from: National Journal [1]

The Tangled Net Of 'Net Neutrality'

By Drew Clark

(Friday, July 7) Sometimes it seems that Ed Whitacre has a hard time controlling the words that come out of his mouth.

Last year, the telecommunications titan from San Antonio had carefully paved the way for his company, SBC Communications, to take over AT&T in what was a once-inconceivable reunion of the mother company and her offspring.

On Friday, October 28, 2005, the FCC was scheduled to bless that deal, as well as Verizon Communications' mega-merger with MCI. But at the last minute, Verizon balked at some of the FCC's conditions, including one that would have forced the telecom companies to live for two years under a rule called "network neutrality."

Under that rule, the Bell companies could not block their customers from clicking to wherever they wanted to go on the World Wide Web. The Bells had said they would never block access, but they weren't so sure they wanted the FCC's rule book to prohibit it.

The commission's open meeting to approve the mergers was delayed twice that day and then pushed to Monday, October 31. Chairman Kevin Martin threatened to scuttle both deals unless all parties agreed to the FCC's conditions. Lobbyists for SBC and AT&T were forced into a diplomatic mission to rescue their own merger by persuading their counterparts at Verizon to cool down. Verizon finally agreed, and on Monday morning the commission unanimously approved the mergers.

Over the weekend of October 29-30, Business Week published an interview with Whitacre on its Web site. In the interview, which had taken place back in September, Whitacre displayed his usual aggressive style. Asked about Google, Microsoft, and Vonage -- all big Internet companies that use broadband to transmit video, software, and telephone calls -- Whitacre said, "They don't have any fiber out there. They don't have any wires. They don't have anything. They use my lines for free -- and that's bull. For a Google or a Yahoo! or a Vonage or anybody to expect to use these pipes for free is nuts!"

For the first time, Whitacre was talking publicly about charging the Internet companies a fee to reach an SBC customer. And if Google or Yahoo didn't pay up, he implied, they would presumably find their Web sites more difficult to reach. Technology geeks immediately saw Whitacre's words as a threat. "It certainly has the feel of extortion," said the TechDirt blog. "Be afraid. Be very afraid," said telecom consultant Kevin Werbach, a Clinton administration telecommunications official.

The mergers went through with minimal divestiture conditions imposed by the Justice Department, but Whitacre had already kicked up a dust storm. For two years, the Bells have been seeking telecommunications legislation from Congress to speed their entry into the video business. In a world where companies like Vonage and eBay's Skype are providing free Internet phone service, Verizon, SBC, and the other Bells are eager to compete directly on the cable industry's pay-television turf. Last fall they had gotten very close to their goal. They even had the support of Microsoft, a $400 million partner, to develop SBC's Internet protocol television service.

But in one fell swoop, the Whitacre interview caused Microsoft and Google to rally the opposition to the Bells.

Since last Halloween, the fight between the two industries has escalated into a full-fledged war of will, ego, and legislative prowess over the issue of network neutrality. The respective factions have spent more than $50 million on direct lobbying and advertising, and each has organized political campaign-style advocacy efforts.

On June 8, the House voted 321-101 for an omnibus telecommunications bill, backed by AT&T and Verizon, that includes a very narrow neutrality rule. The Bells have the support of the broader business community, including the powerful U.S. Chamber of Commerce.

On the other side are the biggest brand names on the Internet: Amazon, eBay, Google, Intel, Microsoft, and Yahoo. On June 28 the Senate Commerce Committee voted 11-11 on a pro-network-neutrality amendment sought by these Internet techies. The overall telecommunications bill -- minus the network-neutrality language -- cleared the committee, but it is likely to face a filibuster on the floor. Sen. Ron Wyden, D-Ore., a tech-industry supporter, announced that he would block the bill over the lack of net-neutrality language, and at least three other Senate Democrats have placed other procedural holds on the measure.
Rules of the Road

Net neutrality is about the rules of the road for the information superhighway -- and whether, some day, traveling in the fast lane will require paying a toll.

Because of the convergence of television and telephone service into digital transmissions, the outcome of the battle will affect all aspects of communications. Net-neutrality advocates -- Google, Microsoft, and the other tech companies -- say the telecom companies (the Bells) and the cable industry shouldn't be permitted to control the Internet through discriminatory pricing in which their business partners enjoy a huge competitive advantage by gaining access to the wires into homes and offices. The telecom and cable guys -- the neutrality critics -- counter that "net neutrality" is just a fancy way of saying that the government should regulate the Internet. They say, let the free market, not Washington, reign.

Unlike 10 years ago, when Congress passed the last big telecom bill and when getting on the Internet involved snail's-paced dial-up connections, most people now access the Web through fiber-optic wires and cable modems. Today's broadband connections allow high-definition television, video conferencing, interactive video games, movie and music downloading, and other consumer goodies. It's a world where bloggers and vloggers (video bloggers) participate in a raucous marketplace of ideas.

Daniel Weitzner is a computer scientist at the Massachusetts Institute of Technology who runs a division of the nonprofit World Wide Web Consortium that coordinates standards for the Internet. He said that in the 1996 telecom battle dominated by the struggle over local and long-distance phone service, "we never got to this fundamental issue of democracy and markets and culture. That's why this issue could hold up the [current] telecom bill."

Creating a hullabaloo over net neutrality is certainly the Silicon Valley companies' aim. Besides the economic advantages net neutrality would bring to these Internet giants, the issue allows them to recoup some of the aura of the Clinton-era glory days when they knocked down traditional media gatekeepers -- newspapers, cable, and broadcasting companies.

Yahoo emerged from a dorm room at Stanford University to organize Web sites. Amazon and eBay became the new medium's merchants. Microsoft, Intel, and Cisco made the software, chips, and routers that allow computers to connect together into the vast Web network. The courts, including the Supreme Court, awarded First Amendment protections to the Internet.

The Bells have different memories from the last decade and from the troubles that the 1996 Telecom Act inflicted on their industry. While their cable-industry competitors were effectively deregulated by the law, telephone companies had to live under a different set of "common carrier" laws, as if they were a monopolist railroad. Worse, from the Bells' perspective, was a series of price-control regulations governing how, and at what price, they could sell the use of their wires to other companies.

As dial-up became broadband transmission over cable's co-axial wires, the technology companies grew wary of the cable industry. Cable thrived on exclusive content and distribution deals. It also restricted the way consumers could use their home broadband connections for wireless Internet, or "WiFi."

To the wizards who dreamed up the Net, the bigger concern was speculative: What would happen to Amazon, for instance, if Comcast, the largest high-speed Internet provider over cable modems, struck an exclusive deal with Barnes and Noble and tilted its Web traffic to its new partner? Or, if cable cut off all access to sites owned by rival companies? Such scenarios were not far-fetched. In 2000, Time Warner Cable temporarily cut off Walt Disney's television shows to 3.5 million customers in a dispute over fees.

For the Silicon Valley techies -- worried about the threat that cable posed to neutrality rules -- cable's rival, the Bells, were an obvious ally. In 2002, the High Tech Broadband Coalition sprang up after a partial Bell victory. Legislation by then-House Energy and Commerce Committee Chairman Billy Tauzin, R-La., and ranking member John Dingell, D-Mich., eased the strictures of the 1996 Telecom Act.

The clever aphorism to describe the Tauzin-Dingell bill was crafted by Verizon's top lobbyist, former Rep. Tom Tauke, R-Iowa: "Old wires, old rules; new wires, new rules," meaning that no matter what Congress and the FCC did involving telephones using old copper wires, they should deregulate the new fiber-optic strands that Verizon wanted to invest in. If Congress did this, Tauke and the techies argued, the Bells would end up deregulated, just like the cable industry and the Internet sector. Tauzin-Dingell passed in the House but died in the Senate.

Still, the technology industry bought Tauke's slogan and marketed it at the FCC, where then-Chairman Michael Powell was attempting to rationalize rules for telephone, cable, and the Internet. With Microsoft, Intel, and Cisco on board, the broadband coalition drafted a set of four "connectivity principles" that should govern conduct by all broadband carriers -- cable and Bell. The principles said that consumers should be able to access any legal Web site, use any type of software, and attach any electronic device so long as it didn't harm the broadband network, and that they should be able to obtain accurate information about their conditions of service.

SBC, Verizon, and the other two Bell companies, BellSouth and Qwest, signed on to the four principles in September 2003. Their thinking was that a superfast fiber network would have unlimited Internet bandwidth and no reason to discriminate among Web sites. There would be plenty of room for video, for telephone calls, and for other new digital services.

In February 2003, the Bells got the go-ahead from the FCC to use fiber, and Verizon began rolling out orange fiber wires in communities from Texas to New York. But at the same time, the FCC's Powell put the spotlight on the neutrality principles, calling them the four "Internet freedoms." He challenged cable companies to abide by them, too, and they eventually agreed.

In June 2005, cable companies won a battle over their deregulatory classification that had gone all the way to the Supreme Court. And two months later, in August, the tech coalition again pressed the FCC to give the Bell companies the same deregulated treatment on its digital subscriber line, or DSL, wires. When the FCC agreed, it meant that for the first time in modern communications law, fiber, co-axial, and copper Internet wires should all be regulated the same way.
Tech Switches Sides

The technology companies had fought for the Bells in the war of attrition against competitive rivals. They also sided with telecom over cable on offering video. That's why Silicon Valley felt so betrayed by Whitacre's remarks to Business Week. Officials at AT&T, which Whitacre now headed as CEO of a newly merged company, tried to backtrack. They said that Whitacre had been referring to the non-Internet portion of the company's fiber network. But the damage had been done. Whitacre's comments, and similar ones by other top telecom executives, transformed the debate. "But for those statements," said a top technology lobbyist, "this debate would never have reached the fever pitch it has now."

The question was not whether the Bell companies would block traffic on the Internet: that would violate the connectivity principles they had already agreed to. Rather, the question was whether the Bells could set up a superfast private Internet, relegating whoever refused to pay a toll to the equivalent of a high-tech dirt road.

Members of the Information Technology Industry Council, one of the six associations in the High Tech Broadband Coalition, were particularly incensed. Companies such as Apple, eBay, and Microsoft saw the potential new toll charges as extortion. They were already paying telecommunications companies hundreds of millions of dollars in bandwidth charges, and now they saw that AT&T wanted to tack on an additional fee whenever an Internet user downloaded a song, played an X-Box, or made a VoIP (voice-over-Internet protocol) phone call.

Worse, in their view, these new toll charges would make network operators the gatekeepers of the Internet -- with the power to make or break entrepreneurial companies. "It is certainly clear that the debate has taken a wrong turn," said Information Technology Industry Council Chief Executive Officer Rhett Dawson, who has been unable to persuade his coalition of hardware and software companies to take a united position on the subject.

For the Bells, network neutrality is a nuisance that threatens the core purpose of telecom legislation introduced by House Energy and Commerce Committee Chairman Joe Barton, R-Texas, and which passed the House on June 8. It would allow them to offer pay television nationwide, without obtaining a cable franchise in each municipality. The Bells say that neutrality rules would unfairly diminish their incentives in a competitive marketplace and would clash with the trend toward deregulation.

Bell companies face two key business threats. One is the cable industry, which since 1996 has invested $100 billion to upgrade its bandwidth for digital television, video-on-demand, broadband, and Internet telephone services. The Bells want to emulate that bundle.

The other threat is the Internet industry. Advancing broadband speeds have led consumers to flood fresh new video-sharing Web sites like MySpace and YouTube. Looming over this world is Google and its new video service. Google wants to chew up all the capacity on AT&T's new wires, said Jim Cicconi, the telecom company's senior executive vice president. "They want us to guarantee them that their streaming movie services are as high a quality as ours and cable's."

Silicon Valley companies have mixed feelings about that argument. Think of the Internet as a layer cake, with communications wires on the bottom, computer processors and software in the middle, and Web sites on the top. Many of the companies with a driving role in the High Tech Broadband Coalition are on the bottom of the stack: Corning with its fiber-optic wires, Cisco and its intelligent routers, and Intel with its microprocessors.

Throughout the whole flap over net neutrality, these members of the broadband coalition maintained good relations with the Bells and were sympathetic to efforts by Verizon and Tauke, its lobbyist, to get the tech industry to coalesce around a set of self-regulatory principles on net neutrality. They agreed that Bells needed incentives to compete and that it sometimes makes sense to prioritize Internet traffic. The Bells "want the freedom to be able to negotiate commercial deals," said Jeff Campbell, director of technology and communications policy for Cisco. "It is called capitalism, it has been very good to this country, and we would like to continue it."

But the players at the top of the stack -- particularly Amazon, eBay, and Yahoo -- have disdained the Bells as monopolists with a history of innovation-stifling behavior. They have no interest in compromise. "The phone and cable companies will fundamentally alter the Internet in America unless Congress acts to stop them," says Paul Misener, director of global public policy at Amazon. Misener draws a contrast between broadband and mail service, through which the online retailer can ship goods using FedEx, DHL, UPS, and the U.S. Postal Service. "We have four different shippers that can deliver to the same house, the same morning," he said. "It isn't the same with the Internet."

Sitting squarely in the middle of the net-neutrality debate is Microsoft, which after the experience of its antitrust prosecution, has a new appreciation for open standards and the ethos of the Internet medium. "The Internet is literally a place or a foundation upon which others build, or upon which we build," said Marc Berejka, the company's senior director of public policy. "On that platform, the innovators do what they want: They express creativity, or manifest their business goals as they see fit."

Microsoft Chairman Bill Gates's view has been that faster lanes for Bell-selected companies would wreck that neutral platform. He brought that message to Washington in March when he received the Digital Patriot Award from the Consumer Electronics Association, and took advantage of the opportunity to press Rep. Barton on the issue. He and Barton "were having a dialogue about the net-neutrality provisions and the benefits those might bring," Gates said after the dinner.

The Whitacre interview forced the various layers to choose sides. Cisco, Corning, and other equipment manufacturers in the old High Tech Broadband Coalition agreed that Congress should allow the FCC to enforce its four connectivity principles, but do nothing further. Barton sided with this position.

Microsoft had gathered its software buddies and Internet content companies into an alliance to push for anti-discrimination rules. They wanted Congress to bar Bell and cable companies from charging preferred businesses for speedier Internet delivery, and they found their core allies on the Democratic side of the aisle, with Rep. Ed Markey, D-Mass., a member of the House Energy and Commerce Committee, and Minority Leader Nancy Pelosi, D-Calif., leading the way.

Finding a compromise became more important for industry after Barton gave thumbs down to net neutrality in March. The ITI's Dawson tried to get his group to take a position, but eBay torpedoed any dialogue, insisting on an outright ban on special deals. After Markey's neutrality amendment went down in a lopsided subcommittee vote on April 5, TechNet, the top political fundraising arm of the technology sector, turned up the heat. It took a pro-neutrality position in spite of strong opposition from Cisco Chief Executive Officer John Chambers. Intel -- whose CEO serves on Google's board of directors -- switched sides to join Google's and eBay's push against the Bells.

On May 31, the week before the House vote, eBay Chief Executive Officer Meg Whitman appealed in an e-mail to millions of her customers, writing: "These large corporations are spending millions of dollars to promote legislation that would divide the Internet into a two-tiered system."
Google Rallies the "Netroots"

The partisan split on net neutrality appeared to threaten the Barton bill. But Google pressed ahead, trying, in its view, to turn big-money politics upside down.

The Bells and their industry trade group, the U.S. Telecom Association, always expected a fight with the cable industry over "TV Freedom." They had suited up for that battle by enlisting countless outside lobbyists and nonprofit groups, from Quinn Gillespie & Associates, to the League of United Latin American Citizens, to a group called Consumers for Cable Choice.

But after the revolt of the technology companies, the Bells recruited even more help. AT&T hired Mike McCurry, the former press secretary to President Clinton, and created a new coalition, named "Hands Off the Internet," that threw Silicon Valley's mantra right back at the techies. Independent telecom consultant Gary Arlen has estimated that the Bells were spending $1 million a week on advertising last spring.

Google, which has been directly attacked in ads by Consumers for Cable Choice and by Hands Off the Internet, insisted that it wasn't concerned about being outspent in ad dollars or campaign contributions. "From the very beginning of this campaign on this issue, we have known that grassroots and consumer outreach was going to be the key to success," said Alan Davidson, the company's lobbyist and director of global public policy.

Google has two efforts in play. The first is the coalition that coalesced after Whitacre's remarks -- a group that has changed its name from the "Group of Six" to the "Net Neutrality Coalition," to "Don't Mess With the Net" to "It's Your Net," before settling on the revealing "It's Our Net" in April. The group is run out of Qorvis Communications, with its lobbying efforts headed by Covington & Burling lawyer Gerard Waldron, a former Markey aide.

The group of six enlisted lobbyist and former Rep. Vin Weber, R-Minn., in an attempt to get House Republicans to take their concerns seriously. "What is going to win the issue for us is the realization that this is a vote that matters to large numbers of constituents," Weber said before the vote. House leaders allowed a floor vote on Markey's neutrality amendment, which went down 269-152. Even people close to the group began calling it the "gang that can't shoot straight."

But although the House voted against net neutrality, Google's secret weapon may be its outreach to bloggers and the "netroots," or the coalition of progressive Internet advocates embodied in the group MoveOn.org and others. Bloggers and the netroots are concerned about a so-called "pay-to-play" world in which Web sites owned by Bell and cable companies would take precedence.

MoveOn co-founder Joan Blades said that more than 700 nonprofits have joined to form the "Save the Internet" coalition, run by the media advocacy group Free Press, to influence the debate in the Senate. They say the issue isn't a partisan one, highlighting that the Gun Owners of America and the Christian Coalition are also coalition members.

Christian Coalition President Roberta Combs agrees, and says that Blades personally persuaded her to take on net neutrality as a free-speech priority. "We were excited that there was an issue we could work together on," Combs says. "Save the Internet" delivered 1 million signed petitions for net neutrality. Meanwhile, the Bells and cable companies delivered nearly $1 million in campaign contributions to the Senate Commerce Committee, in this election cycle, according to the Center for Responsive Politics.

But while neutrality advocates see it as a battle of money versus the grassroots, others see a power play. "The Democrats have figured it out," said Tom Readmond, executive director of Americans for Tax Reform's Media Freedom Project, which is part of an anti-neutrality coalition. "I'm not sure all of us have: [Democrats] are using this as their signature issue to tell Silicon Valley that they are on their team." He cited campaign records from members of Google's board of directors showing $192,400 in contributions to Democrats and their PACs, $4,550 to Republicans and their PACs, and showing Google employees donating $13,015 to MoveOn alone, according to PoliticalMoneyLine.

The debate seems destined to become bogged down in the Senate, the Bell bill another victim of partisan politics. With the exception of Sen. Olympia Snowe, R-Maine, all the senators backing the techies are Democrats, including such potential presidential aspirants as Minority Leader Harry Reid, D-Nev.; Hillary Rodham Clinton, D-N.Y.; Barac