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January 02, 2007
FCC Yields on Net Neutrality, For Now
Democrats extracted their pound of flesh from the FCC and AT&T, forcing AT&T to agree to two years of price controls and regulation of quality and management services they can offer big bandwidth users such as Google and Yahoo.
AT&T is now free to complete its purchase of BellSouth, but this shameful episode at the FCC highlights the way the merger approval in telecom has gotten out of control.
At one time, the Federal Trade Commission and the U.S Justice Department had jurisdiction. When these agencies demanded concessions, they usually had to do with ownership and market share. Often divestiture or spin-offs would be required, but there was always a test: would the consolidation lead to market domination.
With AT&T and BellSouth, the market domination issue was dismissed early. The merger was approved by all state commissions in BellSouth’s territory, as well as Justice and the FTC.
If these had been two other companies, the deal would have been done then and there. Instead, opponents saw the 2-2 party deadlock at the FCC as an opportunity to launch round-after-round of partisan horse-trading over issues that had little or nothing to do with the merger’s effect on consumers. These had to do with the number of union employees, rate caps on certain high-bandwidth services and the regulatory demand du jour—network neutrality.
A casual observer couldn’t be blamed for wondering that, if network neutrality is so important to the protection of the Internet, why did the FCC Democrats agree to exempt AT&T’s wireless and video operations? To me that’s a quiet admission that there are certain areas where transmission prioritization is required for applications to work properly and where content partnerships are good for consumers. Then there’s the hedge of a two-year expiration date for wireline Internet neutrality, a nice regulatory back door in case bandwidth hogging by the studios, the gaming companies and the big applications players becomes enough of a problem that quality tiering is indeed required to “save the Internet”—for the rest of us who just want to get an email through!
In fact, with broadband now accelerating due to greater competition, 24 months from now just might be the time we see Internet congestion issues creating demand for the Web prioritization. From this perspective, the concession agreement confirms serious misgivings on the part of regulators as to wisdom of net neutrality.
Posted by steve.titch at January 2, 2007 06:39 PM
Kip... If Google is serving up ads and making billions of dollars, are you hogging the provider's capacity or are they? And that starts the whole network neutrality problem. Look, there's no question that when Ed Whitaker started this whole thing, he was talking about extracting some portion of Google's ad revenues, because the money on the Internet is in content, not in transport. This offends most people's sense of fairness. Could you imagine a tollway that inspects trucks and takes 1% of the value of the property to allow passage? And so the "solution" is the unworkable concept of network neutrality. And Google and eBay sign on as its biggest cheerleaders. But look at their business models, which are essentially jacking up price by preferring one person's ad to another's based on what they'll bid. It's no different than the most sinister interpretation of what Whitaker proposed; however, it's on the application layer rather than on the transport layer.
Proponents of network neutrality see the "let current law handle it" a weak concession from the free market crowd. Probably because the first reaction was "it's their network, let them run it as they want to". I think we need to do a better job explaining the downside of net neutrality rules, including that they could eventually move to the application layer where Google and eBay extract money from people competing for artificially scarce resources (e.g. ad placement). Using existing anti-trust law is the middle ground here.
Comment by: Brad Hutchings at January 2, 2007 09:26 PM
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