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By Caron Carlson  |  Posted 05-01-2006 Print

The first hints that all that could change came last fall from top executives of the country's largest telephone companies. In a now-famous quip, Ed Whitacre, chairman of AT&T, said in November that content providers were using his lines for free. "For a Google or a Yahoo or a Vonage or anybody to expect to use these pipes for free is nuts," Whitacre said.

A few weeks later, BellSouth Chief Technology Officer William Smith said the Internet should become a "pay-for-performance marketplace."

The controversial comments closely followed the government's approval of SBC Communications' acquisition of AT&T Corp. and Verizon Communications' acquisition of MCI in late October. SBC, which renamed itself AT&T Inc., is now awaiting approval of its latest acquisition target, BellSouth.

That the Bells revealed their tiered pricing plans as they were consolidating is no coincidence, critics say.

"There's nothing wrong with the concept of offering classes of service that might involve [quality of service] or different delivery times," said Lee Selwyn, president of Economics and Technology, in Boston. "What you want to do is make sure that the basis for that differentiation is not an exploitation of market power but a reflection of cost differentials that can be vetted through a competitive market. The concern that we have is that, as you eliminate competition, you can use prioritization as a means for discriminating on the basis of value to the customer."


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