coupled withtelecom carriers AT&T, BellSouth, and Verizon controlling about70 percent of the nation’s Internet backbone, means the largebroadband providers have a advantage similar to Microsoft’s in thebrowser wars, Sumpter said.

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

On the other side, more than two dozen network equipment vendorshave called on Congress to reject net neutrality rules. In a May 17letter to congressional leaders, 35 manufacturers — includingAlcatel, Cisco, Corning, and Qualcomm, among others — said there’sno evidence that broadband providers now block or impair competingcontent. The Internet doesn’t need the burden of new regulations,the letter said, adding that passing a bill risks “hobbling therapidly developing new technologies and business models of theInternet with rigid, potentially stultifying rules.”

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

“They want to make the Internet into one dumb pipe,” saidMcCurry during a debate with’s Misener. “There’d be noroom for innovation.”

A net neutrality law passed in Congress would lead to a longproceeding in the FCC, causing a delay in new services offered bythe broadband providers, McCurry said. New regulations would alsodiscourage investment in broadband providers, he added.

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

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