Looking back, the "slice" demanded by the Justice Department looks much less important than the "dice" part. Breaking AT&T into small pieces failed to introduce much local competition. The Baby Bells, as they are called, simply worked together to eliminate most of their direct competitors. Only cable, which has its own networks, survived. The horizontal split arguably just created new inefficiencies.
Instead, the most important rules were the vertical neutrality rules—rules preventing the Bells from killing, crippling, or controlling the companies dependent upon Bell lines to reach their consumers. In the 1980s, that meant companies like USRobotics, which sold modems. In the 1990s, it meant AOL—which, as we said, built mass Internet access over Bell's phone lines. And today that means companies like MySpace or Google, which need broadband to reach their users. In each case, the phone company, or a cable company, is a silent but essential partner.
In effect, this is the core difference between a giant like AT&T and a giant like Exxon: Both supply a good (bandwidth and gas) which is essential to doing what we want to do. Both, in business jargon, are "big dog" firms that support a "long tail" of uses. But the nature of gas makes it much harder for Exxon to exercise control over its end uses. Exxon has no control over whether you use your gas to power a chainsaw or drive a hybrid, motorcycle, or SUV. Information networks are different. AT&T has the power to control what you do with the Internet. It can control Internet speech and the Internet economy, and that makes all the difference.
So, the recombination of AT&T has effectively undone the "slice" part of the FCC's meddling—the breakup. The AT&T of 2007 reconstitutes five of the original eight pieces, leaving Verizon and Qwest as the last companies that haven't returned to the mother ship. The question isn't whether AT&T will be big. It is whether AT&T will be a giant in the image of Harry Potter's friend Hagrid, or the more bloodthirsty variety from "Jack and the Beanstalk." Will the behemoth be a faithful provider of well-priced, reliable, and ultra-high-speed broadband connections, a beloved common carrier? Or a company that tries to remake the Internet in its own image, use its networks to control who comes to market, and in the process ruin the freewheeling competition that has made the network great? That's the question that makes network neutrality the center of the debate.
Over the 2006 holidays, AT&T's lawyers and two commissioners of the FCC were in intense and quiet negotiations. To merge with BellSouth, AT&T needed the FCC's approval, and two of four voting FCC commissioners demanded that AT&T agree to basic network-neutrality rules. After many rounds, AT&T agreed, just before New Year's Eve, to the neutrality rules described in this agreement. (Click here for more on network-neutrality theory; for a legal analysis of the rules, read this.) The rules are a milestone: While there have been many ancestors, these are the first full-fledged network-neutrality rules that are fully enforceable as law.
AT&T has promised not to discriminate—not to "prioritize, degrade, or privilege" based on "source, ownership, or destination." And if AT&T indeed plays by those rules, its expanded size and efficiency may do much to restore America's slipping status in the Internet world. We may see the softer "reach out and touch someone" face of the old Bell Company. But if it begins to pick and choose favorites in an attempt to create an "AT&T Internet," watch out. The threat of recidivism is real.
That is why Congress should pass a network neutrality law, and make what has worked for the last 20 years endure for the next 20. But congressional action is only part of the solution, and the other part is you. Because even if passed, there is only one way net neutrality can work, and that's if it becomes the third rail of telecom politics. The advantage of the neutrality concept is that while the subject is complex, people know they're angry when the phone or cable company decides how they should be using the Internet. That kind of interference gets libertarians as mad as Naderites. If there's one thing the Internet has shown, it's that Americans like a huge variety of strange and obscure stuff, and they get mad when they can't get it. Oddly enough, that's the public spirit that, as much as any law, can keep AT&T a friendlier giant.