Net Neutrality Rises Again

It's been six months since our last in-depth look at the future of the Internet as we know it. Last summer, 64% of our readers agreed that the current, open network structure works, while 30% would prefer a tiered service model, where service providers could charge more for a higher service level with guaranteed delivery. Let's see what has changed since then.

In the blue corner...
The week of our Foolish duel on the subject, a Senate committee rejected proposed neutrality amendments to a wide-ranging broadband bill. That bill then passed into law, sans the protections I had hoped for.

That was a victory for Verizon (NYSE: VZ  ) , Comcast (Nasdaq: CMCSA  ) , and other last-mile service providers, which had lobbied for the amendment to be stricken from the bill. It's in their best interest to keep their options open, of course. If a service provider sees a way to charge more for a premium service, it doubtlessly will.

On the other side of the debate stand content providers like Google (Nasdaq: GOOG  ) and Motley Fool Stock Advisor pick Yahoo! (Nasdaq: YHOO  ) . These companies depend on the Internet to make a living, and it's their duty to shareholders to keep the costs of high-quality network access down.

Fight!
There's more to the debate than a clash of major business interests, of course. Google could easily afford extra service charges to ensure top-tier delivery of its search results, ads, and other content. Nonetheless, it may be the strongest opponent of the idea of tiered services. Founder Sergei Brin has repeatedly explained that it's about the future of the Net as a whole. Imposing these fees wouldn't hurt the big boys, but it would make it much harder for small online businesses to get off the ground.

Brin remembers that Google started small, too. Ten years ago, it was a mere research project at Stanford. The company recently acquired video-sharing site YouTube, which grew from an idea to 20 million unique visitors per month -- and a $1.65 billion price tag -- in less than two years. Either project would have been hamstrung in its early days by the kind of access tiers Verizon et al are advocating, giving a substantial advantage to incumbents and larger competitors -- not to mention the service providers' own solutions.

One round down, many more to go
Last fall, two of the industry's most respected voices on either side of this debate had a heated exchange of opinions. Telecom analyst Scott Cleland, who often advises Senate and House committees on strategy issues, took the service providers' side, while the champion for small business and network freedom was Lawrence Lessig, Stanford law professor and former clerk to Supreme Court Justice Antonin Scalia.

The debate makes for great bedside reading, but if you don't have the time to read it yourself, it boils down to a few key points. First, the telcos' argument that network neutrality would restrict their pricing power on consumer plans with different bandwidths is bogus. And it's not about backbone connectivity, either. This whole debate is about business-level access, and the effect a tiered model would have on anybody but the big boys. In Lessig's words, "with relatively limited competition, if you can charge a premium for a 'fast Internet,' you don't have much incentive to make the rest of the Internet very fast at all."

That brings up the second point: American broadband is far behind much of the developed world today. Whether you look at public choice between competing services, average cost per megabit of bandwidth, or just plain speed, Europe and Southeast Asia leave us in the dust. I keep bringing up my brother's 100-megabit connection back in Sweden -- for which he pays about as much as I do for 6 megabits -- because, well, I'm jealous. There's no reason why we couldn't have these services stateside, except that the lack of serious competition breeds complacency and slow rollouts of better and faster solutions.

The latest and greatest
We're not quite done yet. Last week, a bipartisan team of senators launched a new network neutrality bill, this time not attached to other legislation but standing on its own. The new bill, headed by Sens. Byron Dorgan (D-N.D.) and Olympia Snowe (R-Maine), is similar to the previously rejected broadband bill amendment. If it's passed into law, network operators won't be allowed to deprioritize or hamper Internet traffic, though they can prioritize some traffic under certain conditions. Users would be explicitly allowed to connect any devices they want to their network connections, and access to the Internet would not be dependent on other services -- specifically, providers couldn't demand that users sign up for TV or phone service in order to get Internet access.

"The success of the Internet has been its openness and the ability of anyone anywhere in this country to go on the Internet and reach the world," says Dorgan. "If the big interests who control the pipes become gatekeepers who erect tolls, it will have a significant impact on the Internet as we know it."

The bill has already been helped on the way by some concessions from AT&T (NYSE: T  ) and BellSouth (NYSE: BLS  ) . To improve the chances of approval for their pending $86 billion merger deal, the two Baby Bells agreed to "treat all online content the same." And the FCC is going up for congressional committee hearings over the next few months, starting Feb. 1, to re-evaluate the commission's conduct over the past couple of years. With Democrats now wielding power in every chamber except the Oval Office, and high-profile Democratic senators like Hillary Clinton (D-N.Y.), John Kerry (D-Mass.), and Barack Obama (D-Ill.) backing the neutrality bill, we might see some changes at the end of that process.

The Foolish bottom line
Where does that leave consumers and small businesses today? For now, it's more of the status quo -- which isn't a bad thing. This bill, and the amendment before it, are simply trying to protect the network model we currently rely upon every day.

If left to their own devices in this broadband market of limited competition, Verizon and company could -- and probably would -- start shutting down competing Internet-based phone services like Vonage (NYSE: VG  ) , shuttering video-streaming specialists that could steal eyeballs from their own designs on the broadcast market, and generally making life tough for upstarts with a great idea but limited funds.

Nothing of the sort has happened yet, but the day we stop questioning the motives of our service providers is the day the telcos and cable operators start licking their chops. Stay tuned.

Further Foolishness:

Yahoo! is a Motley Fool Stock Advisor selection, while AT&T was a former pick. Find out more with a free 30-day trial to our flagship investor service. Your portfolio will thank you.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. He's a happy Vonage customer, but wouldn't touch that particular stock with a portfolio at the end of a 10-foot pole. You can check out Anders' holdings if you like, and Foolish disclosure is always freely available.


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