January 2007 - Mid-Term Elections

Moving From Elephants to Donkeys in a Digital World

By Patrick Cauley

On Tuesday, November 7, 2006, citizens across the United States stood in lines, some in sunshine, some in rain, and all in support of the democratic process. Naysayers who claimed that one vote doesn’t make a difference were silenced as razor thin victory margins across many House and Senate races helped tip the balance of power in both chambers for the first time since 1994. It would be days before Senate races and in some cases, weeks before House races were finally conceded and settled. In the end, the Democrats gained a majority of House seats at 232 to the Republicans’ 203. And in the Senate, the Democrats’ narrow majority of 51 to 49 seats came down to tight races in Virginia and Montana. Although some skeptics believe no significant changes in policy will occur, a Democratic victory means a change in the member rankings for Congressional committees and subcommittees alike. This could certainly push the DR industry’s agenda up in importance as the 110th Congress convenes this month.

One of ERA’s primary goals is to protect the entrepreneurial climate for their members. In order to achieve this goal, ERA has to stay on the forefront of many issues being debated in Washington that could have a direct effect on any member’s business. Last spring, as industry issues heated up in Congress, ERA’s Director of Government Affairs Bill McClellan hosted a Government Affairs Conference where ERA members had the opportunity to learn about what was going on in the industry with regards to Congress, as well as meet with their elected representatives to voice their concerns. Those ERA members, along with the Annual Convention attendees whose attention was garnered by the “Net Neutrality Ninjas,” have a renewed sense of how important government affairs can be.

Although Net Neutrality began to receive national media attention from the likes of “The Daily Show with Jon Stewart,” the issue is really no laughing matter. Net Neutrality is the policy of preserving the Internet as free and open to all. It involves giving authority to the Federal Trade Commission (FTC) to regulate the web, as opposed to the power being in the hands of the telephone and cable companies. “If telecoms and cable companies have their way the Internet will be radically altered,” says McClellan. McClellan likens the debate surrounding Net Neutrality to the hypothetical reality of television entertainment at a residence versus a hotel. At one’s home, there is the opportunity to watch a wide-ranging variety of programming at an individual’s discretion. At a hotel, there is free television content on about 15 channels, but the good stuff (Hollywood films etc.) come with a price. As the House Committee on Energy and Commerce debated the issue in the spring, Rep. Edward Markey (D-Mass.) warned, “We will either vote to preserve the Internet as we know it or instead vote to fundamentally and detrimentally alter it.” He went further saying, “We’re about to break with the entire history of the Internet, everyone should understand that.”

McClellan elaborates explaining that if Net Neutrality opponents win and a two-tier Internet is formed with a fast lane and slow lane of access, businesses and sites need to ask themselves, “Am I a priority to broadband providers?” Cable companies and telecoms will be able to deliver better access and services to web content that they own or have exclusive deals with. “There is a fundamental choice. It’s the choice between the bottleneck designs of a small handful of very large companies and the dreams and innovations of thousands of online companies and innovators,” said Markey. With the increased amount of competition, the burden of Net Neutrality will eventually fall onto the consumer with increases in prices and decreases in choices, as the “mom and mops” of the Internet struggle to keep up.

“Cable and telecoms made some free market arguments that resonated at the time with the Republican leadership. However, from the beginning, our Net Neutrality Coalition has viewed this as a non-partisan issue, seeing it as an opportunity for this to be something Republicans and Democrats both could support. It’s unfortunate that since the beginning broadband providers have presented this as a partisan issue,” says McClellan.

Net Neutrality withstanding; there are other issues that those in DR should be paying close attention to. Privacy has become an increasingly important issue. As retailers saw record high online purchases during “Cyber Monday,” customers are obviously comfortable making online purchases, but are still somewhat leery of releasing personal information due to privacy and concerns over identity theft. McClellan has worked to quell this misconception among the general public.

“Most of these security breaches aren’t electronic in nature; it’s someone getting a laptop stolen, or a back-up tape falling off a truck, or even worse, an AOL employee stealing customer information to sell on the black market. Our job is to promote commerce on the Internet, it’s a frustration that these breaches are associated with web transactions,” says McClellan.

Streamlined Sales Tax is another issue that has a chance of gaining momentum with a new Congress. This is an effort by the states to collect sales tax on items purchased from remote sellers. The issue gets complicated as different buyers and sellers live in different states that have different rules and proposals regarding online sales tax. Should a bill pass, ERA believes that remote sellers should be compensated for the costs and burdens associated with collecting those taxes.

“Without question, Net Neutrality and Streamlined Sales Tax will be hot issues as the new Congress begins. There will at least be some discussion on privacy. The Internet Tax Freedom Act, enacted in 2001, is expected to expire this year. This expiration will likely trigger action on Streamlined Sales Tax,” says McClellan. Sen. Byron Dorgan (D-N.D.) and Sen. Michael Enzi (R-Wyo.) introduced bills last year that explore this issue, but they did not pass. ERA opposes the adoption of any tax policies or plans that are not consistent among all states or that do not minimize administrative burdens for remote sellers. However, as states continue to struggle for ways to find more revenue, some think that passage is more likely with Democrats controlling the majority of governorships and both chambers of Congress.

With regards to Net Neutrality, the shake ups in committee chairmanships are likely to have a big effect on the issue. Previously, outgoing Chairman of the Committee on Energy and Commerce Joe Barton (R-Texas) was vehemently opposed to Net Neutrality. Led by Barton, on June 8, 2006, the House passed a bill entitled “Communications Opportunity, Promotion and Enhancement Act of 2006″ (H.R. 5252). Markey offered an amendment to the bill that would incorporate Net Neutrality requirements, but he was defeated. Things remained equally fragile in the Senate, as the committee voted dead even at 11-11 to add Net Neutrality legislation to Sen. Ted Stevens’ (R-Alaska) Telecom Act (S.2686).

Luckily for the DR industry, incoming Chairman of the House Energy and Commerce Committee Rep. John Dingell (D-Mich.) is a strong supporter of Net Neutrality. “The open and innovative Internet has flourished under network neutrality legal protections until last year. Why should this Committee turn over control of the free flow of the Internet to the whims of cable and telephone companies?” asks Dingell. With his guidance and leadership of the committee, a push for legislation and passage in the Democratic controlled Congress is looking more likely. Markey is rumored to be the new chair of the Subcommittee on Telecommunications and the Internet, another seeming victory for Net Neutrality proponents.

However, not all industry issues center in Congress. Similarly, a busy 2007 is expected on the regulatory and enforcement front with the FTC hoping to take another look at negative options. The FTC also has scheduled a workshop revolving around Net Neutrality and has signaled its intent to aggressively target data security breaches for enforcement.

Too often ERA members go about their daily lives without understanding the impact of the government. Congress is in place to represent the needs of constituents, but it is up to you to let them know what those needs are. As this new Congress gets underway, ERA encourages members and concerned citizens a like to keep an eye on the multiple issues at stake. For as fast as the donkey’s gained control, the elephants could always come thundering back.

For questions regarding ERA’s Government Affairs presence at the Mid-Winter Leadership Conference and Expo January 28-30, or the 2007 Government Affairs Conference May 6-8, please contact Bill McClellan at (703) 908-1032, or via e-mail at [email protected].


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