Copyright 2005 Post-Newsweek Business Information, Inc. NewsbytesNovember 4, 2005, FridayArshad Mohammed; Washington Post Staff WriterFrom LexisNexis
The head of a major telecommunications company stirred up a hornet's nest this week by suggesting that he wants to charge companies like Google and Yahoo a fee for bringing them into consumers' homes.
SBC Communications Inc. Chairman Edward E. Whitacre Jr.'s comments to Business Week magazine prompted Internet companies to accuse him of aspiring to block access to their Web sites and to extort money from their businesses.
A spokesman for San Antonio-based SBC said the second-largest U.S. telecom company is committed to giving customers unfettered access to the Internet and that the comments were misinterpreted.
But Whitacre's characteristically blunt remarks -- published as his company this week won federal approval to buy AT&T Corp. for $16 billion -- revived a debate on whether Congress should make sure that consumers can go wherever they want on the Internet and keep phone and cable companies from blocking legal Web sites and services.
Asked about Internet firms such as Google, Microsoft Corp.'s MSN and online phone service Vonage, Whitacre told Business Week that those companies were dependent on SBC's lines -- or "pipes" -- for their success in reaching consumers.
"Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using," he said, according to Business Week Online's edited excerpts of the interview.
"Why should they be allowed to use my pipes? The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo or Vonage or anybody to expect to use these pipes free is nuts," he said.
Internet companies said Whitacre was stating what they have long feared -- that SBC and others may manage their networks to choke off access to Web sites or to target competing firms such as Vonage Holdings Corp. and Skype Technologies SA, which provide Internet-based phone services.
"It seems like a rather monopolistic attitude," said Michael Jackson, vice president for operations at Skype. "If the line were free to the user, or the bandwidth were free to the user, then perhaps he'd have a point. But the line isn't free to the user. The customer is paying for the bandwidth. . . . He's already paid for it. Why should he pay more?"
"It sounds like SBC is going to block me, try to block me, or try to charge me for something," said Vonage Chairman Jeffrey Citron.
"Any notion that SBC or anyone else . . . can get paid twice on the same service is a bit ludicrous," he added, saying it would be like UPS demanding the sender and recipient of a package both pay for delivery.
Citron and others said Whitacre's comments strengthened the argument for "net neutrality" legislation to ensure that consumers can go where they want on the Internet and that network operators like SBC do not favor some sites over others.
The issue has become more prominent in Washington since the Federal Communications Commission in March stepped in to stop a broadband provider from blocking an Internet phone service.
FCC Chairman Kevin J. Martin declined to comment directly on Whitacre's remarks but said he does not think new FCC rules are warranted.
"I don't think that there is evidence of the kind of activity of blocking consumers' access to the Internet that would justify us adopting new rules at this stage," Martin said in an interview. In approving the SBC-AT&T merger this week, the FCC put conditions on the deal that would prohibit the company from restricting access to Internet content for two years. Martin had initially opposed imposing any conditions for the merger.
Most people have at best two choices for high-speed Internet access -- phone lines and cable wires -- giving them few options if their provider interferes with their Internet services.
"The real issue here is exactly what Mr. Whitacre owns up to. They have market power -- if not monopoly, then duopoly -- and there are no other choices for consumers," said Paul Misener, Amazon.com Inc. vice president for global public policy.
Misener said he wanted SBC and other broadband providers to prosper because they bring droves of customers to Amazon.
"But to sort of flip it around and to be able to extort fees from Internet companies because there is nowhere else for their [SBC's] customers to go, it seems to us an untoward exercise of their market power," he said.
SBC spokesman Michael Balmoris said Whitacre was not talking about charging companies for letting customers access their Web sites. Rather, he said, Whitacre was referring to access Internet companies may want to the "managed and secure" portions of the fiber-optic network SBC is building largely to deliver video to customer homes.
"SBC has not and will not block or limit access to lawful content or applications on the Internet," he said. "Mr. Whitacre's comments are being misinterpreted. They were not made in the context of the Internet, but rather SBC's $4 billion investment in its new fiber network to provide Internet-based video services," Balmoris said.
The spokesman said SBC might strike commercial agreements with companies such as Google, Yahoo and Vonage to give them access to that part of its network.
Whatever Whitacre meant, critics said his remarks strengthened their hand.
"He is basically making the case for regulation," said Gigi B. Sohn, the president of Public Knowledge, a nonprofit group that advocates an open Internet.