In a move that would dramatically change the Internet, BellSouth Corp. is proposing to charge companies such as Napster Inc., Movielink LLC, Google Inc. and Vonage Inc. for guaranteed fast delivery of online content.
The move could ultimately generate millions of dollars in yearly revenue for BellSouth as early as 2007.
Companies that pay the new fees would be able to transmit music, video, data or voice content more rapidly than companies that don't.
Premium pricing to content providers is a radical new way of doing business.
BellSouth Chief Technology Officer Bill Smith contends Google (Nasdaq: GOOG) and others should not profit from the public's insatiable demand for rich online media without paying the companies that transmit that media.
"They, in essence, are enjoying a free ride today," he said.
Other regional Bell companies, such as AT&T Inc. (NYSE: T), are considering the new pricing as well, saying it's the fairest way to do business.
Some consumer advocates, however, argue the pricing would discriminate against small content providers that can't afford the extra fees and that the fees would be passed on to end consumers.
They also argue the fee would equate to double dipping: Not only would BellSouth and others get money from consumers for Internet access, they also would get money from the content providers to provide media to those consumers.
"We think it's awful," said Mark Cooper, director of research for the Consumer Federation of America. "The Bells -- they are entrenched monopolists. Now that they face a little competition, they will do anything to kill it."
The new pricing could work like this: If a content provider wants guaranteed fast transmissions, that content provider would be charged a fee for every transaction that uses the fast bandwidth. Smith compares the proposal to what package carriers do when charging customers extra for overnight delivery. Smith said BellSouth (NYSE: BLS) could hypothetically make the equivalent of $10 per month extra per broadband subscriber in fees paid by content providers.
As of the fourth quarter, BellSouth had 2.6 million broadband subscribers, a number that may soon reach 3 million. That number of customers could hypothetically generate $30 million a month or $360 million per year in revenue.
However, Smith said, the proposal is so new that BellSouth has not yet tallied projected revenue.
What does the proposal mean for content providers? Smith said Movielink, a joint venture of five major movie studios, could potentially be charged 40 cents per transaction.
At that price, 1 million premium movie downloads would cost Movielink $400,000 extra. What Movielink decides to do with the charge -- eat it or pass it on -- is up to Movielink.
A Movielink spokeswoman (who asked not to be identified) said the company is talking with BellSouth but declined to comment further.
Smith said Movielink CEO Jim Ramo is "in agreement the model makes sense." He added that BellSouth is talking with other content providers, too, including online gaming companies.
Some telecom analysts say the new push to charge content providers is absolutely mandatory for the survival of companies like BellSouth. As media become increasingly digital, more users are using more bandwidth -- which is costing the Bells more money, they contend.
Danny Briere, CEO of telecom research firm TeleChoice Inc., said the Bells are losing customers to cable Internet, wireless voice providers and Internet phone providers and consequently need to do everything they can to keep the newest threat -- content providers -- at arm's length.
"It's more than a big issue," Briere said. "It's the issue. If they leave that broadband access link wide open, they will lose their market."
Although the Internet was intended to be free from outside influences, Atlanta-based telecom analyst Jeff Kagan argues it is unfair for Google and other search sites to profit without paying the network owners.
"Google will not like it," said Kagan. "But they're not the ones operating these networks."
The Consumer Federation of America's Cooper, on the other hand, argues Google is not the one using the networks in the first place. "The consumer goes to Google," Cooper said. "Google just has the Web site."
A Google spokesman could not be reached for comment.
While the debate over who should pay for network use rages, another issue is popping up: As more bandwidth is increasingly being used for rich media, some argue, consumers not using that bandwidth are being affected.
Kagan said the charges will be necessary to ensure everyone on a broadband connection is using the Internet at broadband speeds.
"I don't know what BellSouth should charge," Kagan said. "All I know is that it can't be the way it is. I don't want my service slowed down because someone next door is downloading a movie."
