Copyright 2006 Gannett Company, Inc.
All Rights Reserved
February 7, 2006 Tuesday
By Paul Davidson
From Lexis Nexis
The Internet isn’t always the smoothest information highway. Bottlenecks are increasing as more consumers use bandwidth-intensive applications, such as video, over broadband lines.
When bottlenecks happen, videos may download more slowly. Live webcasts freeze up. Calls on Internet-based phone services break up a bit.
To address the problem, BellSouth and AT&T, formerly SBC, plan to offer Web content providers new fee-based services that would assure speedy delivery of movies, games and other offerings over DSL broadband lines. Verizon is also considering enhanced services but has been vague about its plans.
Yet Web stalwarts such as Google and Amazon say the strategy would turn the equal-opportunity Internet into a two-tiered market. One for phone companies, which are offering video services themselves, and their paying partners; another for websites that refuse to pay up. They also fear that while cable companies have not discussed similar plans, they would follow suit.
“Once they decide what’s normal and what’s fast, (phone companies) are gatekeepers,” says Mark Cooper of the Consumer Federation of America.
The phone companies say they simply want to recoup their multibillion-dollar investments in new broadband lines, better manage an increasingly congested network and hold down consumer prices.
The debate has become the most heated battle in telecom and takes center stage at a Senate Commerce Committee hearing today. Lawmakers are considering new laws to ensure consumer access to websites.
The controversy is rooted in two trends. On the one hand, phone companies are beefing up their networks with fiber-optic lines so they can compete with cable providers. They’re rolling out TV services, including video-on-demand, as part of a bundle that includes phone and turbocharged high-speed Internet services.
At the same time, more video offerings are coming to the Web. Google last month started selling reruns of TV shows and National Basketball Association games. ITunes, NBC Universal and AOL also plan to sell or stream TV programs.
Eventually, the distinction between traditional TV and online video could blur as subscribers watch more programs on demand and new technology delivers Internet content to TV screens.
The emerging competition raises the fear that phone companies could block access to rivals’ websites. A prohibition against such a practice was lifted when the Federal Communications Commission deregulated phone-company broadband services last year.
As a condition for approval of the SBC-AT&T and Verizon-MCI mergers, those companies must refrain from blocking access to websites for two years. Phone companies say they would never impede such access, and telecom-reform bills in Congress would outlaw the practice.
Yet the House bill explicitly allows phone companies to offer premium content-delivery services.
They are needed, the phone giants say, because video and other high-bandwidth applications will place a growing strain on their networks, increasing congestion and costs. Already, snarls at certain times might disrupt the flow of an online game or cause a live video stream to jitter.
The premium services would guarantee a content provider top-notch service by boosting its bandwidth or giving its offerings priority over other data packets.
BellSouth says it’s in talks about such deals with about five companies, including Movielink, which offers movie downloads. For example, to juice up the speed of a download for a Movielink customer, BellSouth is considering charging Movielink a fee equivalent to about 10% of the $3 to $5 the consumer pays Movielink, says BellSouth Chief Technology Officer Bill Smith.
Similarly, an Internet-based phone company that charges subscribers $24 a month might pay BellSouth $2 a month per customer to ensure crystal-clear conversations.
The added costs could be passed to consumers. “We have to have ways to recoup our investment,” Smith says.
Yet content providers say consumers already pay varying prices for different broadband speeds. Those who want faster service can simply upgrade to a higher tier. Why should the content provider also be hit with a fee?
“If the customer isn’t already buying high-quality broadband that doesn’t have congestion, what are they getting — substandard performance?” says Jeffrey Citron, CEO of Vonage, the No.1 Internet-based phone service. Vonage worries the added cost could make it tougher to compete with the phone companies’ own Internet-based phone services.
Adds Google’s policy counsel, Alan Davidson: “Our concern is that carriers are being given the power to control what consumers do and see online.” Content providers that don’t pay will suffer, he says, either by comparison or because giving routing priority to some services will inherently slow down those that wind up at the back of the line. While Google can afford the premium fees, Davidson says, many start-ups can’t, hobbling innovation on the Web.
Smith says regular broadband service would not be affected. “What we’re talking about is offering a higher level of service, not pushing people to a lower level.”
Phone companies say they are trying to pass costs to high-bandwidth users and spare subscribers price increases. Content providers “can always say, ‘No, we’re not interested,'” says AT&T Vice President Jim Cicconi.
Still, Cooper says, the plans are troubling because phone companies plan to ensure their own video offerings boast superior quality. To get comparable service, their rivals would be saddled with higher costs.
If the phone giants really want to ease congestion, let them improve the quality of all video and pass the costs to their subscribers, Web providers say. “It ought to be done in a content-neutral fashion,” says Brent Thompson of IAC/InterActiveCorp, which operates websites such as Ask Jeeves and Match.com.
Smith retorts that BellSouth’s plan is no different than Google charging a fee for prime placement in its advertised search results. “Their arguments are inconsistent with their own model,” he says.
Pay TV getting competitive
AT&T and Verizon are rolling out pay-TV services that could compete with the new video-on-demand services offered by Google and others.