BellSouth Joins the Payola Internet Club (BLS, SBC, VZ, T)

William L. Smith, chief technology officer for Atlanta-based BellSouth Corp has joined SBC CEO Edwar Whitacre in promoting the concept that well-heeled service providers should be able to buy higher priority Internet performance that leaves their competitors behind. His exact words were:

...an Internet service provider such as his firm should be able, for example, to charge Yahoo Inc. for the opportunity to have its search site load faster than that of Google Inc.

The radio business embraced this same business model in the 1950s and 1960s. It was called payola, and record companies paid to have their artists' records played more often to listeners. The FTC eventually decided it was illegal and sent radio executives who accepted payola to jail.

The telcos and cable companies hope to avoid this scenario, since they have lobbied for these new pay-for-performance provisions in a very recent revision of a telecommunications bill in the House of Representatives. But the comparison to the radio media scandals is particularly apt because underlying this change in position is Verizon's, AT&T's, and BellSouth's investment in must-lose-money television distribution:

Smith said BellSouth is especially concerned about new-generation television services it wants to provide via the Internet that would require large amounts of bandwidth.

Allowing it to give priority to TV traffic would ensure that television quality does not decline when other heavy-bandwidth applications are used simultaneously.

Fortunately, other companies also presented views to Congress opposing the recent revisions and taking aim at the attempt to turn the Internet into a cable TV system.

"Prioritization is just another word for degrading your competitor," said Gigi B. Sohn, president of Public Knowledge, a digital rights advocacy group. "If we want to ruin the Internet, we'll turn it into a cable TV system" that carries programming from only those who pay the cable operators for transmission.

In a recent letter to Congress, a coalition of technology companies called on members of the House Energy and Commerce Committee to strengthen the draft bill's "network neutrality" provisions, some of which were recently changed in response to lobbying by telephone and cable firms.

Clearly this isn't a done deal. But it is going to be a marketing, lobbying, and communications war for some time to come. And at stake is nothing less than the future of the Internet being either a today's vibrant hotbed of innovative business services like Google, Yahoo!, and Amazon.com, or a walled garden of stagnant me-too telco services (does anyone actually go to a telco services portal page?).

All we can say is that if the carriers expect to force Google through their toll booths, they should watch out. Should Google execute its plan to put shipping container data centers at all the major peering points, they may find their toll roads being bypassed by new, dark-fiber-enabled freeways. And suddenly, the telcos will be the ones paying the tolls to Google, not the other way around.

Related:

• All articles on The Seeking Alpha Network by Carl Howe.
• The complete list of companies (and links to articles about them) covered by The Media Stock Blog.

Comments

[Josh]

Even if they get a legislative carve out exempting pay-for-performance from fair trade laws, it could violate the contracts with subscribers as well as consumer fraud laws (based on the representations the companies make in advertising). I know I don't pay comcast $50 a month to cripple certain websites.

2005 Dec 01 05:04 PM