Network Neutrality -- A Phantom Menace?

Over the last couple months, the alarm bells have started to go off about the future of the Internet, with the phrase "network neutrality" popping up more often.  The risk has finally hit the big time, in a Sunday op-ed from the New York Times titled Hey, Baby Bells: Information Still Wants to Be Free(*).

The issue first came to light last fall when Ed Whitacre, CEO of SBC (now known as the "new" AT&T) had the cojones to argue in a Business Week interview(**) that content providers like Google and Microsoft and Yahoo! should be paying the local telephone carriers to carry traffic.  That's right -- not only should ISPs or direct end users pay SBC/AT&T for access to the Net, but the content providers should also pay the telcos to bring that content to the end users (in addition to the content providers' own costs of getting their information up to the net). 

To varying degrees, the other major local phone companies are also on the bandwagon -- BellSouth with its infamous "Vonage and Google aren't stringing lines in New Orleans" argument, Verizon taking a loftier "we see some significant benefits" approach. Some scattered points on the evolution of the discussion:

• Freedom to Tinker (Ed Felten), Susan Crawford -- October 2005
• Corante's "Moore's Lore" -- November 2005
• Hiawatha Bray (Boston Globe), Michael Geist (a Canadian telco/cable perspective) -- December 2005
• Searchblog (John Battelle), GigaOm (Om Malik), Mark Cuban (surprisingly, in support of ending neutrality) and the Ars Technica rebuttal to Cuban -- January 2006.

My personal take is that the telcos are really just creating a huge bargaining chip. They know the idea sounds completely ridiculous, but they can create enormous value for themselves simply by toeing the line and occasionally lighting off a firecracker or two.  I see a magnanimous "statement of network principles" emerging as part of a concession to Congress or the FCC or FTC -- with something less visible to the average consumer, but far more valuable to the big players, being granted as a concession to win AT&T and Verizon concurrence.(***) 

Some additional evidence: Ars Technica recently reported on a policy statement from the FTC supporting neutrality.  Similarly, end-of-2005 interviews with FCC Chairman Kevin Martin (LA Times) also suggest that his opening position is one of continued neutrality.  Congress has mostly been silent, but one would hope that even the spectre of "homeland security" isn't enough to get them to back an abandonment of open access.

Chairman Martin has also made noise (CNet) about a slightly different form of network neutrality -- even-handed taxation with respect to the Federal Universal Service Fund. Today, Vonage and Skype and the cable companies don't make the same payments into the fund that the telcos always have -- creating a real, government-mandated price differential that the telcos desperately want removed. 

In the upcoming reform of the Telecommunications Act, there will be lots of horse-trading, with some unusual coalitions built along the way.  Network neutrality won't be the only bargaining point, but it will be one of the most widely-reported (if not the most significant) in the end.