U.S. telecoms sector braces for Democratic change

By Kim Dixon - Analysis

WASHINGTON (Reuters) - A Democratic sweep in Tuesday's U.S. elections may clear the way for changes to Internet policy sought by Google Inc <GOOG.O that would bar Internet providers from discriminating against some Web content.

The "net neutrality" issue pits Internet service providers (ISPs) like Comcast Corp (CMCSA.O) and AT&T (T.N) against content companies like Google and Microsoft Corp (MSFT.O).

"Probably the thing that scares the industry the most about a Democratic administration is regulating the Internet," Dan Hesse, chief executive of Sprint Nextel (S.N), said in a speech in Washington on October 24.

Prices for cable television, Internet advertising and privacy are other issues likely to move forward if the Democrats win more seats in Congress, as expected. A win by Democratic presidential candidate Barack Obama in the November 4 poll would add further steam and give Democrats a majority on the Federal Communications Commission.

Obama takes the side of net neutrality backers, who say ISPs should not be able to discriminate against certain types of Internet traffic requiring more bandwidth, such as the downloading of movies, or block certain content altogether.

But Internet providers say government involvement in the Internet will amount to its nationalization and they need to be able to take reasonable steps to control traffic. Republican presidential candidate John McCain opposes net neutrality.

A bill mandating some network requirements failed to move in Congress this year, and Comcast sued the FCC, saying the agency exceeded its authority by ruling Comcast violated net neutrality principles by blocking certain applications.

Google Chief Executive Eric Schmidt is one of Obama's supporters and backs a law on neutrality.

"We prefer a law. At the same time, there are lots of ways to promote market discipline and the threat of law may go a long way toward getting us there," said Alan Davidson, Google's chief lobbyist.

TRACK RECORD

McCain led the powerful Senate Commerce Committee for several years beginning in the late 1990s. He was the sole Senate Republican to vote against a 1996 law requiring big phone companies to lease their phone networks to rivals to spur local competition.

He also sponsored a bill that would have taken away the FCC's ability to halt telecom mergers that were not in the public interest.

"In general, McCain takes the side of the telecom companies," said Nicholas Thompson, a fellow at the New America Foundation and writer for Wired magazine. He wrote a recent article with the opening sentence: "John McCain is an AT&T guy; Barack Obama is a Google guy."

Indeed, donors associated with AT&T were the seventh biggest bloc giving to McCain in the current election cycle and Google-linked donors were the fifth biggest group of contributors to Obama, according to the Center for Responsive Politics, which tracks political spending.

An industry official, who is a self-described Democrat, cautioned against broad assumptions about the candidates, pointing to Obama's use of the Internet to raise money, and his pledge to use broadband to spur economic development.