News

Cable Faces Tough Set Of Access Adversaries

3/16/2003 7:00 PM Eastern

At the National Cable & Telecommunications Association, the slogan hanging from the front porch might as well read: "There they go again."

A few years back, before it bought its way into cable ownership, America Online Inc. pressured cable operators to open their networks up to multiple Internet service providers. Cable refused, so AOL enlisted a posse of paid persuaders to ply Congress and the Federal Communications Commission with ideas on creating a broadband utopia.

AOL, no match for cable's own hired guns, called off the campaign after agreeing to merge with Time Warner Inc.

Now a new group, the Coalition of Broadband Users and Innovators (CBUI), has formed to take up where AOL in part left off.

CBUI is urging the FCC to slap regulations on cable-modem service providers to ensure that Web merchants and consumers may interact legally without interference from cable operators.

CBUI's impressive roster includes Amazon.com, Yahoo! Inc. and eBay Inc. — top Internet brands that consider themselves vulnerable to potentially hostile broadband service provides.

All three now have Washington, D.C., offices and in-house lobbyists.

The coalition is diverse, drawing on major trade associations as well as The Walt Disney Co., RadioShack Corp. and Microsoft Corp. The group also includes Leo Hindery's Yankees Entertainment and Sports Network, even though last week YES and Cablevision Systems Corp. reached a truce in their acrimonious dispute.

Not surprisingly, cable is fighting CBUI just as vigorously as it fought AOL.

Duopoly rule feared

Fear, not love, binds a group like CBUI.

As most CBUI members see it, the Internet access market is presently dominated by thousands of dial-up ISPs that are steadily losing ground to broadband providers.

If current trends hold, CBUI members say it won't be long until a duopoly broadband market is established, the spoils divided among cable operators and local phone providers.

Unless restrained, cable and phone companies will use their market power to discriminate against Web content providers and bar the network attachment of equipment, such as gaming consoles and Internet Protocol telephone adapters, CBUI members argue.

Gerard J. Waldron, CBUI's counsel at Covington & Burling, said the coalition's goal is simple: "Consumers should have unfettered access to go anywhere and use anything on the Internet."

Amazon.com, the Internet bookseller that survived the dot-com crash, has been CBUI's most vocal member.

Web wunderkind Jeff Bezos, Amazon's founder and CEO, has put forth this proposal: the FCC either should bar cable and phone companies from discriminating against Web sites or require broadband network owners to give consumers the choice of at least three ISPs.

What precisely does Amazon fear? Most of all, having to pay cable and phone companies not to block or impair access to its site.

Ominous 'silence'

Amazon also worries about losing customers to Web sites with financial ties to network owners through unfair business practices. But Amazon is not talking about regulation of pop-up screens or broadband service plans with monthly fees that vary according to data transmission speeds.

Paul Misener, Amazon's vice president of global public policy, called his company's approach a narrow regulatory fix designed to address problems likely to arise in a concentrated broadband access market.

Cable's unwillingness to disavow discriminatory action makes FCC rules all the more urgent, he said.

"If someone can say in front of a public audience, we are not going to do this, we never want to do this, this is absolutely wrong, it would be horrible if this were done and the [FCC] should step on it the second it happens, then we would have a lot more satisfaction," Misener said. "But right now there is a silence on the future."

Clearly, CBUI's lobbying has gotten the NCTA's attention.

In recent remarks and in separate letters to the FCC, NCTA president Robert Sachs has asserted that CBUI's arguments are vague and bereft of any evidence that would support FCC intervention.

Since the NCTA considers CBUI's issues and analyses as lacking merit, the trade group is more interested in examining motives.

"We think they are a solution in search of a problem," said a cable industry source, who asked not to be identified. "The real question isn't why we are opposing more regulation where there is no problem — it's why are they going over to the [FCC]?"

Chopping rivals?

So why is CBUI doggedly pursuing cable regulations at the FCC? According to the cable industry, Amazon, eBay, Microsoft and the rest are simply looking to use the ax of government to chop down the trees of competition.

"AOL tried to use this process to get a better deal at the table. You can see the same thing happening with Cablevision and YES Network," the cable source continued, in an interview before Cablevision and YES announced their one-year carriage deal. "[YES is] throwing the kitchen sink at Cablevision. They're free do it, but government officials should know what they are being used for."

For cable, Microsoft's role in the coalition is troubling. The software giant owns 5 percent of Comcast Corp., and chairman and co-founder Bill Gates and his foundation control nearly 6 percent of No. 4 cable operator Cox Communications Inc.

"Microsoft is clearly interested in being the operating system of anything that uses a chip and in using whatever means they can to get there," an MSO source said. "Microsoft has built Internet-protocol telephony into Windows. They may well have designs on an IP phone — a Vonage-type service."

Microsoft spokesman Phil Missimore said the company is concerned about discrimination by broadband network providers.

"Not so much the picture today but the picture down the road ahead," he said. "Microsoft is, quite frankly, just one voice in the CBUI."

VPN limits cited

When cable calls CBUI a solution in search a problem, it means cable operators are not today using network control to disrupt consumer access to Web sites for some kind of financial gain.

But some CBUI members counter by saying some cable-modem service contracts forbid virtual private networks (VPNs), which allow people to connect with an office LAN and bring up their PC desktop screen at home.

"It's just a prohibition in their service agreements that consumers don't even know about. I've heard some stories that people who are having it enforced are being sent letters," said Veronica O'Connell, director of government affairs for the Consumer Electronics Association, a CBUI member.

One MSO source said the VPN issue was based on maybe a few examples, but nothing widespread. "My impression generally is that cable operators are not policing it that heavily. They're really not," the source said.

To CBUI, VPN restrictions could be the beginning of a much bigger trend.

"The fact that they are not enforcing them for the moment does not give comfort all," said CBUI counsel Waldron. "It shouldn't be a surprise that while the whole world is watching, the cable industry is acting on its best behavior."

A coalition with CBUI's size and diversity is likely to have internal divisions.

The Information Technology Association of America (ITAA) — whose membership includes AOL Time Warner and AT&T Corp. — advances the view that maintaining nondiscrimination rules on digital subscriber line (DSL) service of phone companies would deter cable from misbehaving, assuming DSL would pick up customers frustrated with cable-erected content roadblocks.

"There is, candidly, disagreement about the various approaches to it. We agree on the problem but we do not agree on what the precise solution is to that problem," said Mark Uncapher, ITAA's senior vice president and Internet counsel.

A lawyer for eBay indicated the online auction giant was not an aggressive participant in the coalition.

"eBay signed the letter [to the FCC] and the letter speaks for itself. If we choose to do anything else, we'll get it touch with you and go from there," said eBay associate general counsel Tod Cohen.

The FCC is a few months away from deciding whether to apply nondiscrimination rules to cable-modem service and DSL provision.

In addition to finding the rules unnecessary and harmful, the NCTA believes the FCC lacks the jurisdiction to impose such regulations.

Define 'discrimination'

CBUI's Waldron insists the FCC has ample authority to adopt rules based upon reasonable assumptions about the nature of the emerging broadband market.

"The idea that you can only go and administer a rule after the patient had been shot is a foreign concept to the regulatory model," Waldron said.

Some in the cable industry believe CBUI has been less than clear about what it means by Internet discrimination, especially when Web sites are chock-a-block with all sorts of marketing deals that paint computer screens with ads and come-ons that consumers can't escape.

Cable sources questioned the Yahoo!'s objectivity. They pointed out that Yahoo! is an Internet access competitor to cable through a fast-growing dial-up and broadband partnership with SBC Communications Inc., the Texas-based Baby Bell that controls about one-third of the country's phone lines.

"You start to wonder how coherent their message is," a cable MSO source said.

Nevertheless, according to a senior FCC official, CBUI's lobbying has resonated with some FCC members. But the official did not indicate whether the agency would endorse the coalition's agenda in whole or in part.

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