from: The National Law Journal [1]

Battle Building Over Net 'Tollgate'
Sides clash over issue of 'Net neutrality'

Pamela A. MacLean
The National Law Journal
September 6, 2006

Few things have as much potential to create a litigation war zone next year as the possible fight over control of the pipes feeding all the content over the Internet.

"Internet neutrality" advocates say they want to keep cable and phone companies from imposing tollgates on the Internet that would create a tiered payment system resembling home television cable service.

Cable and telephone companies counter that they have invested billions of dollars in a fiber-optic network that delivers high-speed Internet and cable television service to homes, and if the likes of Google Inc., Yahoo Inc. and Vonage Holdings Corp. want to ride those lines, they should pay preferred rates.

The gauntlet in this fight has been thrown down over the giant telecommunications reform act that is currently pending before the U.S. Senate. A key provision of the 289-page act would allow phone companies to negotiate national cable franchise agreements rather than seeking city-by-city franchise rights across the country.

If backers fail to garner 60 votes to avoid a promised filibuster, the bill, which lacks Internet-neutrality protections, could be left to the lame-duck Congress after November's election or be dead until next year.

Regardless of the act's immediate fate, a critical battle is inevitable.

The Internet has provided an unpredictable and sometimes dizzying array of offerings, including streaming movies and multiplayer online video games that require big "pipes" to deliver large amounts of data. But 95 percent of broadband services in the United States come from either cable or telephone companies.

For lawyers advising companies that supply content to the Internet, if there are no enforceable requirements for neutral access, "they will have to deal in negotiations with cable and phone companies," warned Gerald Waldron, a telecommunications lawyer with Covington & Burling in Washington. Waldron represents Amazon.com Inc., eBay Inc., Google and Yahoo, among others, in support of Internet neutrality in Congress.

CONCERNS DISMISSED

Cable and telecom companies such as AT&T Inc., Verizon Communications Inc. and Comcast Corp. dismiss the concerns, saying that proposed Net-neutrality legislation is a solution in search of a problem.

"There have been no abuses and none are occurring today," said Claudia Jones, an AT&T spokeswoman in Washington. "We feel the antitrust laws that exist today are more than adequate to handle any harms that may occur in the future," she said.

The debate is already affecting merger activity, with Internet-neutrality supporters asking for protective conditions from the Federal Communications Commission in the AT&T/BellSouth merger. The commission vote is tied, 2-2, on merger with a fifth commissioner recused, according to one attorney who has handled major mergers before the FCC.

One problem for merging companies: The FCC can extract conditions that cannot be appealed. Merging parties must accept the conditions or, if rejected, the merger dies. There is no right to judicial review, according to the attorney.

The FCC policy is that consumers are entitled to access and choice on the Web, but it says nothing about what may be charged for, or the speeds of, that access. That is what has neutrality advocates concerned.

Waldron said that neutrality advocates don't oppose the deregulated telecom industry, which allows phone and cable companies to compete. "What we don't think they should do, and never have been able to do, is step in to act as gatekeeper between the consumer and the content," he said. "You can't favor your bits and your content over someone else's content," he said.

Both sides are predicting legal challenges by whichever side loses in Congress.

"There will most certainly be litigation and more regulatory action," said Earl Comstock, president and chief executive officer of COMPTEL, a trade association of communication companies that back Internet neutrality. "The important thing for the communications bar: If the current legislation is passed and Senator [Ted] Stevens [R-Alaska] removes the government oversight, you will see far fewer competitors and far less work for the legal community," Comstock predicted.

Neutrality advocates have issued dire warnings in the obscure, technology-savvy corners of the Internet for years. But in November 2005, AT&T Chairman Edward Whitacre Jr. fired the shot heard 'round the blogosphere, just as Congress was in the midst of overhauling telecommunications law for the first time in a decade. Stevens' bill is the Communications, Consumer's Choice, and Broadband Deployment Act of 2006, currently S. 2686.

Whitacre said content providers like Google were "nuts" for thinking they could use AT&T's cable and broadband networks, "my pipes," without paying extra.

Suddenly, Internet neutrality became a mainstream topic.

"I should send the man flowers," Comstock said. "By truthfully stating what his natural business decisions would be, he gave voice to people's concerns. So we could say, 'See, we're not imagining this.' "

AT&T's Jones said that Whitacre was expressing how the Internet is changing, that more companies are providing services requiring lots of bandwidth. "AT&T has made a lot of investments to accommodate that. There is a lot of debate about who is going to pay for the upgrades to the Internet structure," Jones said.

Waldron noted that the Googles and Amazons of the world spent billions of dollars to have their traffic hauled around the Internet, and that the consumer at the receiving end also pays for service. Telecom companies are "getting paid at both ends," Waldron said. "In some ways, my clients think phone companies are free-riding off them."

The neutrality advocates want guarantees in the telecommunications bill that content providers and "voice over Internet" companies like Vonage, in direct competition with AT&T, will have equal access to the Internet pipelines.

The regional Bells and cable firms have fought off any attempts to legislate neutrality language into the bill.

According to one Senate staffer, there has been a lot of lobbying pressure, particularly from what Washington insiders call "Astroturf groups," or organizations that only appear to be grassroots public interest groups but are paid for by the industry. (They have no grassroots, hence the moniker "Astroturf.")

Throughout the summer, editorials around the country weighed in on the future of cyberspace. The debate created strange bedfellows, with the conservative Christian Coalition and liberal MoveOn.org both demanding that Congress write neutrality into the law.

In June, Oregon Democratic Senator Ron Wyden put a hold on the telecommunications bill because it lacked effective Internet-neutrality provisions.

He said that the bill concentrates too much power in the hands of large telecommunications companies and cable providers.

Wyden's move forced telecom bill sponsor Stevens, who is chairman of the Commerce, Science and Transportation Committee, to shuttle among colleagues to rustle up the 60 votes needed to defeat the Internet-neutrality amendment to the bill and bring the telecom measure to the Senate floor for a vote.

In early August, Stevens told reporters he didn't know if he had the votes to bring it to the floor in September, and it appears he has come up short. Attorneys who follow the issue predict the bill may be dead until after the November election. If the Democrats retake control of Congress "all bets are off" on the legislation, according to one attorney who represents telecommunications companies.

A Verizon spokesman, who asked not to be identified, said that the Stevens bill contains nine specific points on what consumers can expect in Internet-neutrality concepts, and it is enforceable with $500,000 fines. He said Internet neutrality is being pushed by "an energized subgroup of blogs -- a relatively loud subgroup but without wide support."

One of the problems for firms like Verizon, Qwest Communications International Inc., AT&T and BellSouth is the local franchise laws that require companies offering services similar to cable on their networks to negotiate with dozens of local franchise authorities. That can take up to 22 months for each contract, according to Verizon. The telecom bill would create a national franchising authority.

HIGH COURT OPENS DOOR

The U.S. Supreme Court opened the door for the telecom and cable firms to press their power to control Internet pipelines, intensifying the Internet-neutrality issue when it ruled last year in the Brand X case, NCTA v. Brand X, 125 S. Ct. 2688 (2005).

Telephone companies were traditionally seen as "common carriers" that had a monopoly on the physical connection of traffic to consumers.

In Brand X, the Supreme Court upheld the FCC decision that cable broadband Internet access is an information service, not a telecom service subject to common-carrier regulation requiring equal access to lines.

Brand X argued that DSL Internet service was part information service and part telecommunications required by common-carrier rules to allow all Internet service providers access to the phone lines.

The FCC was establishing what Justice Antonin Scalia called "a whole new regime of nonregulation" giving the owners of the transmission system far more power over access to their lines than before.

"Frankly, from the time of the Brand X decision there have been a lot of people who want to see it reversed," said Jones. "A lot of people are looking for venues to reverse the trend at the Supreme Court and the FCC, and the telecom act rewrite is the opportunity they latched onto."

Representative James Sensenbrenner, R-Wis., chairman of the House Judiciary Committee, also tried to muscle in on the act with a bipartisan bill that would alter the Clayton Antitrust Act to provide Internet-neutrality protection: the Internet Freedom and Nondiscrimination Act of 2006, H.R. 5417. It would amend the Clayton Antitrust Act to prohibit broadband network providers from interfering with user access to Internet content, applications and services.

Sensenbrenner's committee has no jurisdiction over the FCC, so he invited the agency to answer questions about the extent of its authority to investigate antitrust in the telecom realm, and that opened the door to Internet-neutrality hearings earlier this year.

"I do think there is a school of thought that it should be an antitrust approach," said Waldron. The FCC has indicated in a letter to Sensenbrenner that it has regulatory authority, but it does not have jurisdiction over common carriers. That is the issue being wrestled with, he said.

But the Sensenbrenner bill has not fared well in the Senate.

Meanwhile, Vinton Cerf, co-inventor of the Internet Protocol and now "chief Internet evangelist" at Google, warned in Senate testimony earlier this year that allowing broadband carriers to control what people see and do online would undermine the principles that made the Internet a success and would put U.S. competitiveness at risk.

Places such as Japan, Korea, Singapore and the United Kingdom, with neutral broadband platforms and higher bandwidth, "are unleashing waves of innovation that threaten to leave the U.S. further and further behind," he said.