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The Net Neutrality Quandry for Big Telecom: Fight or Deal?

03/18/2010 05:12 am ET | Updated May 25, 2011

It's The Morning After for Big Telecom, and it ain't pretty. For the past dozen years or so, under deregulatory Democrats and compliant corporate Republicans, Big Telecom has written telecommunications policy, starting with the Telecom Act in 1996 and continuing in a pretty much unbroken streak, until very recently.

They are used to winning, and winning big. And yesterday, they lost as the FCC approved a Net neutrality proposed rule. This morning, they are sitting around at the teleconferences and meeting rooms saying, "I can't believe that Genachowski actually did it. He actually did it." Meaning that FCC Chairman Julius Genachowski, barely four months in office, carried out a campaign pledge that he helped write to secure for us and our posterity an open, non-discriminatory Internet. The FCC voted to proceed with Net Neutrality rules.

Of course, all of their legions of lawyers are going over the Net Neutrality notice with a fine-tooth comb, telling their bosses how this language really is a win, and how that loophole can be exploited. They may even be right. There is some language in the proposed rules that Big Telecom should like. Paragraph 101, which asks for comment on whether Internet openness should be applied to "other entities," gives them a free shot at Google, regardless of the fact that Genachowski said the rules should apply to telecom networks. "Reasonable network management" is still somewhat amorphous, but then many things are. The rules are a mere two pages, sort of like comparing the 10 Commandments to the Code of Federal Regulations. (Or like the Jewish Talmud, in which passage of law is surrounded by pages of commentary.) There were any number of ways the FCC could have written the notice. They could have used the language from the AT&T takeover of BellSouth which prohibited prioritization of bits based on "source, ownership or destination." That could still happen, as this long process is just beginning.

But the execs don't want to hear it. They didn't want to have to deal with this. It wasn't as if Big Telecom didn't try to stop this from happening. As Cecilia Kang at the Washington Post, the Sunlight Foundation, and Bruce Kushnick at Teletruth documented, Big Telecom flashed a lot of cash. And that's part of the problem. With a few exceptions, many of those (and there probably were exceptions) who backed the Big Telecom anti-Net Neutrality position got paid by them to do it. The FCC can't acknowledge this publicly, of course, but they know it.

They pulled out all of the stops on a classic Congressional strategy, getting all the people on the payroll to try to pressure the FCC to back down. Letters rained down from Capitol Hill. The House Republican leadership came in. Joe Barton, the ranking member on Energy and Commerce wrote, as did the Republicans on the Committee with ridiculous demands and constructs for how the FCC ought to proceed. Some Republican Senators chipped in, although, this time more Democratic Senators signed a letter supporting Net Neutrality than did Republicans against it.

They even pulled out the old appropriations rider trick, in which a member, in this case Sen. Kay Bailey Hutchison (R-TX) floated an amendment that would prevent the FCC from spending money to create the Net Neutrality rules. She did this a month ago, when Genachowski first floated the Net Neutrality rulemaking. It was like bringing in a closer in the second inning - of a preseason game. Too bad there wasn't a germane bill on the Senate floor for her to amend. Sen. John McCain (R-AZ), the top recipient of telco money, introduced legislation to block the FCC from going forward.

Big Telecom even got 72 Democrats to sign a letter led by Verizon's Rep. Gregory Meeks (D-NY). At least one, Rep. Jared Polis (D-CO) has recanted, and others may as well. No doubt the Communications Workers of America (CWA) was involved because Democrats are suckers for labor, not knowing that while the union might fight tooth and nail against companies in negotiations, but are (and have been for years) suckers when it comes to telecom policy. They think siding with the companies will save jobs. It hasn't yet, but you know, hope springs eternal.

Big Telecom also pushed their grass-roots strategy. A bunch of nonprofits sent their cards and letters, too, although some of them should be more careful when sending in those telco-written form letters. (Note: There is nothing inherently wrong with non-profits accepting corporate contributions. Everyone has to have funds to do their jobs. It's when any group acts against their constituencies interest for said corporate coin that things get a little dicey.) And AT&T, at least, pressured its store managers into pumping the corporate line.

On the other side are CEOs, engineers, public interest, minority and citizen groups, to say nothing of all of those interested and active Netroots signing online petitions and tweeting support.

So here's the dilemma for big telecom. They have two options. First, fight like hell forever, aka FLHF strategy. They could delay the outcome of the net neutrality proceeding for five years. The way the Administrative Procedures Act works, once the rules are issued next summer (the comment cycles end in March), parties can then file a petition for reconsideration, which involves more comment cycles. They can take the Commission to court, first in the appellate district of their choice, which involves long briefing schedules and hearings and eventually a decision. Depending on the outcome, someone can ask the U.S. Supreme Court to take up the case, which takes even longer, rolling the dice on that outcome. At the same time, they can keep up the political pressure.

In following that strategy, Big Telecom can hope that President Obama is a one-term president, or at least that he won't have many more judicial appointees who might be hostile to them. They can, and likely will, work to cut down the Democratic Congressional majority or wipe it out entirely in the 2010 elections.

There are a couple of downsides. First, it costs money. That's not usually a problem. Unlike many Internet companies which view spending time and money in Washington as an intrusion, Big Telecom sees those expenditures as another cost of doing business like, say, building networks, another good use for the money. In the grand scheme of things, Big Telecom has to weigh whether the millions they will spend on politicians, interest groups, coin-operated "think tanks" and the rest will be offset by the millions they would make without having Net Neutrality rules.

There is a downside to the FLHF strategy. While all of these court challenges are going on, Big Telecom's behavior will be frozen. The FCC rules will stay in force absent a stay from a court. Even if the rules are held in abeyance, the real-world affect would be to put the companies under a constant microscope. Any hint of discriminatory behavior or favoritism would activate the Congressional Net Neutrality advocates, to say nothing of the activist public that would call for action once any anti-competitive plans are put into effect and, possibly the FCC if their authority to enforce the open Internet principles is upheld - another legal saga now playing out in a Comcast challenge. (Yes, there is a difference between discrimination, in which bits are managed in networks, and being anti-competitive. But that's another distraction issue. Net Neutrality is about discrimination as favoritism.)

The alternative is to cut a deal. Of course, the companies can bluster and fuss during the comment cycle, but then they could get real. The question is whether Genachowski will be amenable to something and, if he is, whether those fervent Net Neutrality supporters out there would accept it. But they should try. If the result is a 5-0 vote, rather than the expected 3-2, and the outcome speeds the process along, then everybody could, and the emphasis is on the "could" come out right.

At the moment, Big Telecom is of a couple of minds about things. Privately, they claim to be gleeful at the proposed rules, looking at all the loopholes. Publicly, their executives are all over the map. Verizon Chairman Ivan Seidenberg called Net Neutrality a "mistake, pure and simple" in a speech at the industry convention SupreComm. Verizon Wireless President Lowell McAdams issued a joint statement with Google Chairman Eric Schmidt that was generally conciliatory, although they agreed to disagree on the issue of whether new rules are needed. Verizon's chief lobbyist, Tom Tauke hit both points, saying the proposal was better than previous versions but warning against "further regulation of the Internet."

That talking point is important to take down immediately. No one is talking about the regulation of the Internet. The talk is about regulating those companies that provide access to the Internet (that paragraph 101 notwithstanding) and which have been regulated for most of their existence. It's understandable that they don't want to be re-regulated, but they shouldn't confuse the identities of the parties here. Big Telecom is not the Internet.

AT&T's Chief Technology Officer John Donovan said at a Supercomm speech that, "Outside applications need to be on an equal footing with our own applications." AT&T's chief lobbyist, James Cicconi, issued a statement following the meeting that said, in part, ""Over the past several weeks, we and many others have expressed concern that the FCC's original NPRM, as reported, would be significantly at odds with these objectives. Today's action by the FCC has allayed number of our concerns, and while there are crucial issues remaining, we are encouraged by the Commission's action. In particular, we appreciate that Chairman Genachowski has demonstrated that he is open to the industry's concerns and willing to address those he feels have merit."

The days after the Morning After will certainly be interesting as the game progresses.