A Midsummer Net Scheme? Telecom Lobbyists Hold Secret Internet Talks

Washington, D.C., can get hot and muggy in August, which is why lawmakers leave for most of the month, and many staffers, lobbyists and other industry-types also clear out of town in search of cooler climes.

But there is something odd going on right now in Washington. Representatives of some of the nation's largest technology companies have been summoned to the K Street offices of the Information Technology Industry Council, a venerable industry organization that lobbies the government on behalf of a wide variety of tech giants, including Microsoft (MSFT), Oracle (ORCL), Cisco (CSCO), Apple (AAPL), Hewlett Packard (HPQ) and Dell (DELL).

The ITI is hosting an apparently hastily-convened series of discussions led by industry lobbyists on the future of national broadband policy, and specifically the red-hot issue of net neutrality: the concept that broadband providers shouldn't discriminate against rival content. The meetings, first reported on by The Wall Street Journal, follow a failed attempt by the Federal Communications Commission to achieve a consensus between powerful Web and telecom companies, which foundered after Google (GOOG) and Verizon (VZ) bailed on the agency's closed-door talks and struck their own deal.

The Google-Verizon proposal in its most basic form is this: Net Neutrality applies to the wired Internet, but not the wireless Internet. And it would create a separate, non-public "managed services" network that would not be bound by net neutrality -- a private, high-speed broadband system for high-paying customers. Critics say the next Google, YouTube, Facebook, or Twitter could never afford to be hatched on such a private network.

A "Pep Rally" to Bolster Industry Support

The ITI is "the premiere voice, advocate, and thought leader for the information and communications technology sector," according to Dean Garfield, the organization's president and CEO. Founded nearly a century ago, a Google search refers to ITI as a "lobbying agency that advocates rewarding IT innovation and supports free-market policies."

The ITI is hosting the meetings, but it appears they're being held at the request of Verizon, AT&T, (T) and the National Cable and Telecommunications Association, the giant industry trade group. The ITI is an an odd venue, because most of its member companies have steered clear of the net neutrality debate, including industry giant Microsoft, which has been quite muted during the broadband policy wars. Microsoft is, however, attending the meeting. Others ITI members, including giants such as Kodak (EK), Sony (SNE), and Corning (GLW) have been completely absent from the debate.

One industry source speculated that AT&T and Verizon, having failed to sell the Google-Verizon deal to the FCC, let alone the public, are using these meetings as "a pep rally" to bolster support among other tech industry giants before pushing for legislation. AT&T has recently offered comments supportive of the Google-Verizon deal.

An ITI spokesperson confirmed the talks are ongoing, and described the closed-door meetings as "a series of focused discussions, with ITI serving as facilitator, aimed at developing Internet openness principles that can achieve broad cross-sector support." The spokesperson refused to confirm the meetings' participants. The talks will continue Monday, according to a source with knowledge of the matter.

No One Representing Consumers

Public interest groups, including Public Knowledge and Free Press -- among the most vocal pro-net neutrality advocates -- were not invited to the meetings. The Open Internet Coalition, a group which includes Google, Facebook and Amazon (AMZN), is not participating at present. Neither is Google, which is still smarting over the PR drubbing it took over its deal with Verizon.

Also not participating is the FCC, which is charged with regulating the communications industry in the U.S., although it said it's "glad that there is ongoing dialogue" -- which could be interpreted as tacit approval of the process.

Public interest groups say there is no one representing consumers at the talks.

"These 'negotiations' are illegitimate," Media Access Project Policy Director Andrew Jay Schwartzman said flatly. "They do not involve representatives of people who use the Internet for free expression and commerce, and they lack representation from the infant businesses that depend on an open Internet to build the future Ciscos, Microsofts, and Skypes."

On the Outside, Looking In: A Q&A with Harold Feld

spoke with Harold Feld, an expert in Internet law and the outspoken legal director of Public Knowledge, one of the excluded groups, for a looking-in-from-the-outside perspective.

DailyFinance: Your group wasn't invited to these broadband policy meetings convened by ITI that include Verizon, AT&T, the NCTA, Microsoft, Cisco, and others. Any guess what's going on in there?
Harold Feld: These guys have reached more of a consensus than anything that came out of [FCC] Chairman [Julius] Genachowski's office because they all agree with each other. It is likely that they come up with something that is utterly unacceptable. Either Chairman Genachowski tries to embrace it, in which case he takes a real hit. Or there is something like the public reaction to the Google-Verizon deal, and they continue to just sit there like nothing happened. Or when he gets presented with something that is obviously inadequate he can say, 'This is obviously inadequate and we need to act decisively.'

A key part of the Google-Verizon proposal refers to "managed services," a non-public Internet where the major content companies could buy prioritized, high-speed access to consumers. What impact would have that have on Web startups?
The cable TV universe provides an excellent example of what might happen. The big boys can take care of themselves and now there are really no more independents left. And that's the universe we're looking at if we can do "managed services" and call it that instead of prioritization.

How would a separate, "managed services" Internet change the economics, particularly the investment incentives, of the business?

If I'm the provider and all I'm going to get is the subscription fee, am I going to invest in public broadband, or am I going to invest in managed services where I'm going to get the subscription, plus payment from the content companies for the managed service?

Google, a Web company, and Verizon, a telecom giant, are traditional rivals on net neutrality. Why do you think they came together to make that deal?
We've seen Google and Verizon working closer together, particularly as Verizon has come to see the Droid as an answer to the iPhone. So there's a strong business interest there. Google may have just become frustrated. They might have concluded, "Nothing is happening, there's no indication that anything is happening, so let's just make a deal that will work."

I think the Google guys think they are big enough that Verizon isn't going to mess with them because they need Android as a counterbalance to the iPhone. They've seen that Apple has AT&T by the throat just as much as AT&T has Apple by the throat. Android is huge in the industry. They could be the Microsoft of the wireless industry. So they [Google] think they'll be the ones who can help dictate the terms.

The FCC talks, led by Chairman Julius Genachowski's chief of staff, Edward Lazarus, blew up after Google and Verizon struck their own deal. What is the role of the FCC in these new ITIC talks?
["While we're not involved in these new discussions, we're glad that there is ongoing dialogue," the FCC said in a statement.]
Whether the chairman's office has actively tried to get these guys to start up the talks again or they've signaled that they're looking for somebody to work out a compromise, it's just kind of sad at this point. First, the public reception to the Google-Verizon proposal was that people flipped out about two huge companies dividing the Internet up. Do you think it looks better by adding Microsoft, Cisco and Oracle? And I think that's why Google is not participating. I think if Google compounded this by going into another back room with a whole rogues' gallery, that would worsen their reputation with their fan base.

What's happening with the FCC? Shouldn't it be involved -- if not leading the way -- on national broadband policy? Broadband is clearly a communications industry. Why hasn't Genachowski asserted more authority over an industry that is clearly within his portfolio?
Chairman Genachowski has ended up projecting weakness at a time when he should be projecting strength. When he started this, he had an enormous amount of backing from the president on down. He was told, "You've got a job to do, now go make decisions." Instead, there's been this misguided attempt to project some kind of Solomonic wisdom, but he's projected an image of being weak and indecisive. He has managed to project that he'd rather have industry solve the issue than him solve it. And that's very unfortunate.

That's a pretty tough assessment. Can Genchowski redeem himself in your eyes?
There is a way out for him, a solution that will allow him to come out of this looking good, and that is to say: "'I tried everything. I tried to negotiate something, but these guys just don't get it, and so we're just going to have to go ahead and move to protect consumers."

Chairman Genachowski can recover. He can recover. He can come back and show he's a fighter, which is what they respect in this town [D.C.]. But his window is closing because the election is coming up and if Congress flips, it's going to be a lot harder. If the election passes by and he's got nothing to show for it, it's going to look very bad for him.