As Internet distributed video poses a threat to telco and cable TV, lobbyists are working hard to reframe the "net neutrality" discussion among lawmakers and regulators in the nation's capital. (See Yahoo Unveils Go TV and Dave.tv Adds IPTV Service.)

In fact, the Senate Commerce, Science, and Transportation Committee will discuss the issue in a hearing February 7.

What's the big deal?

Briefly, it all comes down to money and power.

IP applications like Google (Nasdaq: GOOG) video and Vonage VOIP ride "best effort" broadband networks of telcos and cable companies to reach consumers. But RBOCs and cable broadband providers are pushing their own IP voice and video services, and there's a growing fear they may provide a better quality of service (QOS) for their own applications at the expense of everyone else’s. (See Google Plans Video Service and Vonage Hits ISP Resistance.)

Instead of threatening to block competing TV or VOIP services, the RBOCs and their lobbyists are espousing a more passive, less defensive approach. Following BellSouth Corp. (NYSE: BLS)’s lead, they will more likely sell Internet companies like Google a higher tier of service to ensure the smooth delivery of their IP services. (See Google Goes to Wonkytown.)

Three of the four U.S. RBOCs -- BellSouth, Verizon Communications Inc. (NYSE: VZ), and AT&T Inc. (NYSE: T) -- have now made public statements in favor of that approach.

Federal Communications Commission (FCC) chairman Kevin Martin is no purist when it comes to net neutrality. He has said publicly that the commission would never allow a network operator to block a given Internet service, but he says “limiting” or reducing the speed of a service is a completely different issue.

No existing laws define the responsibilities of the network operators with regard to carriage of competing IP services, says Washington-based telecom attorney Dana Frix of Chadbourne and Park LLP. So the market has been left to determine how much net neutrality is enough. (See FCC Clears Megamergers.)

Frix believes large players like Google will have no problem making QOS arrangements with the network operators, but smaller players may not be as fortunate.

“The Internet is being regulated by the market right now, and the market is not doing a very good job,” Frix says. “Because market forces can’t work appropriately: The small, the petite, will always be harmed.”

Ragi Kamal, who oversees VOIP development at Time Warner Inc. (NYSE: TWX)'s AOL division, contrasts the U.S. regulatory environment to that of Europe. “If you look at the whole European sphere and what the telcos have to do, and what people can do over the top, it’s so much more of an open regulatory environment,” he says. “And I think the concern is -- and not just from the new product development perspective -- will the U.S. fall behind as a result of a regulatory climate that isn’t quite as encouraging?” (See We're #16!)

Frix believes the FCC should take a stand on net neutrality and dictate how the principle should apply to network operators like the RBOCs. He believes only the FCC, not Congress, has the sensitivity to the industry needed to impose such rules.

“But until there is that thoughtfulness about what issues are being raised, there should be complete net neutrality," Frix says.

Broadly defined, “net neutrality” means that Internet consumers paying for an Internet connection have access to everything on the Internet. But net neutrality, in the real world, may be a relative term.

SBC (now AT&T) CEO Ed Whitacre raised eyebrows last year when he said that allowing competing video content run unfettered over SBC networks is “nuts.” Verizon CEO Ivan Seidenberg said during his Consumer Electronics Show keynote last week: "We have to make sure they [services] don't sit on our network and chew up our capacity."

Sources say the telco lobby may be anticipating new regulation on the issue. The FCC, for its part, isn't likely to act until net neutrality is being discussed routinely in the courtroom.

— Mark Sullivan, Reporter, Light Reading