By Martin Wolk Executive business editor
msnbc.com
updated 3/7/2006 6:22:53 PM ET 2006-03-07T23:22:53

AT&T's $67 billion plan to buy rival BellSouth has intensified debate over whether the Internet will remain a wide-open information freeway or a multitiered tollway where preferred content whizzes along in high-speed lanes while other traffic languishes in jams.

The debate over so-called "Net neutrality" pits giant broadband carriers including AT&T, rival Verizon Communications and cable giants like Time Warner against content providers Google, Yahoo and Microsoft's MSN as well as upstarts like Vonage and Skype, which offer voice-over-Internet service. (MSNBC.com is a joint venture of Microsoft and NBC.)

"We're already starting to hear from consumer advocacy groups that they absolutely are going to make Net neutrality a big part of the regulatory review of this merger," said Joseph Laszlo, an analyst at Jupiter Research.

AT&T chief executive officer Ed Whitacre has made himself a major target in the debate with his outspoken comment that he would like to charge Google and other content providers for using the company's high-speed Internet connections into homes and businesses.

"Why should they be allowed to use my pipes? The Internet can't be free in that sense, because we and the cable companies have made an investment, and for a Google or Yahoo or Vonage or anybody to expect to use these pipes (for) free is nuts," he said in a BusinessWeek interview last year.

AT&T and others say they should be allowed to provide preferential treatment to their partners including content providers who pay for the right to use their high-speed lines. But this notion violates the historically democratic promise of the Internet and could doom providers like Vonage, whose customers expect service to be as reliable as traditional telephones.

In a white paper outlining their case, Vonage executives warn that "broadband services are at risk of being controlled by gatekeepers who have the ability to skew the marketplace against the interests of consumers."

In at least one case that was literally true. A small telephone company called Madison River agreed to pay a small fine last year to settle a federal inquiry into charges that it was blocking voice-over-Internet providers.


"Basically this merger will mean even less competition for broadband Internet, and frankly that makes a Net neutrality requirement even more imperative," said Gigi Sohn, president of Public Knowledge, a non-profit that focuses on intellectual property issues. "If there was real competition in the provision of high-speed Internet access we might not be having this conversation, but now the world has gotten even smaller than it was before."

Telephone and cable companies contend there is more competition than ever before, with developments like voice over Internet, video over Internet and the proliferation of high-speed wireless "hot spots."

But the reality is that the vast majority of new services depend on high-speed Internet access, and nearly half the nation's homes have only a single choice for such service — or none at all, according to Public Knowledge.

"I think the most passionate Net neutrality advocates probably overstate the extent of the problem today, but at the same time technologies do exist that would enable a broadband (service provider) to take an increasing amount of control over what applications work and what don't," said Laszlo.

"The power of that last mile connection is a very strong one," he said. "There is the capability and increasingly the temptation to to play a more active role in steering your customers toward your partners or content providers who have cut you in for a share of the revenue."

The issue of Net neutrality has attracted the attention of Congress.

The Senate held a hearing on the topic last month, where Internet pioneer Vinton Cerf warned of potentially dire consequences.

"We must preserve neutrality in this system in order to allow new Googles of the world, new Yahoos, the new Amazons, to form," Cerf testified. "We risk losing the Internet as a catalyst for consumer choice, for economic growth, for technological innovation and for global competitiveness," Cerf said.

A top cable industry official responded that government regulation would reduce investment and limit innovation.

"What is really going on here is that companies that started as entrepreneurs and innovators are now so invested in the status quo that they fear not cable or telephone broadband providers, but that next idea, that next search engine that takes off," said Kyle McSlarrow, president of the National Cable & Telecommunications Association. "What they're asking you to do is freeze the Internet in place with their position in the marketplace locked in."

Nevertheless Sen. Ted Stevens, the Republican chairman of the Commerce Committee,  said he was generally in favor of Net neutrality, and Democratic Sen. Ron Wyden last week introduced a bill that would enshrine the concept in federal law, prompting a Verizon official to say he was trying to "fix a hypothetical problem that doesn't exist."

In the past, the Federal Communications Commission has ordered AT&T and Verizon to adhere to net-neutral principles for at least two years as a condition for allowing them to complete big mergers like the one now being contemplated.

Advocates of Internet openness are hoping for a more permanent solution, and while Wyden's bill is given little chance of passage as a stand-alone measure, they say the concept of neutrality could be written into other telecommunications law. One possibility is that phone companies would agree to keep their lines wide open as a condition for something they highly covet: the right to offer a national television service over their fiber-optic lines rather than negotiate franchise agreements with hundreds of communities individually as the traditional cable operators have had to do.

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