The corporate toll on the Internet

Telecom giant AT&T plans to charge online businesses to speed their services through its DSL lines. Critics say the scheme violates every principle of the Internet, favors deep-pocketed companies, and is bound to limit what we see and hear online.

By Farhad Manjoo

Read more: Internet, Technology & Business, AT&T, Broadband, Farhad Manjoo

April 17, 2006 | To say that AT&T was once the nation's largest phone company is a bit like describing the Pentagon as America's leading purchaser of guns and bullets. Until its government-imposed dissolution in 1984, AT&T, which provided a dial tone to the vast majority of Americans, enjoyed a market dominance unlike that of any corporation in modern history, rivaling only state monopolies -- think of the Soviet airline or the British East India Tea Company -- in size and scope. In commercials, the company encouraged us to reach out and touch someone; the reality was that for much of the 20th century, you had no choice but to let AT&T touch your loved ones for you.

Now -- after a series of acquisitions and re-acquisitions so tangled it would take Herodotus to adequately chronicle them -- AT&T is back, it's big, and according to consumer advocates and some of the nation's largest technology companies, AT&T wants to take over the Internet.

The critics -- including Apple, Amazon, eBay, Google, Microsoft and Yahoo -- point out that AT&T, along with Verizon and Comcast, its main rivals in the telecom business, will dominate the U.S. market for residential high-speed Internet service for the foreseeable future. Currently, that market is worth $20 billion, and according to the Federal Communications Commission, the major "incumbent" phone and cable companies -- such as AT&T -- control 98 percent of the business. Telecom industry critics say that these giants gained their power through years of deregulation and lax government oversight. Now many fear that the phone and cable firms, with their enormous market power, will hold enormous sway over what Americans do online.

Specifically, AT&T has hinted that it plans to charge Web companies a kind of toll to send data at the highest speeds down DSL lines into its subscribers' homes. The plan would make AT&T a gatekeeper of media in your home. Under the proposal, the tens of millions of people who get their Internet service from AT&T might only be able to access heavy-bandwidth applications -- such as audio, video and Internet phone service -- from the companies that have paid AT&T a fee. Meanwhile, firms that don't pay -- perhaps Google, Yahoo, Skype, YouTube, Salon, or anyone else -- would be forced to use a smaller and slower section of the AT&T network, what Internet pioneer Vint Cerf calls a "dirt road" on the Internet. AT&T's idea, its critics say, would shrink the vast playground of the Internet into something resembling the corporate strip mall of cable TV.

The fears have been deepened by AT&T's new heft. Early in March, AT&T announced that it will spend $67 billion to acquire BellSouth, the phone company that serves nine states in the Southeast. The merger will make AT&T the nation's largest telecom company, and the seventh-largest corporation of any kind. According to one study, the new AT&T will take in almost a quarter of all money American households spend on communications services. In addition to maintaining a near monopoly on local phone and DSL service in 22 states, the new AT&T would provide land-line long-distance service throughout the country; cellular coverage through its subsidiary Cingular, the nation's largest wireless carrier; and soon, even television broadcasts to millions of Americans.

The government is expected to approve the AT&T-BellSouth deal, but the merger has already prompted debate in Congress and at the FCC over how this new behemoth may control content online. Currently, there are few rules governing what broadband companies can do on their network lines; if AT&T wanted to, for instance, it could give you only slowed-down access to the iTunes store unless Apple paid it a cut of every song you buy.

To fight back, online companies like Apple and Amazon, along with Internet policy experts and engineers, are pushing the government to draw up a set of rules to ensure what they call "network neutrality." The rules, debated this past February in a Senate hearing, would force broadband companies to treat all data on the Internet equally, preventing them from charging content companies for priority delivery into your house. AT&T and other broadband companies oppose laws to restrict how they operate online -- the free market, they say, will ensure an even playing field. In 2005, phone companies poured nearly $30 million into lobbying to ensure that the telecom industry remains free of regulation.

The battle may sound wonky but its outcome could well determine the shape of tomorrow's media universe. Increasingly, we're all using the Internet for much more than surfing the Web; film, music, TV and phone companies are looking at the network as the primary channel for delivering media into our homes, and AT&T and other telecom firms are spending billions to deploy deliciously fast fiber-optic lines to handle the expected traffic. The regulatory tangle between broadband providers and Web companies over network neutrality reflects a more fundamental fight over precious communications real estate -- a battle for control of the lines that will serve as our main conduit for media in the future.

Each side predicts dire consequences if its opponents win. Jim Ciccone, AT&T's senior executive vice president for external affairs, says that if broadband service is regulated, AT&T won't be able to recoup its costs for building these new lines -- "and then we don't build the network." The Web firms say that if the big broadband companies are allowed to charge content firms for access to your house, we'll see the Internet go the way of other deregulated media -- just like TV and radio, where a small band of big companies used their wealth to swallow up consumer choice. If broadband companies get their way, says Jeff Chester of the Center for Digital Democracy, the Internet will one day feature nothing much more exciting than "the digital equivalent of endless episodes of 'I Love Lucy.'"

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