FCC REJECTS AOLS HIGH-SPEED PLEA Agency Declines to Open Up Cable Networks to ISPs

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Washington -- The Federal Communications Commission lastweek promised to monitor the broadband Internet-access market, but it gave nothing else toAmerica Online Inc. in its unrelenting quest to pry open cable networks to unaffiliatedproviders.

The FCC, in a 5-0 vote, sent Congress a report that refusedto delve into the issue of whether cable operators need to allow competingInternet-service providers to reach their customers over cable lines the same way thatthey reach them over phone lines.

AOL pushed for an FCC inquiry and agency recognition thatthe federal government has the legal authority to force cable operators to make theirfacilities available to alternative Internet providers. It got neither, said LarryStrickling, chief of the FCC's Common Carrier Bureau.

FCC chairman William Kennard termed AOL's issue aserious one and vowed to monitor the development of broadband access. "This is aserious issue, and I believe that it is one that we should continue to monitorclosely," Kennard said.

AOL is concerned that cable operators will dominate thehigh-speed Internet-access market and discriminate against companies in which they have nofinancial interests. The cable industry -- joined by various high-tech firms, such asIntel Corp. and Cisco Systems Inc. -- put on a vigorous lobbying counteroffensive toneutralize AOL.

AOL has 15 million subscribers who access the servicemostly over "narrowband" phone lines. By their own count, cable'shigh-speed-data front-runners -- @Home Network and Road Runner -- have slightly more than510,000 cable-modem subscribers, compared with 25,000 subscribers todigital-subscriber-line services offered by local phone companies.

The FCC is not expected to release the report until thisweek. Commission sources said the document will discuss the cable-broadband marketgenerally, but it will omit any discussion on whether the FCC would have the legalauthority to force cable networks to unbundle their networks.

Paul Misener, a legal advisor to FCC commissioner HaroldFurchtgott-Roth, said his boss opposed the inclusion of any language in the report oncable unbundling because the FCC has no authority to regulate cable provision of Internetservices. He added that the FCC has as much authority over cable Internet services as ithas over "nuclear-waste disposal." Misener said it was "moderatelydifficult" to purge the report of cable-unbundling references.

"We are pleased that the commission decided tocontinue to let the marketplace work without regulatory intervention," said DeckerAnstrom, president of the National Cable Television Association, in a prepared statement.

FCC commissioner Susan Ness said her goals were Internet"openness and connectivity," but nothing she said indicated that her goals werebeing frustrated by cable provision of high-speed Internet access.

One day before the FCC adopted its report -- acongressionally mandated survey of the deployment of advanced telecommunications to allAmericans -- a gaggle of public-interest groups asked the commission to launch arulemaking immediately on the question of cable unbundling. Specifically, the groups askedin the context of the merger between AT&T Corp. and Tele-Communications Inc., which isstill pending at the FCC.

Ness -- whose vote is often critical in moving the FCC innew policy directions -- said she would not support the rulemaking called for by theConsumer Federation of America and the Consumers Union, among others.

"I don't think that there is support at this timeto open a rulemaking on that topic," Ness said. "I personally think that themarketplace is going to address that problem."

If AOL does not buy cable systems or partner with them, itstill has regulatory options.

It could, for example, petition the FCC to declare thatcable leased-access rules can be used by unaffiliated ISPs to provide high-speed Internetconnections.

Daniel Brenner, vice president of law and regulatory policyfor the NCTA, said Congress intended leased access for video programming, and not fordata.

A TCI system in Spokane, Wash., recently rejected a requestby Internet Ventures Inc. to lease channels to provide Internet access, saying that it was"under no obligation to lease a channel" for that purpose.

Alex Netchvolodoff, vice president of public policy for CoxEnterprises Inc., parent of MSO Cox Communications Inc., said the leased-access approachwas a nonstarter technically because cable systems are not designed to accommodate 4,500ISPs in a cost-efficient manner.

Scott Cleland, managing director of the Precursor Group ofLegg Mason Wood Walker Inc., said the leased-access idea was not so radical a notionbecause @Home and Road Runner are clearly using cable facilities.

"If the incumbent can do it, why can't somebodyelse take advantage of the rules already in place?" Cleland asked.

Another option is for AOL to urge the FCC to declare thatcable-operator provision of high-speed data is a telecommunications service.

Misener said that would be risky because AOL would have tobecome a telecommunications carrier itself in order to buy an unbundled telecommunicationselement from a cable operator. As such, AOL would have to pay access fees and contributeto universal service -- obligations from which it is currently exempt.

Netchvolodoff said AOL would have another problem if cableoperators were classified as telecommunications carriers: Operators would not be incumbentlocal-exchange carriers and, thus, they would not be subject to unbundling requirementsunder the Telecommunications Act of 1996.

Moreover, he added, AOL would have to persuade the FCC thatinformation services should be covered by common-carrier regulations.

As AOL senior vice president George Vradenburg noted in astatement last week following the FCC meeting, his company is working the corridors ofCongress in search of receptive lawmakers. A specific legislative proposal has yet tosurface.

"Everybody's listening to them, and they arespending tons of money," Netchvolodoff said. "But they are not going to be anymore successful there than they were at the FCC."

Cleland ruled out a legislative solution.

"This is an FCC play," he said, arguing that lastweek's report to Congress was an inappropriate forum to address open access to cable."It's early in the process. This issue is not going away."

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