Imagine an Internet for which consumers paid a low price for basic service and higher prices for add-ons like 3D video. Or imagine if Comcast (CMCSA), now seeking approval to acquire NBC Universal, allowed its customers to download Universal movies at superfast speeds, while relegating the latest Harry Potter film from rival Time Warner (TWX) to the slow lane.
Open-Internet advocates say such cable-television-like tiered services and virtual toll booths would violate "Net neutrality," the concept that all information coursing across the Web is equal.
Like it or not, Net neutrality may soon be ending. No one senses this more acutely than Julius Genachowski. Ever since a federal court ruling in April gutted his power to regulate Internet service providers, the Federal Communications Commission chairman has struggled to regain authority over carriers like AT&T (T), Verizon, and Comcast by proposing new rules and holding closed-door talks with industry players.
His predicament deepened on Aug. 9 when the chief executive officers of Google (GOOG) and Verizon Communications (VZ), Eric Schmidt and Ivan G. Seidenberg, suggested that the industry follow Net neutrality, but only up to a point. They would exempt from open-access rules wireless networks and any "managed services" delivered over wires, such as health-care monitoring, special entertainment events, and gambling. The CEOs offered as an example an opera performance streamed in 3D over the Web; Verizon would be paid a premium to send the program more quickly and at higher quality to opera buffs.
Now, with Congress unable to agree on whether to stop companies from carving up the Internet, Genachowski is left with few choices. He wants to uphold President Barack Obama's campaign pledge to protect the open Web, even as the industry gets set to impose restrictions. The Google-Verizon plan hit like "a tidal wave" because Google had been "a very strong supporter of Net neutrality," Darrell West, vice-president of governance studies at the Brookings Institution, told Bloomberg TV. Google seems to be laying the groundwork for tiered pricing, he added. "The Internet is going to become more like other parts of the economy," he said.
Google's Schmidt defends the proposal: "We're trying to show some leadership. I have no objection to other people trying to show some leadership, too, but something's got to happen." He says it was "pleasantly surprising" that Verizon was willing to agree to clear Net-neutrality goals for its wired business. "They're serious," Schmidt says of Verizon. The managed-services exemption, he says, merely recognizes what Verizon already offers through its paid Fios broadband service for Internet, phone, and TV.
Public-interest groups heaped scorn on such ideas. Joel Kelsey, political adviser for Washington-based consumer advocacy group Free Press, says the pact "would give companies like Verizon, Comcast, and AT&T the right to decide which content will move fast and which should be slowed down." Others criticized Google for its seeming abandonment of the open Web. "Google has taken a big step back in people's eyes," says Craig Moffett, an analyst with New York-based Sanford C. Bernstein (AB). "The company that's supposed to not be evil is suddenly being characterized by the Net-neutrality crowd as the arch-villain."
The FCC tried to strike its own accord in talks with the industry that began in June. Unable to reach a consensus, Genachowski ended the discussions on Aug. 5. "Any deal that doesn't preserve the freedom and openness of the Internet for consumers and entrepreneurs will be unacceptable," he told reporters. He declined to comment on the Google-Verizon deal, spokeswoman Jen Howard said in an e-mail.
The chairman, an Obama appointee who leads a 3-2 Democratic majority, could argue that rules written for telephone service contain the authority he needs to require that Internet providers treat traffic equally. If he tries to apply phone rules to broadband, carriers and congressional Republicans would protest. Cable and phone companies fear that phone-style rules could lead to rate regulation. The companies warn that would delay investments to upgrade the Internet. If Genachowski goes that route, "he's going to be sued," says Representative Cliff Stearns of Florida, the top Republican on the House subcommittee on communications, technology, and the Internet. "We're not going to get innovation if the government steps in."
Genachowski declines to say when he might put phone-style rules to a vote by the FCC. "He needs to act swiftly," says Gigi Sohn, president of Public Knowledge, a Washington-based group that favors Net neutrality. "The more he delays, the more he gives the opposition time."
The bottom line: Broadband Internet carriers and content companies are moving quickly to impose tiered pricing on the Web.
Shields is a reporter for Bloomberg News. Stone is a reporter for Bloomberg Businessweek.
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