Net Neutrality Spoils Telecom Reform

Best of 2006 wades through the top stories and issues that rocked the industry in 2006 in this week-long series.

A little more than a year ago, the term network neutrality raised but the faintest of pings on the technology policy radar. A year later it had wrecked the ambitious telecom reform plans of the Republican majority.

Back then, the politicians were planning to present AT&T and Verizon as pay television rivals to Comcast and Time-Warner by creating a single, national franchising license for IP-based television services. Both Republicans and Democrats endorsed the idea.

By allowing the telecom giants a quick entry into the pay television market, along with their voice and data products, lawmakers hoped to drive down the high cost of both cable television and broadband in general. Then came AT&T Chairman Ed Whitacre’s interview with Business Week.

Whitacre told the magazine shortly after the Federal Communications Commission (FCC) approved the SBC-AT&T merger he planned to charge companies like Google, Microsoft and Yahoo based on bandwidth consumption.

“They don’t have any fiber out there. They don’t have any wires. They don’t have anything,” Whitacre said. “They use my lines for free — and that’s bull. For a Google or a Yahoo or a Vonage or anybody to expect to use these pipes for free is nuts!”

The network neutrality debate was on.

Amazon led a large group of tech companies working Congress to require broadband network providers to operate on a non-discriminatory basis (i.e. network neutrality) to those who offer content, services and applications. Internet public interest groups formed coalitions with other groups as diverse as the National Rifle Association and the American Civil Liberties Union to block AT&T’s plans.

Lawmakers were inundated with millions of e-mails supporting the idea of network neutrality. Bloggers, both pro and con, had a field day. Seizing the political momentum, Democrats tied network neutrality provisions to the telecom reform bill.

The provision lost on a House Energy and Commerce Committee vote. The issue lost on a full House floor vote that ultimately approved the national franchising idea. It went to an 11-11 tie in the Senate Commerce Committee. Under the panel’s rules, the tie goes to the majority party, but telecom reform never got to the Senate floor for a vote.

Instead, Congress in 2006 passed only a handful of tech-related bills, including those that barred credit-card companies from processing payments to offshore gambling sites, criminalized pretexting for personal telephone records and extended the Research and Development tax credit.

Although Congress dithered over telecom reform, lawmakers still managed to stir the tech policy pot. In February, a House subcommittee called out and lectured Google, Yahoo, Microsoft and Cisco for collaborating with Chinese censors.

“My message to these companies today is simple: Your abhorrent activities in China are a disgrace,” Rep. Tom Lantos (D-Calif.) told the companies. “I simply do not understand how your corporate leadership sleeps at night.”

Replied Elliot Schrage, vice president for global communications and public affairs at Google, “We’re not ashamed or proud.”

In October the House Energy and Commerce Committee hauled in Hewlett-Packard officials, past and present, to explain their roles in the company’s use of pretexting to find the source of boardroom leaks. The hearings drew massive publicity and drove the passage of the Telephone Records and Privacy Protection Act of 2006 bill.

With Congress largely sitting on the tech-policy sidelines, the tech focus increasingly turned to the courts and regulatory agencies, finding mixed results.

At the FCC, Chairman Kevin Martin was hamstrung most of the year by not having a Republican majority. When he got one, the new Republican commissioner recused himself from the AT&T-BellSouth merger vote. The two Democrats on the panel jumped on the opening and pressed for more network neutrality conditions to the merger.

To break the 2-2 tie on the FCC panel, Martin finally had the agency’s lawyers “unrecuse” Commissioner Robert McDowell, creating a firestorm of ethics debates and even more publicity for network neutrality. McDowell just this week said that he stands by his recusal. Other than that, the issue remains unresolved.

The Federal Trade Commission (FTC) spent the year doing what Congress refused to do: crack down on ID theft. While bills were introduced in Congress to require companies to inform consumers of data breaches, the legislation went nowhere.

With no new enforcement tools, the FTC nevertheless stepped into the void, slapping data broker ChoicePoint with a $15 million penalty for failing to adequately protect the consumer information in its databases. The agency also won cases against spyware operators and spam scammers.

At the Department of Justice (DoJ), regulators continued with their ongoing investigations of price fixing among dynamic random access memory (DRAM) chipmakers, online child predators and Internet gambling sites.

The DoJ had fined four DRAM companies and 17 individuals for more than $700 million. The probe has already resulted in Korean-based Samsung and Hynix, Japan’s Elpida and Infineon of Germany pleading guilty to conspire to fix chip prices.

The Supreme Court encouraged big technology companies in May with its ruling that MercExchange wasn’t entitled to a permanent injunction against eBay in its patent dispute. MercExchange had hoped the court would uphold a permanent injunction ordered by an appeals court in 2005.

EBay’s Supreme Court victory was one of the few for big tech or consumers in 2006. No legislation passed on companies’ obligations to protect the personal data collected on consumers, much less any new laws requiring the disclosure of data breaches to consumers. Nor was Congress able to come to any agreement on electronic surveillance of U.S. citizens.

Along with the impasse over network neutrality and a national video franchise, the 109th Congress left those issues to the Democrats to resolve when they take over in January. And now it’s up to them to see if they can accomplish more on tech policy than the Republicans managed to do.

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