How FCC Bungling Led to the Google-Verizon Net Neutrality Deal

For nearly two months recently, the Federal Communications Commission convened closed-door talks between powerful broadband and Internet companies, hoping to deliver a compromise on net neutrality that Congress would find palatable.

In the end, the process collapsed after Verizon (VZ) and Google (GOOG) bailed out of the talks and agreed to forge their own proposal. After years of dithering by the FCC, it finally took two private companies to ditch the feckless feds, sit down and actually hammer out a deal (here's an in-depth look at the Google-Verizon net neutrality deal).

Back on the presidential campaign trail, a righteous-sounding President Obama declared that he would "take a back seat to no one" on the issue of net neutrality, a broad, foundational principle of the Internet that essentially means broadband providers can't restrict or block access to legal websites or favor their own services over rivals'.

In April, however, a federal appeals court said the FCC lacked the power to enforce net neutrality, throwing the agency's ambitious National Broadband Plan into chaos. Obama's old Harvard law school chum, Julius Genachowski (pictured), whom the president tapped to head the FCC, has gotten off to a rocky start.

"It's obviously been a really tough year for Genachowski," says Art Brodsky, communications director of Public Knowledge, a D.C.-based net neutrality advocacy group. "He came into office with a great deal of momentum and political capital, and he allowed himself to get beaten, bullied and pushed around by everyone from Congress to the industry."

An FCC spokesperson did not return a request for comment.

Codifying Accepted Practice

In the early years of the Bush administration, the FCC, then led by Clinton-appointee Michael Powell, classified broadband Internet -- which was still in relative infancy -- as a Title I "information service," which severely limited the agency's ability to regulate broadband providers. In 2005, Powell enumerated four "principles," that, while not binding, were supposed to protect consumers from network abuse by carriers, such as traffic-blocking, which is simply cutting it off, or traffic-throttling, which is a slowing down of high-bandwidth traffic and a means of prioritizing it.

Powell's principles weren't really new, they certainly weren't regulations and, as it turns out, they weren't even enforceable. The principles were simply meant to codify how the Internet had operated during its explosive growth -- free, open and unfettered -- allowing Google, Facebook and Twitter and many others to transform from tiny start-ups into billion-dollar companies in less than a decade.

In 2008, FCC Chairman Kevin Martin, a Bush appointee, decided to use Powell's principles to sanction Comcast (CMCSA) for blocking certain Internet traffic. But Martin was totally wrong. Comcast admitted to throttling peer-to-peer traffic, but as many pro-net neutrality advocates feared, the FCC did not, in fact, have the authority to enforce Powell's original four principles, as a federal court ruled in April.

Comcast had won, and Martin's attempt to use Powell's principles had failed. Suddenly, the now-Genachowski-led FCC lacked the authority to enforce its own rules. In general, when regulators lack the authority to enforce their own rules, they can be thought of as dysfunctional.

No Help From Congress

"The decision has forced the FCC into an existential crisis, leaving the agency unable to protect consumers in the broadband marketplace, and unable to implement the National Broadband Plan," S. Derek Turner, research director for pro-net neutrality group Free Press, said at the time.

To be fair, the FCC certainly hasn't gotten any help from Congress, which is bitterly divided over net neutrality. Telecom and cable lobbyists have a reliable cadre of powerful lawmakers they can call on to advance their agenda -- and that agenda doesn't include net neutrality. AT&T (T) and other major broadband interests have donated $400,000 to six Republican senators who have consistently rejected net neutrality legislation.

After Comcast's legal victory, Chairman Genachowski proposed a so-called "third way," which would reclassify broadband as a "communications service," thus regaining jurisdiction for the FCC over broadband. But that idea was about as popular among lawmakers during an election year as a bonfire in hell. However, many public interest groups support that approach.

In general, the big broadband providers have opposed net neutrality because, they say, Google (especially bandwidth-hogging YouTube) and other powerful Web companies like Facebook are getting a "free ride" on the "pipes" the carriers invested billions to build. (Google counters that like everyone else, it pays for Internet access.) Some industry executives envision a future Internet more akin to how cable TV now operates. Customers can buy a package of basic services. Or they can pay more, and more and more to get the truly premium experience with all the extra content, like multiple HBO and Showtime channels.

"There has almost been a theological tone to this conversation," says an industry source. "Proponents of net neutrality really think they're right about everything, and opponents really think they're right about everything."

Big on Ambition, Short on Results

Perhaps the biggest obstacle to sensible broadband management policies, however, has been the FCC itself. While often well-intentioned, it has watched its own "open Internet policy" slowly, but systematically, crumble over the course of the last five years.

Last year, Obama tasked Genachowski with a bold agenda in three areas: expand broadband to rural areas and raise speeds, establish a world-class emergency communications system and push for net neutrality. (As then-candidate Obama's top tech adviser, Genchowski helped craft the campaign's lofty net neutrality promises.)

Thirteen months into his tenure, Genachowski has made very uneven progress in those areas. He can't be blamed for the actions of his predecessors Powell and Martin, but his lawyers did lose the landmark Comcast case, which threw out the agency's authority to regulate the Internet and enforce net neutrality.

"Chairman Genachowski's tenure thus far has been characterized by two things: A reluctance to act decisively on the communications issues of our time -- net neutrality and universal access -- and an apparent tone-deafness to the public outcry on these same issues," says Tim Karr, campaign director for Free Press, a Washington, D.C.-based group that supports net neutrality.

Closed-Door, Open Internet Talks

Then, Genachowski allowed his Chief of Staff Edward Lazarus, an entertainment lawyer from Los Angeles, to convene the now-infamous closed-door, private "negotiations" about net neutrality with AT&T, Verizon, Google, Skype and the Open Internet Coalition, a consortium of Internet companies and public interest groups. The irony of closed-door, open Internet negotiations wasn't lost on many. After Lazarus unilaterally waived the agency's standard disclosure rules, which require the FCC to provide documentation of all meetings or discussions related to rule-making, public interest groups howled at the lack of transparency.

"Those negotiations were nonsense," says Brodsky. "Eddie Lazarus pushed that deal, and it blew up in his face. He pushed Verizon and Google together and got this toxic nonsense that blew up net neutrality for half the internet, the wireless side."

Lazarus's project exploded in failure after two of the key participants, Google and Verizon, yanked their marbles and struck their own deal, which they had been working for one year to achieve -- well before and then in parallel -- with the closed-door FCC talks. Lazarus apparently thought that he could broker a compromise on one of the most contentious policy issues in Washington and hand a ready-made legislative plan to lawmakers on a platter.

A Decision That Can Make or Break a Legacy

But where was his boss, Chairman Genachowski, during this process? For at least one weekend, at least, he was on the guest list for the Allen & Co. Sun Valley conference to hobnob with the very mega media moguls he's supposed to be regulating -- including determining media ownership rules and approving multibillion-dollar mergers, such as the pending Comcast-NBC Universal transaction.

"Genachowski now faces a choice, and his legacy as chair rests on his decision," says Karr. "Will he be true to Internet users and restore the agency's power to protect an open and accessible Internet? Or will he buckle to pressure from the phone and cable companies and look the other way as they undermine the Internet's democratic nature?"

Given the lack of progress on net neutrality at the FCC -- and a paralyzed Congress -- is it any wonder that Google and Verizon essentially said, to hell with these guys, let's do our own thing?

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