Powell's Broadband World Is Taking Shape
By TED HEARN -- Multichannel News, 2/24/2002 7:00:00 PM
As Time magazine might put it, "Where are you going, Michael Powell?" Some would say the Federal Communications Commission chairman is moving in a radical direction in his quest to reshape broadband policies through deregulation.
Others would make the opposite argument. They claim his policies appropriately respond to a market in which phone companies lag cable companies in broadband, yet uniquely shoulder costly and burdensome regulations.
Backing up a year of hosannas to the free market, the Republican-led FCC two weeks ago took the first step toward eliminating phone company access requirements for broadband digital subscriber line (DSL) service. Those rules originated in the nascent narrowband market of the mid-1960s, when the 38-year-old Powell was just a toddler.
The deregulatory move is predicated on Powell's assumption that competition among multiple broadband platform providers — "intermodal competition," in FCC parlance — would greatly reduce the need for access rules and for federal price regulation.
"We believe that by promoting the development and deployment of multiple platforms, competition in the provision of broadband capabilities can thrive and thereby ensure that the needs and demands of the consuming public are met," the FCC said in a notice of proposed rulemaking released Feb. 15.
In breaking with decades of regulatory tradition, the FCC hopes that liberated phone companies will invest billions of dollars to embed fiber deep into their markets and build a modern high-speed Internet access network with universal reach and affordable service.
'DUOPOLY' FEARED
To get there, the Republican-controlled FCC must shed a regulatory legacy reaffirmed in the Telecommunications Act of 1996. That law mandated that the major phone companies — such as SBC Communications Inc. and Verizon Communications — are monopolies that must share their data networks in order for competitors to have any chance at success.
Powell's policies would establish a cable industry-Baby Bell broadband duopoly that would exercise economic dominion over Internet access competitors and content providers, argued Center for Digital Democracy executive director Jeff Chester.
"Chairman Powell's zeal to push broadband deployment at any cost threatens to undermine the Net's democratic and economic potential. Congress never intended — despite its call for accelerated deployment — to kill off the open-access policies which have made the Internet valuable in the first place," Chester said in a statement.
In a series of decisions over the years, the FCC has held that local phone companies that provide information services had to adhere to rules designed to promote a competitive market.
The key rule required a phone company to allow competing information service providers to access transmission facilities at the same price that the incumbent telco charged itself.
This rule was designed to introduce competition in the voice mail and credit-card validation markets, and to provide access to consumers on fair terms.
It was also instrumental in establishing America Online as the dominant provider of dial-up Internet access.
Although few suspect that the FCC would disturb the narrowband access rules, Powell is steering the agency in the direction of eliminating them in the broadband context.
The FCC's notice maintained that the agency was not unalterably wedded to its broadband conclusions. But it dropped a strong hint that the status quo was unacceptable.
In the notice, the FCC asked whether current access requirements should be "modified or eliminated" for broadband. Tellingly, it did not ask whether the rules should be retained — a clear indication that change is coming.
Powell and two other FCC members — Kathleen Abernathy and Kevin Martin — form the FCC's GOP majority.
The agency's only Democrat, Michael Copps, strongly opposed the broadband deregulation proposals, fearing competitors would lose critical access to phone company broadband facilities.
In the notice, the FCC tentatively concluded that phone companies that provide broadband Internet access are information service providers. The FCC has historically refrained from regulating such entities.
The agency also tentatively concluded that the transmission component of a phone company's broadband Internet access service was "telecommunications."
Current FCC rules treat the DSL transmission component as a "telecommunications service," which broadband competitors are entitled to lease as an unbundled element at regulated rates.
In the 47-page notice, the FCC reasoned that when a phone company offers broadband Internet access, it is not selling information or transmission as discrete products. Rather, broadband service is the fusion of information and telecommunications, the agency said.
"Congress recognized that a transmission component is embedded within, and not separate and distinct from, the information service," the FCC said. "As such, we view wireline broadband Internet-access service as not consisting of two separate services, but as a single integrated offering to the end user."
BURDEN ON BACKERS
By placing phone company-provided broadband Internet access in the information-services category, the FCC appeared to establish a presumption in favor of deregulation. Evidently, it's up to supporters of current policies to demonstrate that reliance on market forces in lieu of regulation would represent a threat to competition.
"This conclusion, if adopted, would be a fundamental shift in the FCC's existing treatment of DSL and a major victory for the nation's [incumbent phone companies]," Cole, Raywid & Braverman, a law firm that represents cable companies, said in a client note.
The FCC offered several reasons for crafting new broadband rules for phone companies. In the 1996 law, Congress instructed the FCC to protect the development of the Internet and to take immediate steps to remove barriers to the deployment of advanced telecommunications capabilities, the agency said.
Times have changed, according to the FCC.
When narrowband access rules were adopted, no one disputed that phone companies had the market clout to discriminate against competing information-service providers.
Today, phone companies face broadband competition from market-leading cable companies and from wireless, fixed-wireless and satellite providers, the FCC said.
To constrain phone companies with regulations that do not apply to cable and other broadband providers would frustrate their ability to make the costly investments needed to outfit their networks with the necessary fiber, electronics and software, the FCC further explained.
"The regulatory disparity is indefensible," SBC's lawyers said last October in an FCC filing that sought broadband deregulation. "Cable operators … are completely deregulated in their provision of advanced services."
Three weeks ago, the FCC released a study that showed 9.6 million U.S. high-speed data customers as of June 30, 2001. The FCC defined high-speed as the data transmission of 200 kilobits of per second in at least one direction.
The report said cable operators had 5.2 million subscribers, or a 54 percent market share, while phone companies served 2.7 million, or 28 percent.
The FCC said cable-modem service grew faster than DSL during the first six months of last year.
'MINIMALIST' VIEW
The FCC said it would attempt to harmonize broadband policies across multiple platforms, a sign that the agency is also planning to classify cable-modem service as an information service.
In the world the FCC is shaping, all providers of broadband access — whether or not they own their own transmission facilities — would, in the FCC's own description, "exist in a minimal regulatory environment."
Because that's likely to mean no infrastructure sharing or access requirements, some FCC watchers are plainly worried.
"I am deeply concerned that one practical effect could be that the existing open access requirements that apply to the telephone service could be in jeopardy," said Rep. Rich Boucher (D-Va.), who also supports open-access requirements on cable-modem service.
In 1996, Boucher failed to win support for a new chapter in communications law that would treat all broadband Internet-service providers alike.
At the time, broadband Internet service was too esoteric a concept for lawmakers to comprehend, he said.
"For interactive broadband services, there ought to be a uniform set of regulations and all of those services should be regulated under the same set of regulations," Boucher said.
He hopes progress toward a new law can be made on Capitol Hill.
"At the end of the process, you should have cable-modem service there, you should have DSL there, and open access should apply," Boucher said.
