FCC Restates Access Forbearance Call

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Washington -- The Federal Communications Commission
released a report last week backing the cable industry's view that open access for
unaffiliated Internet-service providers is unnecessary and harmful to investment in
broadband technologies.

The report, prepared by the Cable Services Bureau and
released by FCC chairman William Kennard, said cable's 3 percent share of the
Internet-access market was too small to justify regulatory intervention demanded by
Internet giant America Online Inc., consumer groups and an array of business competitors.

CSB chief Deborah Lathen said the FCC found that cable
operators' rollout of high-speed cable services was serving competition by prompting phone
companies to step up their own deployments of high-speed services.

"Where cable has gone, we have seen [digital
subscriber line] follow," she said, adding that the agency has endorsed a national
policy of regulatory forbearance.

The FCC prepared the report based on the outcome of three
private meetings over the past six months with various business stakeholders, consumer
groups, investment analysts, local governments and research organizations. "We
brought in people from all walks of life," Lathen said.

Nevertheless, several consumer groups sent Kennard a
sharply worded letter last week complaining that the report was secretly prepared and that
it ignored the views of groups that have "sincere and carefully documented policy
arguments against use of the cable-TV model for Internet access."

The letter was drafted by the Center for Media Education,
the Consumer Federation of America, the Consumers Union, the Media Access Project and OMB
Watch.

FCC sources said an MAP representative attended one of the
sessions.

The groups also complained that the report had no legal
standing because the five commissioners did not approve it. In the letter to Kennard, they
said they feared that cable-industry lobbyists would "misuse such documents in
municipal and state legislative battles."

In the 47-page report, the FCC found that cable serves 1
million high-speed Internet subscribers out of 40 million North American Internet users.
Cable's penetration is projected to reach 11 million by 2005, the report said.

The local phone companies currently trail cable, serving
only about 160,000 DSL customers. But the business is starting to become heavily marketed,
especially in large cities, and it is growing rapidly -- up 100 percent between the first
and second quarters of 1999.

Relying on a Lehman Bros. Inc. analysis, the FCC said the
number of cable-modem and DSL subscribers should be about equal in 2007.

The commission said it expects fixed-wireless and satellite
carriers to compete vigorously in the broadband market, too.

Based on current and projected data, the report concluded
that cable-modem service is a "nascent" market participant that is incapable of
exercising monopoly influence, and that "regulatory restraint" by all levels of
government is the best policy.

"Unless and until anti-competitive behavior surfaces,
it is preferable to allow market forces to propel cable operators and independent ISPs
toward an 'open-access' system," the report said.

A key finding, Lathen said, was the lack of consensus
behind a definition of "open access," especially one consistent with the
deregulatory thrust of the Telecommunications Act of 1996.

Regulation, the report found, would slow broadband
deployment, harming consumers who are starved for faster data transmissions over the
Internet. "We want to see multiple pipes to the home, not just cable," Lathen
said.

National Cable Television Association president Robert
Sachs said in a prepared statement that the report "confirms that competition among
telephone, cable, satellite and wireless-broadband providers is speeding broadband
deployment, and that government regulation would only slow the delivery of high-speed
Internet service to consumers."

The report did not explore the FCC's legal authority to
require cable access.

Lathen said the agency will continue to monitor the
broadband market, turning next to electronic-commerce issues.

Meanwhile, the NCTA released an analysis concluding that
House legislation designed to prevent cable operators from excluding competing ISPs would
produce a regulatory morass in conflict with the deregulatory intent of the bill.

Harvard Law School professor Einer Elhauge, an antitrust
expert, prepared the analysis. The bill, the Internet Freedom Act (H.R. 1686), would
impose antitrust sanctions on cable operators that give less favorable terms to
unaffiliated ISPs than to their ISP affiliates.

Rep. Rick Boucher (D-Va.), co-author of the bill, faulted
Elhauge's study for ignoring the serious threat to Internet competition posed by cable.

"What we are saying is that antitrust law needs to be
modified. If the government does not prevent this bottleneck, it will occur," Boucher
said.

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