AT&T, Sprint, Verizon Slam 'Net Neutrality' Shareholders' Proposals

By Josh Long

The boards at AT&T Inc., Sprint Nextel Corp. and Verizon Communications Inc. have slammed shareholders’ proposals that ask the companies to adopt “Net neutrality” rules that would be more stringent than those currently required under federal regulations.

The proposals generally ask the mobile-phone giants to refrain from degrading or prioritizing any traffic over their wireless networks.

AT&T shareholders last week overwhelmingly voted against the proposal, with only 5.9 percent of the votes in favor of it, according to the company’s preliminary results.

Next up: a Net neutrality vote Thursday before Verizon’s shareholders. Shareholders who co-sponsored the proposal include Margot Cheel c/o Trillium Asset Management Corp. (owner of 750 Verizon shares), The Nathan Cummings Foundation (4,895 shares), Benedictine Sisters of Mount St. Scholastica (357 shares) and St. Scholastica Monastery (100 shares).

The proposal has asked Verizon to publicly commit to adopt net neutrality principles without forfeiting any related issue in litigation. Verizon has challenged Federal Communications Commission “Net neutrality” rules in an appeal that is pending before a federal court in Washington, D.C.  

The shareholders want the nation’s largest mobile-phone company to “operate a neutral network with neutral routing along the company’s wireless infrastructure such that the company does not privilege, degrade or prioritize any packet transmitted over its wireless infrastructure based on its source, ownership, or destination.”

Proponents of the proposals cite the need to preserve the openness of the Internet for millions of Americans, including minorities who are more likely to access the Web on a cell phone, according to at least one study from the Pew Research Center.

In a proxy statement, Verizon declared the FCC actually rejected such a proposal in its Net neutrality rules, which is officially known as its Open Internet Order. The order was adopted in December 2010 but didn’t go into effect until November 2011.

“The proponents appear to have no concept of the negative technical and operational ramifications of requiring purely ‘neutral’ routing of Internet traffic,” Verizon asserted in the proxy statement. “This proposal would substantially interfere with the technical operation of Verizon’s wireless broadband network and have a wide-ranging and significant impact on Verizon’s business and operations.”

One of the adverse consequences, Verizon said, would mean it would be banned from giving priority to fire, police and military communications over its wireless broadband network during a natural disaster or terrorist attack.

Verizon actually sought to exclude the proposal from reaching shareholders, but the Securities and Exchange Commission earlier this year differed with the company’s interpretation over a rule that would allow it to do so.

“We are unable to conclude that the proposal is so inherently vague or indefinite that neither the shareholders voting on the proposal, nor the company in implementing the proposal, would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires,” wrote Carmen Moncada-Terry, Special Counsel for the SEC, in a letter dated Feb. 13, 2012.

“In view of the sustained public debate over the last several years concerning Net neutrality and the Internet and the increasing recognition that the issue raises significant policy considerations, we do not believe that Verizon may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(7),” Moncada-Terry concluded in the letter.

FCC rules already bar mobile-phone companies like AT&T and Verizon from blocking access to lawful websites or applications that compete with their own voice or video telephony services. Fixed mobile broadband providers like Comcast Corp. face more stringent requirements under the FCC’s Open Internet Order.

“In adopting these rules, the FCC acknowledged that mobile broadband is in its early stages of development, is in a state of very rapid innovation and change, and that mobile broadband operators are encumbered by operational constraints that fixed broadband operators do not typically encounter,” stated Sprint, whose board also opposes a Net neutrality proposal that is scheduled for a vote on May 15 during the company’s annual shareholders’ meeting in Overland Park, Kan.

The phone companies also asserted the proposal would place them at a severe disadvantage in the marketplace because their competitors wouldn’t be bound by the same constraints. “Your directors believe that any requirements that go beyond those required under existing law should be applicable to all companies, not just to us,” Sprint stated in its proxy statement.