FCC Probe: Net Neutrality Goose Chase?

The regulator's search for discriminatory pricing by broadband providers may turn up little—but that doesn't mean the practice won't ever occur

by Catherine Holahan

After months of vehement debate over the need—or lack thereof—for legislation to preserve competition on the Web, the Federal Communications Commission has decided to investigate whether broadband providers are doing anything to stifle it. On Mar. 22, the FCC launched an inquiry into the practices of broadband providers. Specifically, the commission is investigating whether companies such as Verizon (VZ), AT&T (T), and Comcast (CMCSA) are reserving high-speed Internet connections for their own Web services, blocking competing services, or putting in place plans to charge Internet companies—say, Yahoo! (YHOO) or Google (GOOG)—for access to higher-speed connections.

As well intentioned as the fact-finding mission may be, the FCC isn't likely to turn up much, say both sides of the debate. Broadband providers have consistently stated that they do not give preferential treatment to some services, nor do they plan to block competing services. Comcast's Vice-President of External Affairs, Joseph Waz Jr., summed up the position at the Broadband Policy Summit in May, 2006, when he said calls for legislation barring preferential pricing were "a solution in search of a problem."

Monitoring Mission

Advocates of such laws, proponents of what is known as Net neutrality, also don't claim to have widespread reports of discriminatory Internet practices. "For the most part, the industry is on its best behavior," says Art Brodsky, communications director of Public Knowledge, an advocacy group and supporter of Net neutrality legislation. "If there is a cop sitting behind you, do you floor it and go 90? Not if you are smart."

The issue for Net neutrality advocates isn't so much what the broadband providers are currently doing—though they do point to a few instances where Voice-over-Internet Protocol (VoIP) Internet telephone providers, such as Vonage (VG), were blocked by smaller service providers. Their main concern is what the telecommunications companies may do in the future to make more money from the high-speed cable and telephone networks they have and are building.

Without any specific problems to investigate, it's unclear what the FCC's investigation will ultimately do. In a statement, FCC Chairman Kevin Martin said the purpose of the inquiry was to be fully informed. "Gathering this information will allow us to better monitor this market," says Martin.

Unintended Consequences?

Arguably, the FCC should be pretty well informed already. Both sides of the debate have consistently argued their positions since at least 2005, the year the FCC adopted a handful of principals regarding Net neutrality. Those include fostering competition among service and content providers and ensuring that consumers have access to content, applications, and services of their choosing (see BusinessWeek.com, 12/15/05, "At Stake: The Net as We Know It").

Without a law, Net neutrality advocates argue that a company such as Verizon will reserve fastest passage for its own services or those willing to pay a premium for such access, and relegating competing services or small Internet startups to relatively slow connections. The result would be to put those companies at a disadvantage, potentially stifling innovation (see BusinessWeek.com, 2/02/06, "Is Verizon a Network Hog?").

The broadband providers, on the other hand, argue that laws will only have unintended consequences that stifle innovation by discouraging providers from investing in high-speed networks and devising fair business models that disperse the cost of new networks between customers, Web services, and Internet providers. "To say [the advocates' scenario] is going to happen without any facts is a prescription for disaster because there are a lot of unintended consequences for a lot of smoke and mirrors," says AT&T spokesperson Claudia Jones (see BusinessWeek.com, 1/29/07, "Web War: Nothing Neutral About It").

No Commissioner Consensus

Jones thinks the commission's inquiry—and ultimate finding of few, if any, violations—could quiet the calls for legislation. "I think what this is is a really good first step to put on the record exactly what is going on, because there has been a lot of rhetoric and a lot of discussion without a lot of facts," says Jones.

If the commission does find violations, or evidence of plans to stifle competition, it could potentially adopt an additional nondiscrimination principal indicating how Internet service providers should treat like services on their networks in the future. What exactly that principal could look like depends, in part, on which commissioner's viewpoint prevails.

Right now, the commissioners land on different sides of the debate. Commissioner Deborah Taylor Tate has said she doesn't think rules are needed. "I am skeptical of the present need to impose new rules or even principles," she said in a statement regarding the inquiry. "I think this issue has focused too much on the need to define a cure before there has been a disease or even a high fever."

On the other hand, Commissioner Michael Copps has argued for regulation, writing, "I want an FCC that unconditionally states its preference for nondiscrimination on the Internet." Whatever set of rules—if any—is adopted, the FCC may need more to go on than the search it's now undertaking.

Holahan is a writer for BusinessWeek.com in New York .