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How Washington will shape the Internet

The most potent force shaping the future of the Internet is neither Mountain View’s Googleplex nor the Microsoft campus in Redmond.  It’s rather a small army of Gucci-shod lobbyists on Washington’s K Street and the powerful legislators whose favor they curry.

The most potent force shaping the future of the Internet is neither Mountain View’s Googleplex nor the Microsoft campus in Redmond.  It’s rather a small army of Gucci-shod lobbyists on Washington’s K Street and the powerful legislators whose favor they curry.

After years of benign neglect, the Federal government is finally involved in the Internet — big time. And the decisions being made over the next few months will impact not just the future of the Web, but that of mass media and consumer electronics as well. Yet it’s safe to say that far more Americans have heard about flag burning than the laws that may soon reshape cyberspace.

All of the major changes are encompassed in a single, sprawling bill that is called a “rewrite” of the 1996 Telecommunications Act but which in fact breaks all manner of new ground. At present the bill is out of committee in both houses but it’s not clear whether it will actually be passed this year; three weeks remain until summer recess and in September members may be more focused on elections than electrons. But sooner or later, Congress is going to lay down the law, and here’s a quick primer on some of the key issues: 

Network neutrality: This argument has received by far the most publicity. It pits network owners such as Verizon and AT&T against the companies who buy their bandwidth, such as Google and Amazon, and it hinges on whether the network owners can charge extra to deliver certain kinds of bits — bill more for streaming video, for example, than simpler data like text e-mail.

Enormous lobbying forces on both sides have created a highly emotional battle, involving everyone from Moby to the Christian Coalition. One side argues that access providers will use pricing to lock out competitors or even censor certain Web sites. The other side contends that Federal pricing regulation would permanently cripple the development of the Internet because network owners won’t be able to charge enough to upgrade their infrastructure.

In the end, it’s really an argument about who will bear the costs of building out the robust networks that we’ll all use in the future. And while net neutrality has received the most press, in the end it may not change the status quo as much as either side fears or hopes. If the networks win, the government will probably intervene if it sees unfair discrimination against competitors or censorship. If the Googles of the world win, the network owners will undoubtedly figure out some other way to raise prices.

No matter which way it goes, it means a new element of government regulation. And as far as who pays to build out the networks — in the end, one way or another, most of the costs will still be passed on to the consumer.

National video franchise:Wait… weren’t we talking about the Internet? This is about the Internet. Telephone companies have figured out that they’re dead in the water competitively in the Internet bandwidth game unless they replace their existing copper lines with fiber optic cables, thereby leapfrogging the capabilities of the cable companies.

But retrofitting America for fiber is going to be phenomenally expensive and it will be hard to recoup those costs selling Internet access. So the telcos want to provide television, just like the cable companies. 

Problem: as the law currently stands, the telcos have to go to every community individually and ask for a franchise to deliver television, which is what the cable companies had to do years ago. That process could be both lengthy and expensive, so the telcos want a national television franchise that will let them go into many communities all at once. After much opposition by the cable and satellite folks, who don’t want any more competition, it looks like the telcos will get what they want.

If so, then fiber optic cables to the home are going to happen far more quickly than anyone would have predicted five years ago — a major upgrade to the U.S. information infrastructure.  At the same time, by introducing a new competitor, it will probably reduce or at least stabilize cable and satellite television fees. 

Universal service fund: This is the mysterious charge on your phone bill that currently subsidizes telephone service to remote parts of the country, as well as Internet access for schools and libraries.

Two parts of the USF must be rethought.  The first: should “universal service” be redefined as broadband Internet connectivity, rather than voice telephone service? And then if that’s the case, then shouldn’t VOIP and Internet access fees — not just telephone bills — bear some of the tax burden as well?

Some argue for the abolition of the USF altogether — but that seems unlikely, as that would impose an immediate and costly burden on many rural Americans. And going forward, without a USF, if providers started to “cherry pick” only affluent communities for broadband upgrades, that could worsen the digital divide for both rural and inner city customers. Congress has the chance to do the right thing here and make sure all Americans have decent access to the digital world — but it may prove to be a battle in this anti-tax era.

Flags: Not the ones that burn — these are digital codes, inserted into video and audio signals, that tell recording equipment (a PVR, a DVD recorder, your computer) whether it’s OK to make a copy of the content.

This is enormously controversial.  On one side, the recording, film and television industries want a flag to protect their digital content from piracy; they say the flags would allow certain kinds of copying for personal use, but prevent the wholesale distribution of copyrighted material on the Internet. On the other side, the consumer electronics and computer industries are strongly against this, since all of their hardware would have to be designed to recognize and obey the digital flag — not just increasing their costs, but probably annoying consumers. 

No matter how this resolves, it will change both media and consumer electronics.  Opponents of the flag say that consumers will lose control over what they can do, even with movies or music they’ve purchased legally.  On the other hand, television broadcasters threaten that without the broadcast flag to protect their content, free over-the-air television will no longer be free: the networks will start charging viewers for their top-tier programming.

White Spaces: This bland phrase could have a significant impact on the cost and availability of wireless Internet access countrywide. Essentially it would allow wireless operators to use certain television frequencies that aren’t currently occupied by television stations, thus broadening the opportunities for competitive services.

The broadcasters are unhappy about this, arguing that it raises the risk of interfering with television signals. More to the point may be that broadcast spectrum is enormously valuable property and the broadcasters don’t see how sharing does anything for them. Consumer electronics manufacturers don’t have a position on this — probably because some of them hope to make products that use this new spectrum and the rest make television sets they worry might be negatively affected. 

And those are only the high points of the new legislation. If it all sounds complicated, just wait. Over the next few years, government regulation will increasingly be a factor in how the Internet grows. Government has been remarkably hands-off in its approach to the commercial Internet over the past decade (with a few exceptions, such as indecency and children).  But as the Internet becomes integral to the economic infrastructure of the country, it’s hard to see how government won’t be involved in issues ranging from anti-competitive practices to safety and security. We’re going to look at the first decade of the commercial Internet as something like the Wild West — and we’ll mark 2006 as the year that the sheriff rode into town. 

The final impetus for Washington may come when the Internet truly becomes our primary means of commerce, including electronic versions of anonymous cash. At that point, the Internet could become the largest potential tax-avoidance machine ever invented.  (For an early example, consider how many states and municipalities are already worried about losing local sales tax to online shopping.)  These days, any institution whose revenue is threatened by the Internet is quick to take defensive action — and in the years to come I expect no less of our elected representatives.