Let us differentiate between three questions: (i) what should happen now when the telcos want to exploit their monopoly position to extract extra value out of information services, (ii) how should this develop in the future, and (iii) whether to support the net neutrality bill as it appears to be shaping up. The third (and the first) questions are more urgent, but the second one is more important.
The phone and cable TV companies do not enjoy their monopoly position because they smartly invested in the right market. The monopoly was created by the government and to a large extent continues due to regulation. It is disingenuous at best for them to claim the right to do what they want with their pipes when their pipes are the only pipes into consumers' residences because of government-granted monopoly. The government, in the form of the Congress, the FCC, the courts, and the municipalities, significantly affects the sector and, to a large extent, prevents new entries.
The phone and cable companies now have the ability to blackmail the consumer and the content provider. The only reason this can happen is because of lack of competition at the last mile. In the long term, the best solution is to have competition there and let the consumers choose whatever service they want. In the short term, when there's no competition (a duopoly does not create conditions for competition because it is a repeated prisoner's dilemma), the blackmail must be stopped.
The main danger of the blackmail isn't even in the extra costs of information services phone and cable companies seek to impose. These extra costs would act as privately imposed taxes (with all the negative effects of taxes and none of the positive ones), benefiting shareholders of the phone and cable companies at the expense of everyone else, but also distorting the allocation of resources so that less information services are produced. The resulting reduced number of high-tech startups in this country would be bad enough, but there's even a greater danger. The particular way in which the phone and cable companies seek to impose extra costs can destroy the Internet as we know it and replace it with a pay-to-play complex-billing system. This would greatly multiply the tax-like effects of extra charges.
It is desirable to stop the blackmail in a way that does not itself significantly distort the future evolution of the Internet. The disease of last-mile monopoly is a dangerous one, but the cure must not be worse than it.
What is needed is a small and a measured change in the regulatory regime that allows the Internet to be free of the blackmail until a better solution (competition at the last mile) arrives.
The phone and cable companies, today, are allowed to have the cake and eat it with respect to the common carrier status. They enjoy all the traditional benefits of the status (not being liable for what passes through their networks) with none of the obligations. If this loophole is removed, their entire scheme crumbles. Of course they would not accept the liability for viruses and copyright infringement that might occur on their networks; the cost of such liability exclusion for them must be network neutrality. Networks that wish to retain liability exclusion must accept obligations of the common carrier status.
Once the immediate threat of the Internet being replaced with a system that requires a quarter for each connection is stopped, we need to think about the future and fostering competitive environment in the area of last-mile access.
A desirable situation there would be consumers' ability to switch ISPs, choosing from at least half-dozen (and preferably more), with low transaction costs. A switch from one ISP to another should cost at most tens of dollars. It is realistic to expect that in such an environment in a few years from now, 1-Gb/s home connectivity would cost small number of tens of dollars per month---what the consumer now pays for measly connectivity roughly 1000 times more narrow.
First, let us examine two non-solutions: (i) wireless and (ii) municipally operated broadband. It is tempting to consider these as at least partial solutions to the problem. However, they provide no more than nice extras; talking about them, thus, obscures the real problem.
Wireless (in the form of wifi) is an important instrument to provide connectivity, especially to mobile devices. However, it does not, per se, solve the problem of Internet access for residences. The access points need to be connected somewhere. Visions of self-organizing hive-like ad hoc networks haven't yet realized. Research in this area might yield more results, but so far, the only practical way to provide wifi coverage is to connect the wireless access points to a fixed network. The density of access points would not be significantly lower than the density of residences, especially in suburban (and certainly in exurban) areas. More importantly, there is not enough spectrum where propagation has desirable properties to give every household a 1-Gb/s link. Every street would still need to have fiber or copper, to which access points on poles would need to connect. Having fiber or copper on each street isn't much easier than having it in each residence.
Municipal broadband is another appealing possibility. The roads, after all, are maintained by the municipality; why not the information superhighway? However, two counter-points are strong: (i) municipal broadband would freeze the pace of innovation (the roads are built using the same technology as decades ago) and (ii) municipal services are not delivered as efficiently as private ones.
There are two ways in which the goal of being able to switch from one ISP to another could be accomplished: the fiber that goes to the home might not be the property of the ISP, and there might be many strands of fiber that go in. Dark fiber is quite inexpensive, and having more strands is by far the easiest solution. It will also allow marketplace experimentation with multiple ISPs.
The crucial resource that needs to be managed by the municipalities and that the municipalities are not managing very well is digging up the road to lay fiber. The municipalities, rightly, refuse to let the road to be dug up too frequently (usually, no more often than once in five years). The municipalities, however, wrongly allow the road to be dug up to lay just half-dozen strands of fiber. This is a waste; the reason the phone and cable companies do it is to create artificial scarcity. The municipalities need to auction off permits to dig up the street with the purpose of laying down hundreds and thousands of strands of fiber in trunk fiber optic cables (a 1-inch duct can contain up to 96 strands of fiber). Consumers, then, will have multiple strands of dark fiber coming to their houses. A consumer who switches from one ISP to another will simply have the other ISP buy several strands for his house from the municipality's agent that put the fiber in (or perhaps from the first ISP if it is cheaper) and light them. Inexpensive, off-the-shelf components (e.g., Gigabit Ethernet) would be used to light the fiber.
I have not seen the bill that is reportedly shaping up. However, what I know of it indicates that it is likely to do much more harm than good. A good bill needs to have two things: (i) sunset provision and (ii) possibility to price the network in an economically efficient way. It appears, from what we know so far, that the bill will permanently prohibit economically efficient pricing and mandate a flat pricing structure, where users pay a monthly fee only. This would be extremely harmful, as it would instill the incentive to regulate the amount of traffic a user sends by giving him a tiny straw instead of a fat pipe. It would be tragic if we started with the belief in fat cheap network pipes and ended up outlawing them.
[Update, May 2, 2006: It appears that the draft Steven's bill satisfies both conditions: it does have a five-year sunset provision and does not prohibit economically efficient pricing. It appears to be very good, at least for now.]
The phone and cable companies claim that they need QoS to deliver services with guaranteed quality. QoS does nothing but discard or delay some traffic so that some other traffic can pass through. QoS is rationing of a scarce resource. But network capacity isn't a scarce resource. Tens of dollars a month can buy a 1-Gb/s connection; at such speed, no congestion will happen. As applications get faster in the future and consume more network capacity, the network can simply be made faster. With fiber, the sky is the limit. It is perhaps instructive to realize that all the traffic on the Internet is close in volume to what could be pushed through a single strand of fiber. When 1-Gb/s connection becomes too tight (with current trends, it might become too tight in perhaps a decade), it can simply be replaced with a 10-Gb/s connection, good for a few more years. Once the fiber is in the ground (and multiple strands go everywhere), this is easy to do.
The phone and cable companies' vision of the future is that the American consumer, for years to come, will be tied to narrow-band access measured in tens of megabits per second (narrower than the default 100-Mb/s $10/month service in Seoul today). The content providers will need complex arrangements and negotiation with the phone company before even starting to offer their services to the consumer. Artificial scarcity will be created and profited from by the phone and cable companies. The phone and cable companies will delight in complex QoS schemes that discard or degrade non-affiliated traffic and impose difficult-to-understand billing structure.
Our vision of the future is wide-band Internet access (1Gb/s in both directions in a few years and more in the future) for the same amounts consumer pays today. With such speeds, no QoS or complex billing is necessary. Abundant network capacity encourages creation and delivery of new content and various information services. Simple and robust network architecture provides a solid foundation for the future, where even faster data transfers will be possible over the same fiber.
Additionally, see my presentation QoS Debate --- Net Neutrality, given at a panel at Net@EDU meeting (Podcast of the talk in MP3 format).
I do a bit of work related to net neutrality on behalf of Internet2; however, this essay is not part of it and represents my personal opinion only.