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Playing favorites on the Net?

A proposal in Congress could tip the scales toward some services and create a two-tiered Internet.

Broadband providers and e-commerce companies, historic allies on many political fronts, are finding themselves butting heads over federal legislation that could change the way either side does business.

A bill expected early next year in the U.S. House of Representatives, coupled with recent comments made by executives from BellSouth and the newly merged AT&T and SBC Communications, has raised the prospect of a two-tiered Internet in which some services--especially video--would be favored over others.

No broadband provider has proposed to block certain Web sites. But they have said Yahoo, for instance, could pay a fee to have its search site load faster than Google. Other possibilities include restricting bandwidth-hogging file-swapping applications, or delivering their own video content faster than a similar service provided by rivals.

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That prospect has dismayed e-commerce and Internet companies including Amazon.com, eBay, Google and Microsoft, which are lobbying to maintain what they call the principle of "network neutrality"--namely, that network owners must not pick favorites among the myriad technologies, applications and users that travel across their pipes.

"We're trying to ensure that our customers are able to get to us without impairments along the way," said Paul Misener, vice president for global public policy at Amazon.

Broadband providers, on the other hand, say that intrusive federal legislation would prevent new business models from being invented and reduce the incentive to invest in speedier networks. It also, they say, could prove disruptive.

"Network neutrality is a nearly indefinable concept," said Brian Dietz, a spokesman for the National Cable & Telecommunications Association. "For instance, does network neutrality mean that network operators can't block spam? Should network operators be allowed to stop viruses from spreading? Should large users of peer-to-peer software be allowed unlimited bandwidth so service for other users is slower?"

On one level, the dispute invokes the philosophical question of what legal rules broadband providers will be required to follow. Will they enjoy the freedom to manage their bandwidth as they please, and will Internet users continue to expect that their provider will act as a simple pipe or conduit--one that does not prefer one destination over another?

At another level, though, the political wrangling is a routine business dispute that happens to be playing out before Congress. Not only are Yahoo, Google and Microsoft deeply interested in online video, but AT&T and BellSouth are planning to offer Internet-based television. For them, it's also a way to strike back at cable companies, which sell phone service.

Billions of dollars are at stake. AT&T is spending $5 billion to install an additional 40,000 miles of fiber to its networks and plans to pipe Internet Protocol-based television and other high-speed services into 18 million households by the middle of 2008. Its backbone network already shuttles 4.6 petabytes of data on an average business day. Similarly, Verizon Communications switched on its Fios television service in Texas and has plans to expand to Florida, Virginia and California.

Hypothetical "neutrality" concerns
Amazon and its allies have been touting the importance of network neutrality since at least 2002, and even went so far as to ask the Federal Communications Commission to endorse the principle.

Until recently, their worries were mostly hypothetical and gained little political traction. Michael Powell, FCC chairman at the time, dismissed their concerns a year later, saying there was no need for pre-emptive regulations that could imperil still-to-be discovered business models on the Internet.

Then along came the case of Madison River, a North Carolina telecommunications company that intentionally blocked Internet phone traffic. Madison River had a strong financial incentive: It offered both DSL (digital subscriber line) and voice telephone service.

The FCC responded swiftly to a complaint from Vonage, and Madison River soon agreed to stop blocking voice over Internet Protocol (VoIP) calls.

Paul Misener
Paul Misener
VP, Amazon.com

A few months later, in August, the FCC adopted a "policy statement" (click here for PDF) on network neutrality. While not a binding regulation, the statement says that Americans are "entitled to access the lawful Internet content of their choice." (At the time, Commissioner Michael Copps, a Democrat, said (PDF) he "would have preferred a rule that we could use to bring enforcement action.")

Now Congress is becoming interested. A draft bill (PDF) prepared by Texas Rep. Joe Barton, a Republican who chairs the committee overseeing telecommunications law, says providers "may not block, or unreasonably impair or interfere with, the offering of, access to or the use of any lawful content, application or service provided over the Internet."

But the e-commerce and Internet companies say that language is too vague for comfort. They're also troubled about a section permitting providers to offer their own "broadband video service." That, they say, may create a loophole permitting mischief by the increasing number of broadband providers that offer IP-based television services.

In a statement provided to CNET News.com, BellSouth said it and other broadband providers should be able to offer "different plans that feature enhanced levels of service or that promote their own brand names and products or the services of selected vendors." That includes, BellSouth said, entering "into arrangements with content providers by which the content provider pays for special treatment, such as preferential listing or faster downloads from that provider's Web site or receiving higher quality of service."

The latest broadband bill to enter the fray, introduced last week by Republican Sen. Jim DeMint of South Carolina, proposes a broad deregulatory framework for the communications industry but does not explicitly refer to network neutrality. The closest it comes is to direct the FCC to look for "unfair methods of competition." A similar bill proposed in July by Sen. John Ensign, a Nevada Republican, refers more directly to network neutrality by saying that broadband providers "shall not willfully and knowingly block access" to content. Amazon, however, said such provisions don't go far enough.

SBC, which recently purchased AT&T, created an uproar in the Net world last month with a bold pronouncement: The Googles, Microsofts and Vonages of the world shouldn't expect to freeload off its network.

"I ain't going to let them do that because we have spent this capital and we have to have a return on it," Ed Whitacre, CEO of the newly merged AT&T and SBC, told BusinessWeek magazine in a widely cited interview.

Charging subscribers higher prices for greater connection speeds is nothing new among Internet service providers. Most of the Bells, for instance, now offer tiered DSL plans that start in the $15 range for the slowest download speeds.

"We have always said that if they want to have, say, a bronze, silver, gold level of Internet access, essentially charging more for more bits...that's fine."
--Paul Misener, vice president for global public policy, Amazon

"It's similar to paying more to get an overnight package from FedEX or UPS vs. a lesser amount for three- or four-day delivery," said Joe Chandler, a BellSouth representative.

"We have always said that if they want to have, say, a bronze, silver, gold level of Internet access, essentially charging more for more bits...that's fine," said Amazon's Misener.

It's the idea of "impairing" access to content or services that makes companies like Amazon nervous. Misener said he could imagine "discreet" approaches in which a service provider could, for example, return a 404 page-not-found error for every 15th Web hit at a site that doesn't get premium treatment: "It's easy to do, and who is going to be blamed for it? Certainly not the intermediary but the end site."

"We are pleased that the network operators are investing in technology and innovation, and we are proud partners with them in offering content and services to the public," Paul Mitchell, an executive in Microsoft's TV division, told a House committee last month. "We just think that other companies should continue to be able to offer Internet content and services as well."

Not only e-commerce companies are voicing alarm over what they say is a lack of legal protections favoring network neutrality.

Trade association Comptel and about 60 representatives from member companies--including Internet service providers, VoIP sellers, and telephone companies that compete for customers with the Bells--signed a letter earlier this month voicing dissatisfaction with the draft House legislation.

The draft bill will sanction "Internet gatekeepers," wrote Comptel President Earl Comstock. He added: "Allowing this proposed bill to advance any further will undermine the Internet and pave the way for the Bell companies to re-monopolize the nation's communications networks."

No "significant evidence" of problem
Stalling any attempt to craft broad network neutrality rules is the fact that, despite small-scale incidents like Madison River, problems remain mostly theoretical.

FCC Chairman Kevin Martin told a roomful of communications company executives last week that his agency was hesitant to adopt formal Net neutrality rules because "there hasn't been significant evidence of a problem."

A study published by the free-market advocacy group Cato Institute in 2003 says that federal intervention is unwise and would infringe on property rights and limit business models. So did a paper by Christopher Yoo of Vanderbilt University law school. A counterargument (click here for PDF) by law professors Tim Wu and Lawrence Lessig, on the other hand, says the FCC should ensure the Internet remains as neutral toward applications as the electrical power grid.

When it approved the megamergers of SBC with AT&T and Verizon with MCI in late October, the FCC required both companies to adhere to a network neutrality policy for two years following the closing date of the mergers. Meanwhile, broadband companies have vowed for years that they're not interested in preventing access to legal content.

Aside from the Madison River case, examples are scarce. Missouri-based VoIP provider Nuvio has encountered "some issues" with broadband providers physically blocking Port 5060, the most common carrier of Net phone calls, but the company has managed to settle those complaints easily without turning to the FCC, said CEO Jason Talley.

Talley said he worries that broadband providers will instead take up filtering on "a more intelligent level," monitoring packets of information and then prioritizing or degrading certain content as they please. "Typically customers call in and complain about quality if they have problems like that," he said. "You try to fix it; you try to work with them on that. But at the end of the day, you either figure it out, or the customer cancels."

Even Amazon's Misener acknowledged that outright blocking of sites wasn't a problem now, and would not likely become one in the future.

But without legislative intervention, there's reason to fear that Net surfers may find a more restricted Web, Misener said: "What Mr. Whitacre's interview revealed was, I think he said two very distinct things. One is that the service providers have market power...and part two was, we intend to use it."

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