AT&T’s 4 Cents and the Wall Street Journal Link Broadband and Net Neutrality
AT&T’s 4 Cents and the Wall Street Journal Link Broadband and Net Neutrality
AT&T’s 4 Cents and the Wall Street Journal Link Broadband and Net Neutrality

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    A little-noticed financial blurb from AT&T and a recent page-one story in the Wall Street Journal have an important connection. Each tells a piece of the story about the challenges of trying to achieve the two big tech goals of the incoming Obama team – Net Neutrality and more deployment of broadband.

    The great debate over Net Neutrality was kicked off in a little over three years ago by Edward Whitacre, the then-chairman of the then-SBC (now AT&T) asserted in an interview with Business Week his company’s ownership and control over the Internet.

    Now, we have the 2008 version of the Whitacre interview, in the form of a front-page story in the Wall Street Journal asserting that Google, a prominent defender of Net Neutrality, was attempting to sell out its allies and the non-discriminatory principles of Net Neutrality. The story channeled Whitacre, if not the current management of AT&T, in its approach to the Internet as an environment dominated by large companies, rather than built up by the participation of millions of people.

    The story asserted, among other items, not only that Google was trying to cut its own deal for a “fast lane” for its Internet traffic, but that a leading Net Neutrality advocate, Law Professor Lawrence Lessig, had shifted his views and, as a result, softened the Obama-Biden view of Net Neutrality.

    As it happened, not a couple of days earlier, AT&T announced that it was raising its dividend a week after announcing the layoffs of 12,000 workers. That one little financial activity will cost around $200 million. While it reflects “returning value to stockholders,” as AT&T Chairman Randall Stephenson said, it doesn’t do much to help the deployment of broadband. It was a year ago that AT&T raised its dividend by 12.7% and authorized the repurchase of 400 million shares at a time when the stock was about $40 per share. (It’s now around $28 per share.)

    The Journal story and the dividend story each in its own way served as a spark to the Net Neutrality debate and, not in a good way for AT&T and the other opponents of an open, non-discriminatory Internet. The Journal story also should serve as an object lesson for reporters and editors who venture into the telecom world.

    By shopping a story about Google to the Wall Street Journal and, possibly to other publications, the source of the story tried to drive a wedge between allies working for a non-discriminatory Internet. The story, that Google was seeking to emasculate Net Neutrality by selling out its allies (which would include PK) and create its own non-neutral telecom network, would be a blockbuster – if only it were true.

    Regardless of the facts, opponents of Net Neutrality are shopping the story around Washington as evidence that the pro-Net Neutrality coalition is fraying. Unfortunately, the anonymous leakers were too clever by half. They not only energized the pro-Net Neutrality forces in the pre-Inauguration lull, they also managed to make the Wall Street Journal look bad because of some erroneous assumptions underlying the story.

    The one positive outcome of the story was to help clarify what is, and what is not, commonly thought of as Net Neutrality through the many, many denunciations of the story, including ours, but also in any number of tech publications, including Wired and DSL Reports, and in general media from Reuters to Dow Jones.

    At its most basic, Net Neutrality is about the ability of the company that delivers the Internet to your door – primarily the telephone or cable company – to play games with the traffic so that favored bits get delivered more quickly than unfortunate ones. As the Federal Communications Commission (FCC) put it as part of AT&T’s takeover of BellSouth, a company can’t discriminate on the basis of source, ownership or destination of bits.

    That definition, which works fairly well, doesn’t create a world in which everyone on the Internet is created equal in the whole of the big wide telecom ecostructure. It applies to the last mile delivery, and whether telephone and cable companies impose their values (defined by financial interest or otherwise) on the traffic.

    What Google is doing lies outside of that view of Net Neutrality. The Google program uses external caching to locate data closer to users. This is a common practice among large Internet companies, and among the former long-distance companies. Google wants to put its data servers in telephone company switching offices, and the Journal story assumed that placement was a violation of Net Neutrality because of the telephone company involvement.

    The Google caching is at the edge of the network, not in the middle between the consumer and the data the consumer wants. The fact that the Google server would be put in a telephone company switching office is irrelevant for Net Neutrality purposes. Given the speed of data transmission today, it really doesn’t matter whether the Google server is in the telephone company facility or nearby outside. What matters is that even with the Google server sitting in the telephone company facility, the telephone company isn’t discriminating in the traffic flow by prioritizing Google’s (or anyone else’s) bits over others.

    Does Google putting servers (which it says it will make available to others) in a telephone company facility give it any advantages? Certainly, but that advantage is in the saving of transport costs, not in data speeds, and certainly not in the sense of creating a priority for Google traffic over other traffic.

    It’s crucial to recognize that Net Neutrality doesn’t posit a world in which all things are equal. Of course Google, or IAC, or eBay or Amazon or any other large company has lots of advantages over smaller companies in their telecom networking. There’s nothing wrong with that. An advantage in servers or networking, however, does not translate into a Net Neutrality issue, even if that service is the locating of a server in a telephone company switching office.

    Those Net Neutrality opponents who are shopping the Journal story around Capitol Hill would be wise to realize that. They should realize the story in no way shows a weakening of the resolve of those of us who favor a free, open and non-discriminatory Internet. The issue simply isn’t there, and they were foolish to try to make one up where none exists.

    On the other hand, as the Obama Administration-in-waiting works on plans to come up with a comprehensive broadband policy, the AT&T financial announcements show just how hard the problem will be. Broadband expansion is not like building a highway. Roads are built by governments – federal, state and local. The governments decide where the road goes, when it gets built, how many lanes it will be and what the toll (if any) will be.

    For the most part (municipal projects excluded), broadband deployment is controlled by the private sector, and most government policy hasn’t tried to force companies into expanding their networks. If AT&T wants to invest billions of non-productive dollars into a stock-pumping exercise instead of putting the money toward deploying broadband, there’s little the government at the moment will do to force the issue.

    There are lots of suggestions for how to address the issue of bringing broadband to unserved and underserved areas, with many ideas for tax incentives and subsidies floating around. At the same time, massive corporate-welfare programs for otherwise healthy companies are not going to sit well with Congress or the public.

    The best strategy for some telecom companies is to realize that they should perhaps try a little harder to adapt to a new climate that will look at the public benefits of broadband and the public responsibilities of private companies.