The new Internet will certainly make telecommunications decisions more strategic. CIOs will not only need to worry about how much bandwidth to buy, but which lane they want their traffic to travel in. And tiered service is just the beginning. Telecommunications companies will be able to rearchitect their networks however they see fit. Over time, the new architectures and the services that network owners deliver will result in complicated payer/payee relationships between companies and telecommunications companies. And if a telecommunications company decides it wants to introduce a new Internet standard, CIOs may be forced to rearchitect their company’s systems.

The common thread is money. For all the talk about equal access and treating all data the same, the net neutrality debate is just window dressing for a less gentlemanly argument over who gets to profit in the online economy. More bluntly, Steve Effros, former president of the Cable Television Association, says, "This is about who pays."

Making the Content Providers Pay

The current telecommunications act, which was written in 1996, was designed to help local phone companies compete with the baby bells. The 128-page law mentions the word "Internet" a grand total of 11 times, generally treating it as a curiosity, albeit one with potential. Today, that curiosity has evolved into the world’s dominant commerce and communications platform. And instead of a battle between small and large phone companies, the competition that emerged in the telecommunications industry is between cable and telephone companies, and the service they are vying to provide is not just phone, but high-speed Internet access and television as well—the so-called triple play.

In June 2005, the Supreme Court ruled that the service cable companies sold was an information service, not a telephony service, and hence isn’t covered by telecommunications law. In order to address this imbalance within the new cable/phone competitive landscape, the FCC declared that the high-speed DSL connections offered by the telephone companies were also information services. The result is that the entire Internet is now essentially outside the law.

Amid all this legal chaos, the telecom and cable providers are still struggling to figure out how to profit from the vast new market for online services. The three largest telecommunications companies—Verizon, AT&T and Bell South (which was bought by AT&T pending regulatory approval)—all had their profits drop in 2005, the latter two by double-digit percentages. Comcast, the nation’s largest cable company, saw its profits shrink by 4.3 percent. In contrast, content providers are taking it to the bank. Google’s profits increased 267 percent, Yahoo’s 126 percent and eBay’s 39 percent. Google, whose $6.1 billion in revenue is less than half of Qwest’s and 1/12 of Verizon’s, has a market cap higher than any telecommunications or cable company.