The Struggle over Net Neutrality

In impassioned language more appropriate to international conflict, political debate or, at the very least, the cosmic struggles of comic-book superheroes and villains, a debate about “net neutrality” continues to rage in legal and business publications, on the Internet and in blogs throughout the world.

Recent actions and changes in position by primary parties, plus appointments by a president who favors net neutrality, have heated up the debate. The Obama administration appears to favor a consumer perspective and keeping content-delivery systems open to all. Advocates opposing net neutrality and those favoring it view this struggle as determinative of the future of the Internet.

The debate had been hot for some time. In a June 8, 2006, article in The Washington Post online, strong advocates Lawrence Lessig, the law professor, and communications professor Robert W. McChesney, called net neutrality “the most important public policy [issue] you've probably never heard of,” and argued that without it, a handful of “network owners itching to become content gatekeepers” will “control access and distribution of content, deciding what you get to see and how much it costs.” Lessig, however, appears to have shifted his position recently.

On the other hand, opponents of net neutrality argue that they are the true guardians of an unregulated free Internet and that the debate about “net neutrality” is simply about money. They say that net-neutrality legislation would, for the first time, place the government “in a very heavy regulatory position in deciding how the Internet's going to work in the future. And we just think that's wrong,” “right of center” online-activist blog RSRedState reported about the position of Hands Off The Internet (handsoff.org) ' the communications industry's online idea pipeline on the topic. And, in colorful language, then-AT&T CEO Ed Whitacre strongly stated his position in a Business Week interview: “Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the position they're using.”

Organizations such as handsoff.org call it no more and no less than price regulation, the antithesis of freedom. And finally, those advocates who have attempted to move from rigid theoretical positions to a more practical middle ground have been castigated by denizens of the issue at both ends of the opinion spectrum. For instance, both sides argue vigorously that adopting the other's position will:

• End the free Internet as we know it;
• Cause the United States to lag ever farther behind innovative Asian leaders;
• Exclude new artists from access to low-cost Internet service;
• Slow investment in new infrastructure; and
• Impede provision of new premium services, such as telemedicine that require speed or expansion to largely unserved rural areas.

The ultimate outcome of this debate is uncertain. This article addresses what is somewhat more certain than the parties' contradictory “parades of horribles”:

• The issues at stake;
• The parties most affected;
• The trends and developments that have ignited their concerns; and
• The legal principles implicated.

The Meaning of Net Neutrality

In its simplest terms, net neutrality means an Internet structure that does not favor one application over another (see, Bracha and Pasquale, Federal Search Commission; Access, Fairness, and Accountability in the Law of Search, 95 Cornell L. Rev 1149 (2008); and Haas, The Never-Was Neutral Net, 22 Berkeley Tech L.J. 1565 (2007).)

As originally described by Professor Lessig and Columbia law professor Timothy Wu, the Internet serves as a platform for competition among applications; for the best application to win, neutrality advocates assert, the platform itself must be neutral. The Internet's famous “end-to-end” design, in which consumers theoretically control what is sent through indifferent pipes, sometimes called dumb pipes, embodies and preserves that Darwinian neutrality. Advocates of net neutrality strenuously oppose any pricing formula or management strategy that would allow Internet providers to block, speed up or slow down any Web content based on source, ownership, content or destination (see, Gross, Groups Push for Net Neutrality in Obama Administration, IDG News Service (Dec. 4, 2008)).

The real concern to both sides is not the physical pipes themselves, but whether some form of prioritization of what they carry is necessary and appropriate. Proponents of pure net neutrality view content management of any sort as content discrimination. They argue that all content ' whether owned by the phone or cable companies, provided by those who will pay them premium fees or by individual bloggers ' must be treated identically. But as many commentators point out, the reality is that time and capacity impose some form of prioritization; absolute equality is not realistic. However, it is the imposition of extrinsic management standards and, specifically, price tiers, that generates particular concern. Net-neutrality advocates fear that because, under the government's relaxed merger policy, the telephone companies have not only merged but are now delivering content, they will favor their own proprietary services and exclude others. Thus, a member of the Caucus For Television Producers, Writers and Directors wrote: “We have begun to look to the Internet as our best hope to distribute creations free of corporate control. But, if the telecom laws are changed, without provisions for net neutrality in the future, this will not be possible,” according to a July 3, 2006, story in The New York Times titled “AT&T Is Calling To Ask About TV Services. Will Anyone Answer?” Of equal concern to the net neutrality advocates is the idea that people who pay (large corporations) will occupy the “rush-hour” lanes, while other uses ' peer-to-peer, massively multiplayer online role-playing games (“MMPORPGs”), and the like ' will be relegated to “dirt access roads.” Integration of the major studios with cable and network television, after the Telecommunications Act reform of 1996, has generated similar fears of exclusion of user-generated content and other content competitors from formerly “neutral” platforms.

Opponents of net neutrality ' AT&T, Verizon, and a host of organizations ' point out that the antitrust laws are available to deal with illegal discrimination, collusion, exclusion and any other abuses of market power by infrastructure providers. The Internet has flourished in a free enterprise environment. Furthermore, they argue that tiers of service that allow Internet providers to charge for preferential content are essential to allow them to recoup their capital investments and will incentivize more investment ' giving rise to even more innovation. In short, they claim that the ability to price-differentiate is essential to a free Internet, and reflects a free and untrammeled market. Theirs is the true “neutrality.”

Comcast Gets Involved

The issue crystallized last August, when the Federal Communications Commission (“FCC”) ordered Comcast Corp., the country's second-largest broadband provider, to cease “network management practices” that slowed BitTorrent peer-to-peer traffic. Comcast asserted in response that the FCC was without authority to enforce net-neutrality principles and that legislation, accompanied by formal rulemaking, would be necessary (see, David Stellmack, MSI Notebook, “Comcast Claims BitTorrent Throttling Over,” Jan. 7, 2009). Comcast, however, has since adopted a policy of imposing a 250-gigabyte monthly bandwidth limitation on its customers, allowing Comcast to slow traffic to high bandwidth users during times it calls periods of “peak network congestion,” according to Stellmack's article. Its Web site states that during such peak periods, it will identify which accounts are using the greatest amounts of bandwidth and those accounts will be “temporarily managed” until the congestion passes, the Stellmack article also says. In short, rather than focusing on a particular category of user, the criterion will be volume, which may well have an impact on particular consumer-based categories. The practical implications remain to be seen.

On Jan. 18, the FCC sent Comcast a letter asking for clarification “with respect to an apparent discrepancy between Comcast's filing” Jan. 5 of certification that the company has complied with the FCC's Comcast Network Management Practices Order of last year. The FCC's Jan. 18 letter concerns a statement in a Sept. 25 filing on the issue that explains how a subscriber's Voice over Internet Protocol (“VoIP”) telephone call might sound choppy if the consumer uses 70% of his or her allotted bandwidth for 15 minutes when a node of neighborhood Cable Modem Termination System (“CMTS”) has been congested for more than 15 minutes. But the FCC says that an appendix to the September filing makes no distinction between Comcast's VoIP service and that offered by competitors, while its Web site does. The letter says, in part:

We request that Comcast explain why it omitted from its filings with the Commission the distinct effects that Comcast's new network management technique has on Comcast's VoIP offering versus those of its competitors. We also ask that you provide a detailed justification for Comcast's disparate treatment of its own VoIP service as compared to that offered by other VoIP providers on its network. In particular, please explain how Comcast Digital Voice is “facilities based,” how Comcast Digital Voice uses Comcast's Broadband facilities, and, in particular whether (and if so, how) Comcast Digital Voice affects network congestion in a different manner than other VoIP services.

The letter also states that Comcast appears to be saying that its “separate facilities-based” VoIP telephone service is distinct from its broadband services and different from VoIP that other providers deliver over the “public Internet,” and so is thus subject to regulation as a telecommunications service under Title II of the Telecommunications Act of 1934, as amended. The Commission asked Comcast to explain by Jan. 30 why the FCC shouldn't treat Comcast's VoIP service, as Comcast describes it, as a telecommunications service subject to regulation under Title II. (The letter may be found at www.fcc.gov/ComcastLetter011809.pdf.)

The Parties

Despite the populist appeal of the net-neutrality idea, this is not a David and Goliath battle; it is being fought by substantial corporate foes. The primary proponents of net neutrality had been the technology companies ' Google, Yahoo, Microsoft, eBay, Amazon and others. They were supported by such diverse groups as independent producers and musicians, the Christian Coalition, MoveOn.org, Consumers Union and file-sharing technology companies. Leaders in the Obama administration have also come out in favor of neutrality (see, Darren Murph, “Possible New FCC Chair Could Focus on Net Neutrality, not Cable Pricing,” AOL News, Jan. 13, 2009; and “Next FCC Head May Be Net Neutrality Advocate,” Ma CNN/electronista, Jan. 13, 2009; both articles discuss the background and net-neutrality advocacy of new FCC chair appointee Julius Genachowski). (Editor's note: In the Clinton administration, Genachowski served as chief counsel to then-
FCC Chairman Reed Hundt. Genachowski has logged time with IAC/
Interactive, which owns Match.com and Ask.com. He is also an investment adviser.)

Advocates of net neutrality claim that without regulations enforcing broadband competition, strong FCC support and Congressional legislation enforcing neutrality, a handful of broadband providers will be able to serve as “content gatekeepers,” and crush competitive applications and technologies. Not surprisingly, net-neutrality advocates also claim that any ability to discriminate will allow integrated telecoms to favor their own content and services, discouraging startups, VoIP companies, YouTube and technologies like BitTorrent.

A media firestorm erupted in mid-December when The Wall Street Journal reported that Google, one of the most articulate advocates of net neutrality, had quietly approached cable and phone companies with a proposal to create a fast lane for its own content. The Journal also reported that Microsoft and Yahoo had withdrawn from the Internet providers' net-neutrality alliance and that Lessig, one of neutrality's most outspoken advocates, had also shifted positions, saying that content providers should indeed be able to pay for faster service. Discrimination, Lessig argued, could be avoided by making faster service available to anyone willing to pay. Meanwhile, Google has vehemently denied that it is reversing position or abandoning principle by seeking to speed up its own content delivery. It argues that it is merely employing “edge caching,” a device that minimizes the need to send traffic during congested periods. Google asserts that edge caching is no more than a network upgrade, and that it is quite different from prioritizing traffic based on its source (see, “Google Denies Plan to Ditch Net Neutrality,” Dec. 17, 2008, Brand Republic News).

The major telecoms, led by AT&T and Verizon, have been among the supporters of tiered pricing, arguing that, far from preserving freedom, net neutrality, for the very first time, imposes impermissible regulation on a free Internet. A number of associations ' Netcompetition.org, Wireless Communications Association International and Hands Off the Internet ' speak for the telecoms' position. The telecom and cable companies that have invested in the Internet's infrastructure claim to be the true guardians of an unregulated Internet. They argue that imposing rules on the ability to price services will extinguish the vibrant growth that has characterized the Net and that their investment must generate rewards. In sum, they claim to represent the principle of competition in a free market, as opposed to the more egalitarian neutrality theories. Opponents of net-neutrality legislation also include the Recording Industry Association of America (“RIAA”) and the Motion Picture Industry Association of America (“MPAA”), both of which oppose it, in part, on the grounds that it will facilitate online piracy (see, “RIAA Chimes in on Net Neutrality,” in Billboard, May 8, 2008; see also, remarks of Dan Glickman, MPAA Chairman and CEO, at ShoWest, March 11, 2008).

Whichever position will preserve a truly competitive Internet, it is clear that President Obama and the new Congress have made net neutrality a cornerstone of their developing media policy. Indeed, a net-neutrality provision has already been inserted into the American Recovery and Reinvestment Act of 2009 (the “stimulus package”) in connection with grants for broadband and wireless development in “unserved” areas. Recipients are required to operate their networks on an “open access” basis, a term that is not defined in the bill, and whose meaning is to be decided by the FCC.

The Context of The Debate

The fears of the net-neutrality advocates are exacerbated by the very nature of broadband. The real problem is what both sides consider limited broadband access. When Congress revised the Telecommunications Act in 1996, telephone companies provided voice service and cable companies provided video service. Although the potential for head-to-head competition existed, the two were generally not yet competing. Today, both services use their wires to provide broadband connections that include IP (“Internet protocol”) video-programming services from the phone companies, telephone service from the cable companies, and high-speed Internet access from both. Thus, these former “monopolists” now compete in an ever-more integrated market.

Unfortunately for most American homes and small businesses, that had been all the access there was. Only this “duopoly” provided them with high-speed broadband access (opponents of net neutrality argue bitterly that what is needed is not regulation of how they price or do business but a more competitive infrastructure that net neutrality would discourage). Given these perceived limitations, corporations and large providers say they fear the inability to obtain rapid access on an Internet clogged with MMPORPGs, file sharing or other consumer-based uses. Meanwhile, gamers and other routine users fear exclusion by content owners that control broadband and who, they fear, will promote their own content exclusively or steer them unwillingly onto two-lane information back roads.

Opponents of net neutrality also argue ' with some historic precedent to support them ' that tech company and consumer fears of content control, self-dealing and limitation of independent artistic creation are not only baseless but have been proven wrong before. They argue that, after all, this is no longer the world of the famous Paramount decrees that were the result of government antitrust action and that restructured motion-picture exhibition and distribution in the 1940s: If telecom companies blocked competing content, the public would not stand for it and the antitrust laws would be forcefully invoked. See , United States v. Paramount
Pictures, Inc. , 334 U.S. 131 (1948). In that decision, the Supreme Court ordered those major studios which owned movie theaters to divest the theaters they owned. The order ended block booking, a practice by which distributors required theaters to accept blocks of films to obtain the films they wanted ' and this at a time when an average of 90 million tickets a week were sold (in 1946), according to media-studies scholar John Vivian in his book The Media and Mass Communication ' as well as other licensing practices the Court determined violated antitrust law. Although theatrical exhibition is much less important to an integrated media company's revenues today, the decrees remain in force. (It should be noted that some theater ownership has returned to a handful of media corporations.)

Net-neutrality opponents, with some justification, point to historic examples such as the AOL/Time Warner merger, where similar fears were expressed, even after the Federal Trade Commission cleared the merger and after which the net-neutrality advocates' fears did not materialize because of market considerations. Providers, they argue, seek to carry the best possible content, and content creators want maximum access; therefore, the feared exclusions make no economic sense. Furthermore, they argue, the market would act: where another ISP option was available, consumers would switch instantaneously.

But net-neutrality advocates counter that telecom does not present the same situation as licensing to independent theatres in the 1940s, or a single Internet provider/entertainment merger. The telecom/cable market is, they argue, far more highly concentrated across multiple media lines and consists of vertically integrated content providers that are economically motivated to use “their” pipes to push “their” content exclusively, and that excluding others via price tiers and preferences would be relatively easy. They challenge their opponents' view ' particularly in what has been an era of relative non-enforcement ' that the antitrust laws are adequate to constrain monopolistic exclusion of competing services; some of which, they argue, has already occurred. The new administration's policies will provide an important new context to this debate.

Status of Pending Legislation

Congress

In 2006, several bills incorporating net-neutrality principles were introduced in Congress, but languished. These included S.B. 2682, incorporating net-neutrality additions from Senators Olympia Snowe (R-ME) and Brian Dorgan (D-ND). Other references are The Communications Opportunity, Promotion and Enhancement Act of 2006, also known as H.R. 5252, and The Internet Freedom and Non-Discrimination Act, or H.R. 5417. Introduced last year were H.R. 5353, The Internet Freedom Preservation Act, and the Senate version, S.B. 2917, also called The Internet Freedom Preservation Act.

Many were reintroduced last session, including one that amends the Clayton Act, which governs antitrust violations to forbid discriminatory exclusion on the Net (see, H.R. 5417 (2006), and H.R. 5994 (2008)). The ascendancy of long-time net-neutrality advocate Sen. Jay Rockefeller (D-WV) to the chairmanship of the Senate Committee on Commerce, Science, and Technology, the increasing importance of Sen. Dorgan ' one of the Senate's most outspoken net-neutrality advocates and a co-sponsor of a failed neutrality addition to the 2006 Senate Bill, and the role of Rep. Henry Waxman (D-CA) as chair of the House Energy and Commerce Committee, will likely result in new, aggressive net-neutrality legislation (for a perspective on this, see, “Congress to Push for Net Neutrality Legislation,” Nov. 13, 2008, PCWorld.com). The fate of the provision in the stimulus package remains to be determined.

The FCC's Role

As discussed in this article, the FCC sanctioned Comcast for slowing peer-to-peer traffic (see, In the Matter of Formal Complaint of Free Press and Public Knowledge Against Comcast Corporation, File No. EB-08-IH-1518, WC Docket No. 07-52, Aug. 20, 2008). The Commission's actions in that situation were challenged immediately as being without jurisdiction and requiring formal rulemaking. If an appeals court reverses the FCC's actions, new legislation will almost certainly be introduced. Significantly, FCC chairman, Julius Genachowski, and also two key Obama advisers who served on the President's FCC transition team ' Kevin Werbach and Susan Crawford ' are long-time net-neutrality advocates, and are described as fans of virtual worlds and MMPORPGs, such as World of Warcraft. They, and appointees like them, are expected to steer communications policy toward net neutrality.

Conclusion

The legislative and judicial outcome of the current debate is impossible to predict. In the past, government regulation of any element of the economy had been shied away from, and antitrust enforcement had been lax. Today, the willingness of Congress to “regulate” a free Internet by prohibiting tiered pricing may be greater, and the Justice Department's new antitrust appointee, Christine Varney, has taken activist, pro-consumer positions in the antitrust/IP area. Meanwhile, strengthening the FCC's authority to act in this area may receive legislative attention.

The battle may be determined in Congress, or, if neutrality advocates who claim that an Internet that does not impose a level playing field with respect to price and others bring the antitrust suit they are threatening to bring, in the third branch of government. Which position results in a truly “free” Internet continues to generate debate. Net-neutrality advocates continue to claim that an Internet that does not impose a level playing field with respect to price and access is not really free. To date, attempts at instituting practical solutions have been met with the same rhetoric as the positions themselves.