Technobarons of the 21st Century
John D. Rockefeller realized that the way to control the oil market was to control the transport of oil. So in 1871, he colluded with the railroad industry to form a cartel called the South Improvement Company. The rate to ship oil doubled, but Rockefeller’s Standard Oil Company would get rebates for every gallon of oil shipped, even those shipped by his competitors. South would also collect information on the destinations, costs and dates of competitors’ oil shipments.
Once word leaked, independent oil producers revolted and managed to stop South before it shipped a single gallon. But to a great extent, the damage had been done. Rockefeller offered to buy out his competitors, showing them his books so they’d know what they were up against. They had a choice: Sell out now, or be run into the ground. Standard Oil went on to control the production of oil throughout the United States until the Supreme Court broke it up in 1911.
What does a 19th-century oil monopolist have to do with the modern-day world of ones and zeroes? Well, we all know how nicely things work out when oil men are in charge. But the real key is the railroad—the transport route, the superhighway. It’s more than a stale metaphor for talking about the abstract technicalities of the Internet. The way valuable goods are delivered—be they gallons of oil or binary packets—hasn’t changed much. When the invention of radio and telephones spurred Congress to regulate communications, legislators used transportation law as a model. Now, as Congress is working on its first major telecommunications bill since 1996, telecom and cable companies are floating the idea of a preferred status for content providers who are willing to pay for fast downloads, with slower service for everyone else—an information super-tollway.
By now, you’ve probably gotten an e-mail or read a blog post about the issue of “network neutrality.” The term doesn’t tell you much. (As Arianna Huffington recently observed on her blog, HuffingtonPost.com, “Why are the bad guys so much better at naming things? Especially legislation.”) It’s a term created by geeks, and it refers to the concept of keeping content separate from the operation of networks. The concept has been essential to the Internet since it was created. A better term might have been “Internet equality.”
The Telecommunications Act of 1996 deregulated the communications industry, bringing about widespread media consolidation. It opened the door for Clear Channel’s acquisition of hundreds of radio stations. It allowed phone and cable companies to consume one another ravenously, undoing many decades’ worth of anti-trust measures. From a public interest point of view, the law has been a disaster. It’s also out of date: The Internet is mentioned fewer than a dozen times.
Now the U.S. House of Representatives is preparing to vote on the Communications Opportunity, Promotion and Enhancement Act of 2006. The COPE Act covers a lot of ground. It overturns state laws that prevent cities from setting up their own community Internet services, which is good. It also establishes a national video franchise system to allow telephone and cable companies to offer broadband TV service without having to make the local agreements the cable companies currently have; thanks to public outcry, the bill also ensures funding for public-access programming.
Most significantly, the COPE Act and its Senate equivalent (a monster-sized bill introduced by Republican Sen. Ted Stevens of Alaska) would deregulate the Internet in exactly the way telephone and cable companies want it to. Both pieces of legislation would allow the telcos to control the ongoing shift to broadband Internet television by allowing telephone companies to enter the TV business, and would allow both telephone and cable companies to offer service only where they want to—where they can make the most money—with no obligation to build out into lower-income neighborhoods, which won’t do anything to help the digital divide.
Neither the House nor the Senate bill includes net neutrality protections, which is why so many public-interest groups oppose the bills. In the midst of all of this deregulation, Congress needs to make a clear stand against letting Internet service providers filter content. Net neutrality would ensure that every web-based businesses and every site, be it personal, political or commercial, would be treated the same by the systems that power the Internet itself.
In spite of all the lobbying from cable and phone companies, Congress is beginning to get the message that net neutrality is a winning issue. Last week, a bipartisan bill called the Internet Freedom and Nondiscrimination Act of 2006 passed the House Judiciary Committee 20-13. That bill would prohibit broadband providers from discriminating against any website or online service. Rep. Darrell Issa, the Republican from North County, voted no—in other words, against net neutrality. A similar bill introduced in the Senate last week, the Internet Freedom Preservation Act, also has bipartisan support.
These developments are evidence of a major turnaround in Washington. Rep. Ed Markey, a Democrat from Massachusetts, introduced net neutrality protections into an early version of the COPE Act, but two separate committees voted them down. One of those committees changed its position and passed essentially identical protections last week. “This was a big win for us,” says Craig Aaron, communications director for Free Press and the Save the Internet campaign. “We are seeing a sea change here. Three or four weeks ago, we had hardly any public awareness of this issue. Now we’re seeing Congress paying attention to the public outcry, despite the incredible spending of cable and telephone companies on lobbying and ads. We’re very encouraged by the way this issue is starting to resonate with the public.”
Verizon, BellSouth, Time Warner, SBC, Comcast and AT&T—the main supporters of the new telecom legislation and opponents of net neutrality—are hoping Congress will help them gain a competitive advantage. Collectively, they claim 98 percent of the nation’s Internet customers, but they fear that they’re losing ground in their other businesses. Internet phone services like Vonage and Skype offer free-to-incredibly-cheap local and long distance calling online, and once Internet TV gains a mass audience, cable TV will be outmoded. Suddenly there’s real competition in voice and video services, and that’s bad news for companies like Verizon and Time Warner.
So, in order to get their cut from all this newfangled content, the telcos and cable companies have come up with a “tiered” system for the Internet similar to that of cable TV (the one that makes you pay through the nose to watch The Sopranos). They would charge not only their subscribers but also the content providers themselves—Google, Yahoo!, iTunes and every other site that could afford it—for “super-fast” service. A news content site like The New York Times would sign a high-dollar agreement with an ISP for that fast service, making its competitors less appealing to the 80 percent of Americans who get their news online. How slow will rank-and-file websites be in that system? How easy will it be to read the liberal blogs or download the indie podcasts? That would be up to the ISPs.
The industry says it needs a tiered system because all those little video clips people send to each other are hogging bandwidth. The next time you see an ad for Time Warner’s Road Runner broadband service, notice that streaming video is part of the lure of paying $44.95 a month. An Associated Press story earlier this week quoted Verizon and BellSouth spokesmen warning that as the video trend continues, the Internet could choke—like an overbooked flight, an ISP would be overcapacity if all of its subscribers downloaded high-quality video at the same time. But as the story points out, Internet traffic doesn’t work that way. It grows along with the capacity, not ahead of it. We wouldn’t be watching YouTube videos over a 64K modem, because it wouldn’t be worth the aggravation. The industry says all that innovation will cost money, and that they will have no choice but to pass that cost on to consumers. Oh, we consumers would suffer, they warn us, even those of us who just want to check e-mail. The fact is, ISPs have been whining about multimedia content since RealAudio first launched its streaming sounds in 1995. Not only has the Internet survived, but ISPs have raked in billions in profits as a result. The video franchising piece of the new telecom bills, remember, would let phone companies set their own terms for launching nationwide video services.
Public-interest groups are afraid that telcos would use their gatekeeping power to block access to the sites of their competitors and critics. Poppycock, the telcos say. We would never do anything like that. The FCC wouldn’t let us get away with it! And anyway, we wouldn’t want to. We believe in all this net neutrality stuff. Cross our hearts. Pinky swear. No need to make it part of the law, now is there?
And we should believe them why? Remember, AT&T, BellSouth and Verizon willingly sold the private phone records of American citizens to the Bush administration’s illegal domestic spying operation.
At the very least, it’s no stretch to think they would give preferential access to their own content. When AOL bought Time Warner in 2001, it was a delivery system merging with a content company. Time Warner owns CNN, HBO and a huge movie library. The ongoing convergence of content and telecom companies would reach its logical conclusion in offering faster Road Runner downloads for those sites and channels. Why wouldn’t the industry go there? They’ll do anything the law allows to make money. That’s why we need a law, public-interest advocates say.
Not surprisingly, Amazon, Google and every other major content site don’t want to pay a toll. They’ve joined a coalition of groups urging Congress to make net neutrality the law. Like the successful alliance that pushed back on media ownership deregulation two years ago, the net neutrality coalition spans the political spectrum. It includes not only lefty groups such as MoveOn and Common Cause, and mainstream groups such as the American Library Association and Consumers Union, but also the Christian Coalition, Gun Owners of America, the Parents Television Council (crusaders for decency laws) and Prof. Glenn Reynolds, better known as the right-wing blogger Instapundit.
It’s not hard to understand why this issue reaches across the political spectrum. The Internet has made possible a stunning degree of democratic discourse, transforming political organizing and communication while the mainstream tries harder and harder to suffocate ideas that don’t follow the standard party lines. Consider Stephen Colbert’s blistering address at the White House Correspondents Dinner. Broadcast on CSPAN on a Saturday night, completely left out of newspaper accounts of the event the next morning, it was watched by millions of people online, thanks to the kind of video streaming that the telcos say is cramping their style.
Money, of course, trumps ideology, and the growing concern of the banking industry could ultimately be decisive. The financial-services companies, as they’re called, are beginning to wake up to the fact that they, too, would be expected to pay tolls for the secure high-speed transactions that have made them loads of money. In a memo recently leaked to the press, Verizon urged its consultants to talk the banking industry out of supporting net neutrality. “They are being fed a lot of cock-and-bull, Chicken Little stories about how the future of their industry is at stake because another network industry might have the freedom to price broadband services according to market demand,” Verizon’s chief congressional lobbyist, Peter Davidson, said in the memo.
In case the dismissive approach didn’t work, Davidson also included the hard sell. He warned that the financial-services industry “better not start moaning in the future about a lack of sophisticated data links they need” if net neutrality becomes law.
U.S. Rep. Sue Myrick, a Republican from Charlotte, N.C., has been a target of the net neutrality movement since she voted down a net neutrality provision in the House Energy and Commerce Committee on April 26 and signed on to cosponsor the COPE Act. Myrick’s phone number is listed on SavetheInternet.com, which urges people to call and express their displeasure.
Andy Polk, Myrick’s legislative aide, says her office has been flooded with calls from people who think Congress is passing laws that will keep them from being able to look at the websites they want to see. He says these people have been misinformed.
“Exactly what people are concerned about, the FCC has already drafted principles to deal with,” he says, “which ensure that people have access to any Internet site that they would like, that they can’t be blocked by their Internet provider. We fully support the principles that the FCC has laid out.”
The FCC’s connectivity principles are: 1) Consumers are entitled to access the lawful Internet content of their choice; 2) consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; 3) consumers are entitled to connect their choice of legal devices that do not harm the network; and 4) consumers are entitled to competition among network providers, application and service providers, and content providers. Like the airwaves, the broadband lines are regulated by the FCC because they run along the public rights of way—those wires and cables are run along public streets and buried under people’s backyards. ISPs charge us for the privilege of connecting, but nobody owns the Internet.
But Polk calls net neutrality a “dicey” concept.
“The problem with the current debate is, no one knows what ‘net neutrality’ actually means,” he said. In committee hearings, he says, net neutrality’s proponents all defined it differently. But in arguing against it, Polk gives a pretty good working definition: “It would require Internet providers to treat all content exactly the same regardless of how much bandwidth it’s taking up. If we define net neutrality in this bill, it would be seen by the industry as saying you have to allow people to see everything they want and take up as much bandwidth as they want. When industry people see that, they would raise the cost of providing the Internet service because they would have to allow everybody to have equal access to the bandwidth.”
Read the information telcos publish for their investors and you’ll learn of unlimited bandwidth, a future without limits created by their technological prowess. But when they’re discussing net neutrality, suddenly their broadband systems are packed tighter than sardine cans.
“At this point in time, we’re not sure we need to further regulate the Internet,” Polk says. “We want to make sure it’s as free as possible and allow as much creativity and ingenuity as possible.”
Incidentally, Myrick received $27,500 in campaign contributions from telecom PACs in 2004, including $10,000 from SBC, $8,500 from BellSouth and $7,000 from Verizon.
Polk’s point about the FCC has some basis. There has been only one case in the United States in which an Internet service provider blocked access to a specific website or service. It was the Mebane, N.C.-based Madison River, which was fined $15,000 last year by the FCC for blocking traffic to Vonage, the online phone service. Madison River had approximately 121,000 residential phone subscribers and nearly 40,000 broadband Internet subscribers at the time. Vonage had more than a million. About a month after Vonage complained to the FCC that Madison River was “port blocking,” or preventing certain types of Internet traffic from traveling through its networks, the agency took action.
But the FCC’s principles don’t address the kind of tiered system the telcos want to create. Nor do they establish clear methods of enforcement. Vonage was already hugely successful when it took on Madison River. What happens to the startups?
To Paul Jones, the Vonage v. Madison River case is evidence of what telcos can and will do if given the chance. “That really tells the tale of what net neutrality is about,” Jones says. “It’s about stopping providers from using their near monopoly of network connections to invisibly prevent you from connecting to a site, or to strong-arm content providers into paying fees.”
In 1992, Jones launched one of the first websites in North America. He and a team of techies at University of North Carolina, Chapel Hill, launched SunSITE, a public archive and information sharing project funded by grants from Sun Microsystems. As it collaborated on more academic, corporate and high-tech startup projects, it changed its name. In 2000, it became ibiblio, a digital archive and online public library. Ibiblio also nurtures open-source software projects, many of which are created by UNC students.
Like other online pioneers, Jones feels strongly that making neutrality law is necessary to preserve everything we love about the Internet. “The great beauty of the Internet is that it’s dynamic, it’s constantly in beta; people are constantly taking risks,” he says, “and the market behaves like a true market, in which you have many, many choices. There are only a few players in the home-connectivity market and the variety is out there beyond them.”
It’s absurd for the telcos to complain that content providers are making their money off the backs of Internet service providers, Jones says. “It’s kind of like the paving company getting mad when a truck drives on their work. They’d like to have a limited monopoly with not much competition and no responsibility. I want that job, too,” he jokes.
“What we’re talking about is preserving the ability of the Internet to continue to be an engine for economic growth by keeping a diversity of access,” Jones says.
In 1880, a company named for Alexander Graham Bell undertook the first nationwide long-distance telephone network. American Bell’s project spun off into the American Telephone and Telegraph Company in 1885. It was a regulated monopoly for almost a century—everybody needed a telephone, and AT&T had the ear of nearly every customer in the nation. The government set the rates, and AT&T enjoyed guaranteed profits. But new technologies changed the arrangement. In 1982, the Department of Justice ordered AT&T broken up into regional “baby Bells” in exchange for allowing the company to enter—what else?—the computer business. Then came massive deregulation with the Telecom Act of ’96, and the monopoly reemerged. One of those “baby Bells,” Southwestern Bell Corp., acquired three others in the 1990s, and in 2005, SBC moved to buy AT&T (getting full control of Cingular Wireless in the process). That merged company, called AT&T, will be the largest provider of both local and long distance telephone services, wireless service and DSL Internet access in the United States.
Today, we’re facing another massive deregulation of the telecom industry, the first one to give century-old monopolists unfair advantage on the Internet. Industry spin at the moment is that Congress needs a “cooling-off period” to “study the issue” of net neutrality. Industry money is funding a heavy-duty advertising and PR blitz, some of which is conducted by Astroturf—phony grassroots—organizations such as Hands Off the Internet (“Say no to government regulation of the Internet”) and Freedom Works (“Lower Taxes, Less Government, More Freedom”), which are funded by the telecom companies. They say net neutrality legislation will infringe on the free market. The situation is deeply ironic, because techies are notoriously libertarian, especially the core group of Internet founders now urging Congress to pass net neutrality legislation.
The fact is, the Internet supports the freest market in existence, and the tiered system would destroy it. Above all, it is this contradiction the net neutrality movement must get across to Congress—and the public. Otherwise, we’ll be signing over American democracy’s greatest asset to modern-day John D. Rockefellers.
