The battle boils down to how the future of Internet services are to be managed going forward:  as a telecom service and all the oversight, taxation and regulation that comes with that designation, or as it is today, a loosely regulated information service, albeit one that is going through some growing pains.  By following the “third way”, the FCC is “promising”  not to pursue many of the regulations that are imposed on Title II services.  Could the “third way” be a realistic compromise?  Since it is unprecedented, as far as I know,  it seems like going down the third path sets up for a lot of interpretation, which is usually pursued in the courts at the expense of a lot of time and money.

This is all happening as the FCC looks to push through its National Broadband Plan.   FCC Chairman Julius Genachowski is pushing a new legal strategy that would allow the commission to implement net neutrality regulations for wireless and wired networks, this following a federal court decision won by Comcast that forced the FCC to re-think its legal basis for broadband regulation.  In April, the federal appeals court sided with Internet providers and allowed them to deliver services as they see fit, in a less regulated environment.  This battle is just beginning and it’s creating some strange bedfellows.

Telecom competitors like AT&T, Verizon with Comcast have joined forces with what has been shaping to be the leading disrupters, Google, Microsoft, Intel and others  to form an independent technical coalition that will develop voluntary guidelines for handling network data traffic.  The coalition, called the Broadband Internet Technical Advisory Group is trying to take a more technical appraisal of net neutrality and what it may entail.  Maybe a bunch of geeks amongst these companies can come to an agreement on the future direction of the Internet if their executives cannot!  I’d like to be there at those meetings as the blue-suited telecom executives meet up with sandal-wearing Silicon Valley upstarts.  To be honest, I can’t imagine much compromise coming from this group either and don’t expect to see any relevant results.  There are just too many self-interested parties and billions of dollars in revenue at stake for any of the constituents to compromise.

Surely the growth of the Internet and the use of wireless wide area networks to access these networks are driving new rules. As cellular network spectrum is finite and expensive compared to wireline, some controls are needed to inhibit use. Right? Well not really. In a rush to drive data service revenue growth, U.S. wireless operators have increasingly reduced the price of 3G broadband access from around $75 retail, to under $45 per month on average for negotiated rates. The laws of price elasticity say the lower the price, the higher the volume. So demand has surged with a million new subscribers each month. Though providers tried to present their service as a wireline replacement by offering “unlimited” data downloads, the number of new users has put a crush on some networks, causing slower than average speeds and a strain on network capacity. In fact, operators have already changed their terms from “unlimited” to a maximum of 5GB per month–forced by several lawsuits. Operators routinely throttle (slow down) bandwidth of some users during peak times, which doesn’t give an optimum experience. And most users don’t even know it, blaming it instead on poor connections or some other problem that is difficult to trace back to the provider. So wireless, it turns out, is a different service than wireline–and should be priced differently.

Wireless operators are a bit to blame for all of this. In their rush to replace wireline services (particularly cable) they forgot the valuable, limited asset they have and that all networks aren’t created equal. Even newer wireless technologies like 3G and 4G will have a hard time keeping up with increasing demand as data shifts from low end messaging to multimedia. Not to mention the increasing cost of backhaul connections to get to the Internet. They would be wise to keep these lessons in mind as new services are launched–be upfront about pricing, throughput, data caps, throttling–or government regulations will get stricter. New laws will only make carriers think twice about additional investments in this area. In the end, a compromise will need to be reached to satisfy both sides, but wireless operators need to bring full disclosure to the table first, and that has never been easy in this industry.