Proposed Buyout Stokes Network Neutrality Issue

Mar 13, 2006  •  Post A Comment

Before AT&T announced its plan to buy rival phone company BellSouth, the topic of network neutrality was something discussed largely by politicians and technology wonks.

Not anymore.

The proposed $67 billion merger is likely to catapult network neutrality directly into the spotlight as regulators, big-name Internet companies such as eBay and Yahoo and consumer advocates debate whether a newly merged AT&T might begin favoring access to some broadband content owners at the expense of others.

Network neutrality has become a catchall phrase for policies designed to prevent the owners of broadband networks from doing anything that might affect a consumer’s ability to access content, including actions such as Web site prioritization, degrading the quality of broadband service for certain content or blocking content altogether.

Prior to the announcement momentum had already begun building in some circles to press the government to issue some kind of network neutrality regulation as large telephone and cable companies continue to attract growing numbers of broadband customers. And just last month the cable and telephone industries received a big blow when Sen. Ted Stevens, R-Alaska, chairman of the Senate Commerce Committee, said he thinks there is a need for network neutrality among broadband providers (TelevisionWeek, Feb. 13).

Combine those forces with the AT&T-BellSouth merger and many experts believe the push for network neutrality rules will accelerate.

“This [merger] moves network neutrality to center stage,” said Will Richmond, president of Broadband Directions, a Newton, Mass.-based broadband consultancy. “The idea of the Internet is open, unfettered access. A player the size of what AT&T potentially may be, and its ability to exert control over what content flows through their wires, is of great concern to everybody.”

Added Joseph Laszlo, research director for JupiterResearch: “[The merger] doesn’t change the conversation, it just changes where the conversation is taking place. A very bright spotlight has been thrown on it.”

In the aftermath of last year’s U.S. Supreme Court Brand X decision, which struck down a lower court ruling requiring cable companies to share their infrastructure with rival Internet service providers, worry about the issue has only intensified.

What’s more, when the Brand X ruling is combined with the subsequent decision by the Federal Communications Commission to deregulate the DSL service offered by telephone companies, “The telcos and cable for the first time both have wide legal running room to employ tactics that previously were illegal,” investment firm Stifel Nicolaus said in a research report.

Internet Players

And the telcos haven’t done much to allay those fears. AT&T Chairman Edward Whitacre said last fall he thought outfits such as Google and Internet telephone companies such as Vonage should pay to use AT&T’s broadband network, which has only fueled speculation as to what the telco might do if these Web players refuse to pay.

While big Internet players such as Google, Amazon and Microsoft have been pressing regulators for years to impose some regulations ensuring net neutrality, the media companies are now just beginning to recognize the importance of the issue as they start offering content over broadband networks. For them, the concern is that their content could be blocked or made more difficult to reach by broadband network owners that either own rival content or have relationships with competing content owners.

“If you are a content provider, it is just in the last year or so that you are getting introduced to the idea of direct access to consumer audiences via broadband,” Mr. Richmond said. “The last thing a content provider wants to see is that kind of direct access choked off.”

Despite the worry, analysts say there haven’t been any cases of either cable companies or telcos engaging in any of the practices that network neutrality advocates fear. And many observers think simple economics will prevent broadband network owners from thwarting consumers’ efforts to get content.

Indeed, they point to the fact that even as AT&T gets bigger, cable remains a formidable competitor. If consumers are turned off by one provider’s efforts to block content, they can simply switch to the other provider.

It’s something phone company executives have taken to heart; last month Verizon Communications Chairman and CEO Ivan Seidenberg stressed that blocking content to consumers would constitute bad business and result in a loss of customers. “We don’t block anything,” he said during a media conference in New York in early February. “Never have, never will.”

Then there’s the issue of just how big AT&T’s broadband presence would be following the merger. Jupiter’s Mr. Laszlo estimates that once the merger goes through, AT&T would have around 22 percent of the broadband lines in the United States.

“That’s big, but not big enough to exercise a dominant position in the market and throw their weight around,” he said.