AT&T, Comcast Rout Google, Microsoft in `Net Neutrality' Battle

by Jonathan D. Salant, Bloomberg.net

When it comes to getting their way in Washington, Internet-era darlings Google Inc. and Microsoft Corp. still have a lot to learn from the likes of AT&T Inc. and Comcast Corp.

The telephone and cable-television companies are routing Google, Microsoft and other online-content providers in the fight over whether the carriers can impose fees on Web site owners in exchange for priority access to their high-speed networks.

Microsoft General Counsel Brad Smith and Gigi Sohn, head of an organization that backs the Web group, said yesterday the Internet companies aren't likely to persuade Congress this year to pass ``network neutrality'' legislation banning such fees.

``It's no secret that regulated companies know how to deal with policy makers better,'' said Sohn, president of Public Knowledge, a Washington advocacy group focusing on technology. ``The online companies have a much longer learning curve because they've only been at it a short time.''

The phone and cable companies say they are entitled to charge such fees to help them recoup the billions of dollars they invested to build their networks. They and their trade associations spent $71 million last year on their overall lobbying in Washington, dwarfing the $20 million spent by the Internet companies.

The carriers won a 269-152 vote in the House of Representatives, and an 11-11 vote in the Senate Commerce Committee, rejecting the Web companies' bid for a ban on new fees. Google and other companies are still urging the full Senate to adopt the neutrality measure when sponsors try to revive it as early as September.

Quick Connections

The Internet companies, which need quick connections to offer video, online gaming and other high-bandwidth services, lack the phone companies' longstanding lobbying experience and connections. Representative Edward Markey of Massachusetts, chief House sponsor of the neutrality legislation, said the phone and cable coalition has made it harder to pass the measure.

``The net-neutrality constituency has just begun to check into the political process,'' said Markey, the ranking Democrat on the House telecommunications subcommittee. ``Telephone and cable have been in the political process for years.''

`Do the Math'

Sohn said one difficulty for the Internet companies' side is that the issue has become a partisan one. ``The party that's in favor of net neutrality is not in the majority,'' she said. ``Do the math.'' Voting for Markey's neutrality measure were 140 Democrats, 11 Republicans and one independent, while 211 Republicans and 58 Democrats opposed it.

``I think we'll all be taking stock of what the prospects look like next year,'' said Smith, the Microsoft general counsel.

At stake is each side's share of the broadband market, estimated by the Telecommunications Industry Association to reach $23.1 billion this year. Broadband revenue was $20.2 billion in 2005, and the association projects the market will reach $30.2 billion in 2009.

The dispute over new fees arose as Congress prepared to overhaul the 1996 telecommunications law, which set rules for competition by local phone companies, long-distance companies and cable-TV franchises. The overhaul is aimed at taking into account changes in the marketplace since the law was passed, including the purchase of long-distance providers by local telephone companies and the rising use of wireless phones and the Internet.

Phone companies such as AT&T and Verizon Communications Inc., and cable companies such as Comcast and Time Warner Inc., operate 98 percent of U.S. high-speed Internet lines, according to an April report by the Federal Communications Commission. Philadelphia-based Comcast is the biggest U.S. cable-TV provider; New York-based Time Warner is No. 2.

`Billions of Dollars'

``You cannot expect any company, my company or anyone else's, to pour in these billions of dollars that are required without some return,'' Edward Whitacre, chief executive of San Antonio-based AT&T, told the Senate Judiciary Committee last month. AT&T is the biggest U.S. phone company, followed by New York-based Verizon.

Google, owner of the most-used Internet search engine, and Redmond, Washington-based Microsoft, the world's biggest software maker, say that charging Web sites a premium to send video and other data faster than other sites would destroy the open nature of the Internet.

Lobbyists

The money spent on lobbying in Washington by telephone and cable companies is $15 million higher than the $56 million they spent in 2003. The Washington-based U.S. Telecom Association hired lobbying firms headed by former Republican National Committee Chairman Edward Gillespie and former U.S. Representative George Nethercutt, a Republican from Washington state.

The Washington-based National Cable and Telecommunications Association's lobbyists include former New York Representatives Thomas Downey, a Democrat, and Raymond McGrath and Bill Paxon, both Republicans. Mike McCurry, former press secretary to President Bill Clinton, is co-chairman of Hands Off the Internet, an Arlington, Virginia, coalition of companies and organizations opposing net-neutrality rules.

On the other side, the Internet content companies' $20 million in lobbying was up from $11.9 million spent in 2003. Mountain View, California-based Google hired Joshua Hastert, the son of House Speaker Dennis Hastert, a Republican from Illinois. Since Jan. 1, 2005, the Senate and House received 53 new registrations from all sides to lobby on the telecommunications measure.

Rejecting the Ban

The House rejected Markey's proposed ban on the fees June 8, while the Senate Commerce Committee voted on June 28 against attaching a similar proposal to legislation pushed by Chairman Ted Stevens, an Alaska Republican, making it easier for phone companies to offer television service.

``Is net neutrality dead?'' Stevens, an Alaska Republican who voted against the neutrality measure, said yesterday. ``I hope it is.'' He said his bill won't go to the Senate floor unless he has 60 votes to head off a possible filibuster by backers of the neutrality measure.

Gerald Waldron, a lawyer at Covington & Burling in Washington who represents the content companies, said they will be back to fight another day. The carriers are ``used to working the legislative and regulatory process for decades,'' he said. ``They are very familiar repeat players. Yahoo and EBay and Amazon are new.''

article originally published at http://www.bloomberg.com/apps/news?pid=20601103&sid=a2bhy_NMhsIQ&refer=us.

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