Test Of Net Neutrality

The Internet is open to all at affordable, simple pricing, and users can send or receive content without fear of it being relegated to second-class status. Streaming video from Comedy Central's Web site is treated the same as a transaction on eBay or photos on a blog. This even-handedness is known as network neutrality, and it has worked like a charm for years. But the telecom industry is pushing for change, with broad implications for how companies use the Internet--and what they pay.

Phone and cable companies want to give preferential treatment to high-priority Internet traffic and charge premium prices for it. But Web site operators and content providers such as Amazon.com and Google are pushing back, fearing that today's neutral Internet will devolve into a multimedia toll system that's more expensive for them and not affordable for others.

Last week, both sides took their cases to Capitol Hill. "Allowing broadband carriers to discriminate in favor of certain kinds of services, and to potentially interfere with others, would take control away from the end users of the Internet and place it in the hands of those who own the network," warned Google VP and Internet pioneer Vint Cerf at a Senate hearing on network neutrality.

Tiered-service proposals gained momentum last August when a Supreme Court decision paved the way for two FCC rulings that freed cable and phone companies from long-standing rules that prevented them from treating different kinds of Internet content in different ways. Now, bills are circulating in the House and Senate that would set the ground rules or prevent it from happening.

In a separate development involving Internet-related fees, America Online and Yahoo last week disclosed plans to charge companies up to a penny per message to usher E-mail past spam filters and into addressees' in-boxes, bearing a special seal of approval. Their stated goal is to reduce spam, while making it easier for users to tell which messages really are intended for them. Some mass mailers are leery. "If everyone started charging for this, it would be expensive," says Howard Tong, VP of marketing for computer retailer Newegg.com, which already pays specialist Loyalty Lab less than a tenth of a cent per message so that its mass mailings pass through spam filters. "It would be an administrative nightmare, too. Think about all the companies you would have to talk to."On both issues--Internet content prioritization and bulk E-mail--businesses have long relied on the all-content-created-equal Internet model. Adding new costs could force business and technology managers to reassess everything from E-mail marketing to Webcasts to how their companies use hosted applications such as those from Salesforce.com.

Status Gambit
Phone and cable companies, for example, might want to make video traffic a top priority, increase security for financial transactions, and provide no-fail connectivity for applications such as health-care monitoring. The problem is that a rise in status for certain kinds of network traffic means a decline in importance for others, which would hurt Web sites that couldn't afford the higher fees. "Where does it end?" asks Tong. "If you give somebody like a Microsoft or a Google the opportunity to get better service for the Internet, there are smaller companies that wouldn't have the ability to pay those costs."

Emerging services like Skype Technologies' voice over IP could be negatively affected, too. A two-man startup only two years ago, Skype might never have grown so rapidly if its founders had to deal with the kinds of restrictions, content prioritization, and higher costs being considered by the telcos and cable companies. "People are signing up for broadband in huge numbers because there's so much choice out there," says Henry Gomez, Skype's general manager for North America. "Content is what drives broadband."

The carriers frame the debate in terms of added services. "We want the ability to enter into commercial win-win relationships with Internet companies," says BellSouth lawyer Bennett Ross. "The way a search engine would compete against Google would be to offer a better search service." How would they do that? Pay BellSouth a premium for special handling.Cable and phone companies argue that their approach would bring benefits to companies and consumers alike, and not everyone disagrees. BellSouth already is talking with Movielink, an online video-rental project involving five major movie studios. Tony Hsieh, CEO of online shoe retailer Zappos.com, is open minded. "While your costs may be initially higher, it looks like you might also be getting more sales out of it," he says.Question Of Motive
Network operators have a selfish motive: They're expanding into new, media-rich services such as video programming for which they must reserve network bandwidth. Verizon plans to use as much as 80% of its network capacity to carry its own content, according to documents filed with the FCC. AT&T, BellSouth, and other carriers insist the rest of the Internet will continue to work as it does now, but Internet companies are concerned.

"We're OK with them providing [content], just so long as they don't use their underlying technical network to prioritize their content over others'," says Paul Misener, Amazon's VP of global public policy. "We're not trying to overtake their network or even compete with it. But if they're going to start injecting video, they should allow others to inject it on the same terms."

Businesses could be hurt by content discrimination in any number of ways. The quality of voice- and video-over-IP applications could suffer if they were pushed down on the priority lists of network operators, as would XML-based apps and hosted software such as SAP's new CRM offering, which eat up bandwidth.

Large, sophisticated IT departments may be able to absorb network-service changes better than others. "Anything that would go out over the Internet, we have a strategy to deal with that," says an airline IT exec, citing his company's use of multiple carriers and dedicated transmission lines.

Businesses, of course, already pay to plug into the Internet and to pipe voice and data over wide area connections. What we're talking about here are added costs, though no one's sure just how much. "They're already charging us for the access," says Newegg's Tong. "The beauty of the Internet is that it's free except for the access costs."Phone companies pound the point that they're spending tens of billions of dollars to build out the fiber-optic networks that carry all the voice, data, and video that's flying in every direction. Even so, the likes of AT&T and BellSouth say their networks could become congested, and they're looking for ways to fund expansion. "There's a recognition that building the next-generation information network is expensive," BellSouth's Ross says.

Carriers have said they won't impede, alter, or block traffic, but they have been known to wield excessive control over what flows over their networks. Madison River Communications, a small phone company and DSL provider, was fined last year for blocking Vonage Holding's VoIP traffic, prompting Vonage to cite concern at the public hearings last week about the potential for further abuse. A discriminatory network model could cause consumers and small businesses to shy away from providers like Vonage that rely on network neutrality to compete.

Question Central
Last week's hearing led to an overflow crowd at the Dirksen Senate Building in Washington. "There's going to be more questions coming out of this hearing than there will be answers," Sen. Conrad Burns, R-Mont., told a panel of stakeholders that included Google's Cerf, Vonage co-founder Jeffrey Citron, and top execs of two carrier industry groups.

Lawmakers already are putting down the ink. A bill by Sen. John Ensign, R-Nev., sides with open Internet advocates, while the House Energy and Commerce Committee Subcommittee on Telecommunications late last year issued draft legislation that would give more control to carriers. The issue easily could drag on for another year, Sen. Ted Stevens, R-Alaska, predicted after the hearing.

Carriers have the upper hand today. Says U.S. Telecom Association CEO Walter McCormick, "'If you want more, then you pay more' is as American as it comes." Momentum could still shift the other way, but money may hold sway over Internet neutrality.0