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December 29, 2006

Beware the Fine Print Buried in the AT&T-BellSouth Merger “Concessions”?

Many pundits will likely claim that the concessions put forward by AT&T last night in order to gain merger approval before the end of the year advance the cause of Net Neutrality and the open Internet. Most in DC policy circles are likely to point to the concessions as the last best chance for the Internet application providers to gain meaningful Net Neutrality provisions and to preserve the open nature of the Internet. The logic goes that AT&T is pretty desperate to get their merger resolved before Jan. 1, which would suggest that, today, AT&T should be willing to make significant concessions that it otherwise might not make if it had the luxury of time. Afterall, AT&T essentially promised Wall Street that the merger would be done by year's end.

But are the concessions a bona fide commitment to meaningful Net Neutrality going forward or merely the “sleeves off the vest” of AT&T as it builds out its new network for “IPTV”? Won’t this network ultimately become AT&T’s broadband Internet access network and communications network of tomorrow? And hasn’t AT&T simply sequestered its new network from Net Neutrality obligations?

I know it's a tough balance to strike. I know the Net Neutrality forces have worked tirelessly to get meaningful concessions in the context of the AT&T-BellSouth merger. And, I know Commissioners Copps and Adelstein have fought vigorously to incorporate meaningful Net Neutrality provisions into the merger conditions.

I, however, do fear that, in the long run, AT&T might have given up nothing to the FCC, nothing to the Internet application providers, nothing to the users of the Internet and broadband networks.

A few years ago, the Bell Companies, in the context of a prior FCC proceeding, generally agreed (or were ordered by the FCC, depending on your view of the lobbying and regulatory process) to continue to unbundle “copper” networks, but would be largely free not to unbundled new fiber networks. If all the new networks are fiber, then, in time, no unbundling obligations would persist. Perhaps this was a “fair” compromise (if the goal was to give the Bells sufficient incentive to build out fiber networks), but should the same exemption apply to Net Neutrality in a world where the entire AT&T network might (perhaps hopefully) be an “all-IPTV” network?

Advocates and pundits will differ widely. Some will argue that Net Neutrality was never intended to apply to IPTV networks – that the IPTV network too closely resembles a cable network, and that the Bells should be free to cut exclusive or discriminatory deals with content channels. Imposition of such rules to channel content on IPTV networks might tend to wrap us in all sorts of tortured discussions about Internet must-carry and redound in “Internet” regulation and other unwanted government oversight. Perhaps, the forces for the Internet application providers got as much as they could reasonably hope to achieve and avoid opening a new can of legal, regulatory and operational worms. Their approach centered around ensuring, to the fullest extent possible, a neutral pipe alternative to AT&T’s IPTV service, for things like new video and other Internet applications that will ride over the top of AT&T’s broadband-ready pipes.

But, if the entire network becomes an "IPTV" network, then is AT&T’s commitment to Net Neutrality largely irrelevant to the new network, and are the Internet application providers living in a pipe dream?

The theoretically correct or pure answer might have been to apply Net Neutrality to the entire pipe. We, however, might have to acknowledge that, if we urge that result, we would have upset the existing cable content delivery model. If we applied a wider application of Net Neutrality, would we become enmeshed in all sorts of questions about whether existing cable/programming relationships? For example, cable guys currently have the right to discriminate against unaffiliated set top boxes. I don’t really believe that such tacit discrimination is the best answer for consumers in the long-run, but if Net Neutrality applied to cable, we would have essentially upended that rule too. Instead, the attitude of the Net Neutrality forces seems to be “why not have ‘Carterfone for the Internet’ and achieve a similar result through a less siloed model that doesn’t come with all the baggage that cable regulation includes? In the end, I think what the pro-Net Neutrality forces are trying to do with Net Neutrality is create an entirely new, Internet-ready policy environment that doesn’t get bogged down in existing silos.

Is the better position for the Internet application forces to grab as many positive policy statements for Net Neutrality, wherever possible, and to live to fight another day? Should we simply be working to allow some semblance of an open Internet application model to exist wherever it may, and to allow the power of the user-controlled open Internet to slowly but surely overtake the spoon-fed cable content delivery model that cable and the Bells will try to subject on users. Users will still get some taste for the promise of the open Internet and user empowerment and, as they taste it more and more, the cable and IPTV spoon-fed model will be replaced with an open Internet model. Perhaps we don't need to pry open their closed network approach. Perhaps the door will slowly open wider over time.. Or, perhaps, this is just wishful thinking.

***

In any event, I thought I should share Dave Burstein’s parsing of AT&T’s concessions and his take on the potential implications of the merger commitment:

“I call them the black ninjas. They work by night and are very, very good.” FCC Chairman Bill Kennard explaining telco lobbyists

“Jim Cicconi and Bob Quinn are the best lobbyists in Washington,” President of SBC `Bill Daley lamented after they beat him a while back. They now work for AT&T, and have proven their brilliance by convincing most of D.C. they accepted network Neutrality to get the BellSouth merger approved, while burying on page 10 a sentence that made their concession almost meaningless. Their proposal came out Thursday night and I’ve worked all night. Apologies to non-U.S. readers for putting this first, but AP reports they plan to sneak it through Friday before the holiday.

AT&T offer on Net Neutrality sounds good, and might be a model to countries like Japan that are considering Net Neutrality rules. AT&T agreed “not to provide … any service that privileges, degrades or prioritizes any packet transmitted over AT&T/BellSouth's wireline broadband Internet access service based on its source, ownership or destination.”

A seemingly innocuous later sentence effectively makes that almost meaningless. “This commitment also does not apply to AT&T/BellSouth's Internet Protocol television (IPTV) service.” AT&T has always intended to give paying customers priority by routing them over the “IPTV” part of their network, with Alcatel routers and Microsoft software designed for QOS. They don’t even have the equipment for that kind of QOS on what they call “wireline broadband Internet access service.” The lawyers fighting this in D.C. won’t even discover they’ve been bamboozled until afterwards if the commission goes ahead and rushes this through. The entire set of “concessions” remains so insignificant that Merrill Lynch’s “immaterial” judgment still holds.

The other stuff in the 20 pages adds surprisingly little substance. For example, the 85% DSL promise happens to be the level BellSouth has already reached. Most of the special access rates they agreed to freeze are ones AT&T CEO, Rick Lindner, told Wall Street “have been declining as a result of competition.”

Incredibly effective persuasion, which at least in early drafts even bamboozled public interest advocates and Commission Democrats. With luck, they’ll analyze the final filing, released late Thursday, before making up their mind. It would be scandalous if an $85B merger goes through on terms revealed only 12 hours before.

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Only time will tell which pundits will be proven correct. Time might also demonstrate that this was our last best chance to preserve and advance the open Internet and the ability of users to control and maximize their communications and Internet experience without subjugation to an interceding gatekeeper.

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Posted by jeff on December 29, 2006 10:46 AM | Permalink

Additional resources: Internet TV Online Guide @ Network2.tv | Voice on the Net Conference | Video on the Net Conference

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Posted by: theshoesbargains at May 14, 2007 09:21 AM

Judging from the express reservation of the IPTV AT&T network, I bet we'll see a dispute about whether fiber is included. First would fiber be included as part of wireline Internet access when the FCC has made a copper/glass and legacy/new field distinction? Second why would AT&T expressly take Uverse/IPTV networks off the table if they didn't think they were safeguarding fiber? Third what difference does it make when the FCC has abdicated any responsibility for oversight of information networks beyond CALEA and E911?

AT&T has a conditional net neutrality commitment from the IXP closest to the end user onward to the enduser. So it has no net neutrality responsibility upstream and may have offer superior QOS guarantees such that Content Provider A's bits always get to the IXP on "better than best efforts terms." That may not trouble me, but going to the point about the scope of AT&T's commitment, I'm not sure they have offered much, particularly since AT&T probably will self provision to the closest IXP and may do so onward.

Posted by: Rob Frieden at January 4, 2007 08:48 AM

Before getting too excited about the precedent in AT&T's anti-discrimination offer, it seems to me that "based on its source, ownership or destination" does not restrict AT&T fom discriminating on the basis of application (eg. over-the-top VoIP, peer-to-peer, etc.).

The offer, combined with the rest of the package (including job repatriation) was sufficient to get approval while allowing the hold-outs to save face.

I have a few posts about this on my blog.

Posted by: Mark Goldberg at December 30, 2006 06:12 PM

Couldn't agree with you more. It may be positively harmful to have this become the de facto definiton of net neutrality.

Not only is IPTV exempted but so is the whole portion of the Internet backbone operated by at&t; the "concessions" apply just to the access network.

I blogged more analysis of the at&t doc at http://blog.tomevslin.com/2006/12/att_gives_both_.html

Posted by: Tom Evslin at December 29, 2006 12:11 PM

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