The issue is "net neutrality" — a battle so far contained
between high-speed Internet broadband operators and companies
with online product offerings, such as Amazon.com <AMZN.O>.

Broadband providers such as AT&T Inc. <T.N>, BellSouth
Corp. <BLS.N> and Verizon Communications <VZ.N> want to expand
from flat pricing and also sell tiers of service based on the
speed, reliability and security of the bandwidth used.

While those providers have said they would not block access
to the open Internet, companies that sell products or services
online want Congress to adopt stricter safeguards to ensure
they are not pushed into a slower lane of the Internet if they
do not pay more for dedicated network service.

For the financial services sector, which is expected to
spend $117 billion on information technology this year, tiered
pricing could add billions more in expenses to maintain online
banking services and other Web offerings, according to a memo
circulating among financial services lobbyists. Those costs
could hit the bottom line or be passed on to customers.

But it's a fight the financial sector almost missed.

"Net neutrality is an issue that (financial services) firms
ignore at their peril," Philip Corwin, a partner at Washington
law firm Butera & Andrews, wrote in the memo.

"If the industry does not engage quickly, it may find that
the matter has been decided without its input and that the
fallout will affect the industry's cost structure and customer
relations for years to come," he added.

The net neutrality issue is embedded in a debate over
legislation aimed at easing the path for phone carriers to get
into the video business and compete with cable companies.

Legislation has been proposed in the House and Senate, and
is being considered in commerce, but not banking, committees.

A Senate measure would require further study of the issue.

A Republican-led bill moving through the House would
preserve the ability to surf on the open Internet, but it does
not specifically bar Internet service providers from charging
new fees to assure reliable service to business users.

Corwin argues that would give Internet service providers a
green light to impose big new fees on financial companies.

But phone companies on Tuesday told Reuters the issue has
nothing to do with financial services, and action by Congress
could hurt consumers and deter investment in new networks.

"If anything is going to halt necessary investments in next
generation networks it will be Congress dictating business
models to companies," said AT&T spokeswoman Claudia Jones.

"The finance community should be wary of wolves in sheep's
clothing who are attempting to codify the status quo to their
own benefit and to the detriment of consumers everywhere."

LATE-STAGE STRATEGY

Many in the financial services sector seem to have awakened
late to the issue and are now trying to catch up.

"I think it caught a lot of people off guard, honestly,"
said one bank lobbyist.

The House is expected to consider its bill next week and
the Senate Commerce Committee plans to mark up its legislation
next month, but large differences between the bills could
prevent any legislation from passing this year.

The Corwin memo urged the financial industry to get the
Senate Banking Committee and House Financial Services Committee
involved, which could slow the progress of legislation.

It also said the industry should prepare bills and push
their introduction to assure the continuation of flat
high-speed Internet pricing for online financial services.

While the financial industry has plenty of muscle, it may
be too late for that strategy, some lobbyists said.

Instead, they may wait for legislation to get to
conference, where House and Senate negotiators work out their
differences. In that environment of closed-door bargaining,
banks and credit unions might be able to secure the net
neutrality language they seek, lobbyists said.

The National Association of Federal Credit Unions,
America's Community Bankers, American Bankers Association and
Independent Community Bankers of America, among other financial
lobbyists, say they are monitoring the issue.

But telephone carriers rejected the concerns. They said the
legislation is about allowing phone companies to offer video
and moving to tiered pricing so those who use little bandwidth
do not subsidize those who use a lot.

"Net neutrality is not about being neutral, it is about
companies that benefit from selling video on the Internet and
their potential advertisers looking to have the cost of the
bandwidth they use paid by the consumer," said Bill McCloskey,
BellSouth spokesman.

(Additional reporting by Jeremy Pelofsky)