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By Caron Carlson  |  Posted 2006-05-01 Print this article Print

The first hints that all that could change came last fall from top executives of the countrys largest telephone companies. In a now-famous quip, Ed Whitacre, chairman of AT&T, said in November that content providers were using his lines for free. "For a Google or a Yahoo or a Vonage or anybody to expect to use these pipes for free is nuts," Whitacre said.

A few weeks later, BellSouth Chief Technology Officer William Smith said the Internet should become a "pay-for-performance marketplace."

The controversial comments closely followed the governments approval of SBC Communications acquisition of AT&T Corp. and Verizon Communications acquisition of MCI in late October. SBC, which renamed itself AT&T Inc., is now awaiting approval of its latest acquisition target, BellSouth.

That the Bells revealed their tiered pricing plans as they were consolidating is no coincidence, critics say.

"Theres nothing wrong with the concept of offering classes of service that might involve [quality of service] or different delivery times," said Lee Selwyn, president of Economics and Technology, in Boston. "What you want to do is make sure that the basis for that differentiation is not an exploitation of market power but a reflection of cost differentials that can be vetted through a competitive market. The concern that we have is that, as you eliminate competition, you can use prioritization as a means for discriminating on the basis of value to the customer."

Scot Petersen says letting telcos charge premium access fees for different types of Internet content would be bad for users and bad for business. Click here to read his column. The most vocal opposition to the tiered pricing plan has come from large content providers, which would be the first targets for premium fees. The CEOs of, eBay, Google, Yahoo, Microsoft and IAC/ Interactive are urging Congress to pass a bill limiting network operators ability to manipulate what content and applications users have access to.

However, tiered pricing plans eventually would likely extend to all enterprises that rely on applications requiring high bandwidth and low latency, such as VOIP (voice over IP), collaboration and streaming video.

"Its a reasonable guess that if the network is divided into a fast lane and slow lane, increasingly the slow lane will be inadequate for the kinds of things people want to do on the Internet," said David Isenberg, a fellow at The Berkman Center for Internet & Society at Harvard Law School, in Cambridge, Mass. "Anybody whos serious about using the Internet for work purposes is probably going to want the fast lane."

In a pay-for-performance Internet, enterprises would have to worry not only about paying a premium to have their content delivered but also about paying a premium to several different ISPs at once.

"Any time the enterprise goes onto the Net or they do a little bit of e-commerce, they want to be able to reach all of their customers," Isenberg said. "They dont want to have to pay three different terminating ISPs in order to reach three sets."

The potential for the Bells to extend their market dominance from transport to content raises not only economic alarms but also First Amendment concerns. A diverse group of free-speech advocates and nonprofit organizations have joined large content providers to fight for enforceable rules on nondiscriminatory delivery.

Next Page: Coalition doubles in size.


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