AT&T Embraces (Some) Net Neutrality

How badly does AT&T Inc. (NYSE: T) want to complete the BellSouth Corp. (NYSE: BLS) merger? It's now willing to formally offer network neutrality as a bargaining chip.

That's one of several concessions outlined in an 11-page letter (not including attachments) sent yesterday from Robert W. Quinn Jr., AT&T's senior vice president handling regulatory affairs, to the Federal Communications Commission (FCC) .

The letter expands on the concessions AT&T pledged on Oct. 13, an offer that left critics with plenty more to demand. (See Critics Consider AT&T Merger Conditions.) The carrier is piling on more "in order to break the impasse, and in the interest of facilitating the speediest possible approval of the merger," the letter states.

It's been nine months since the then-$67 billion merger was announced, and it's still awaiting FCC approval. In part, that's because commissioner Robert McDowell, a potential tiebreaking vote among the five commissioners, has recused himself from voting in a will-he-won't-he drama that AT&T is apparently tired of watching. (See Ma Bell Is Back!, AT&T Rages at FCC Delay, and FCC's McDowell (Again) Declines to Vote.)

If AT&T can win over one of the two Democratic commissioners, McDowell's vote (or lack thereof) could become irrelevant.

Ma Bell isn't the only frustrated party. Cisco claims the FCC delay is hurting equipment vendors by keeping capital expenditures in check. (See Cisco to FCC: Hurry Up!)

Hence, AT&T's latest offering, including the magic words, "network neutrality." Consumer groups have been lobbying the FCC to make net neutrality a condition of the merger -- much to AT&T's annoyance. (See AT&T's Whitacre: 'Nobody Gets a Free Ride'.)

The combined AT&T/BellSouth "commits that it will maintain a neutral network and neutral routing in its wireline broadband Internet access service," Quinn's letter states. That includes a pledge to not provide "any service that privileges, degrades, or prioritizes any packet transmitted over AT&T/BellSouth's wireline broadband Internet access service based on its source, ownership, or destination."

Net neutrality fans are spurred by the fear that carriers could wantonly degrade the speed of competitors' traffic, or even shut out applications from the likes of Google (Nasdaq: GOOG) or Vonage Holdings Corp. (NYSE: VG).

AT&T/BellSouth is pledging net neutrality only for wireline Internet access, covering the range between the network side of any customer premises equipment and the first Internet exchange point the traffic reaches -- in other words, the zone under the carrier's direct control.

Specifically, AT&T/BellSouth is exempting its enterprise offerings and any IPTV service from the promise of net neutrality. This makes sense, because a universal net neutrality policy would scotch some revenue-generating possibilities in those realms, including the creation of "first class" passage for certain traffic requiring better QOS -- examples being video, or mission-critical applications. (See Nixing Neutrality, and Report: QOS Fees Could Net Billions.)

Net neutrality fans might suspect the exemptions create a loophole, but AT&T seems to be covering that contingency. "These exclusions shall not result in the privileging, degradation, or prioritization of packets transmitted or received by AT&T/BellSouth's non-enterprise customers' wireline broadband Internet access service," the letter adds.

The net neutrality concessions would last for two years from the merger closing date.

Other AT&T concessions in yesterday's letter include:

• The sale or divestiture of BellSouth's 2.5GHz spectrum, something critics including wireless broadband provider Clearwire LLC (Nasdaq: CLWR) had been pressing for.

• Broadband availability, by the end of 2007, to every residential unit in the combined companies' territory -- keeping in mind that "broadband" legally means 200 Kbit/s in one direction.

• For 30 months, an offering of 768-Kbit/s DSL at a price not exceeding $19.95 per month, even to customers without AT&T/BellSouth voice service -- an apparent tip of the hat to VOIP competitors.

• A pledge to seek no increase in state-approved rates for co-location or for unbundled network elements (UNEs).

• Repatriation, by Dec. 31, 2008, of 3,000 BellSouth jobs that were outsourced abroad, including at least 200 around New Orleans.

• No change in the number of free peering agreements that AT&T/BellSouth has with the other U.S. carriers, for three years after the merger closes. If one of the top 10 carriers terminates its peering agreement before then, AT&T/BellSouth would replace it, to keep the total number constant.

AT&T's full Dec. 28 letter can be viewed at http://www.fcc.gov/ATT_FINALMergerCommitments12-28.pdf.

— Craig Matsumoto, Senior Editor, Light Reading