Forum: Some Parasites Are Good for Their Hosts

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Hey, cable: What's the big deal?

All we've done at Internet Ventures Inc. is file a fewapplications for leased-access carriage of our "PeRKInet" broadband Internetservice. We thought that it would be a simple business plan that would make sense foreveryone involved -- the cable industry, subscribers and ourselves.

The concept: Use existing legislation that the cableindustry itself was instrumental in drafting to help cable operators immediately build abroadband Internet business and to add immediate profit to systems' bottom lines.What's the harm in that?

Leased access was never intended to be a declaration ofwar, but that's how the cable industry seems to have viewed it.

The rejection letter that we received fromTele-Communications Inc. -- Oops! AT&T Broadband & Internet Services -- inSpokane, Wash., made it clear that "leased-access" carriage was absolutely not anegotiable point.

While we've yet to receive final responses to ourother applications, preliminary reports in each of those markets have been just asdiscouraging.

I'll ask again: What's the big deal?

Back when we first announced the concept at the WesternShow, I mentioned -- only partly in jest -- to a prominent industry curmudgeon,"Sometimes a parasite can be good for its host." That analogy becomes moreappropriate each day that the access issue percolates in Washington, D.C.

In an age of true convergence, it is only a matter of timebefore the question of access commands action from the Federal Communications Commissionor Congress.

The efforts of the OpenNet coalition of America OnlineInc., MindSpring Enterprises Inc. and other well-heeled Internet-industry players willkeep a spotlight on the issue, particularly on the federal and state levels.

And when open access arrives, it will be in the form of newlegislation -- a grab bag of rules that may not be in cable's best interest.

Leased access, on the other hand, offers most of the sameaccess objectives, but in a defined, predictable format that offers something for allparties.

The existing leased-access rules that already spell out thenumber of channels and per-channel cost formula provide the Internet industry with theopportunity to achieve immediate access and, at the same time, to offer cable inherentprotections from some expressed concerns.

Because the rules define an upward limit on the number ofleased-access channels on a given system, there is no danger to cable that extensiveamounts of programming would have to be removed to accommodate dozens of Internet-serviceproviders.

For many systems, the maximum number of leased-accesschannels mandated by law is 10 percent to 15 percent of activated channels not requiredfor use by federal law or regulation; for systems with fewer than 36 activated channels,no leased-access carriage might be required at all.

Similarly, the cost of a leased-access channel wouldprotect the industry from being overwhelmed with requests.

In Spokane, for example, a full-time, basic-tier channel onthe AT&T Broadband system would cost approximately $20,000 per month.

While we would recommend leased access to every ISP, it isunlikely that all of them could -- or would -- opt to risk such a sizable upfrontinvestment. In the largest markets, the steep financial cost would serve as a barrier toentry for all but the most well-funded ISPs.

What's the big deal?

We didn't start out seeking leased access; rather, wewere exploring turnkey partnerships that would deliver immediate bandwidth to cableoperators and subscribers not yet able to implement the two-way technology of an @HomeNetwork or Road Runner.

The issues that helped to shape our business plandon't seem to have changed much in the intervening years.

A recent issue of Multichannel News contained anominous headline: "More Warning Signs of Slow Modem Rollouts." The articlediscussed cable's difficulties in meeting demand for broadband Internet, and itexpressed concern that the industry might be vulnerable to competition from alternativetechnologies.

Interestingly, leased-access carriage of third-party,telephone-return Internet service ultimately could be a superior solution for theindustry, if it is indeed serious about achieving rapid, mass-market penetration of cablemodems. Industrywide acceptance of leased access for telco-return broadband Internetcould:

• Provide immediate service to 100 percent of thewired country, enabling cable to provide its subscribers with an additional serviceimmediately, rather than in the distant future;

• Provide cable systems with immediate incrementalrevenue that could be used to fund costly rebuilds, rather than forcing systems to waituntil those rebuilds are completed;

• Provide cable systems that are rebuilding to two-waywith an established base of broadband customers who could migrate to newer levels ofservice as they become available; and, perhaps most important,

• Provide cable systems with "no-risk" entryinto the broadband Internet market. A leased-access strategy places allof thefinancial obligations on the shoulders of the unaffiliated service provider, whileproviding cable customers with a valuable new service option.

A brief "history lesson" that I offered in thisspace nearly two years ago bears repeating: Back in the 1980s, when cable found itselffacing new opportunities on the local advertising-sales front, independent firms providedthe solution, giving cable immediate access to a new revenue stream. Only later, when thebusiness had matured, did cable bring it "in-house."

There's no reason why that same approach can'twork today to speed cable's financial return from broadband Internet.

It seems like a simple choice: the silver lining ofimmediate, new revenues and market share in a growing business, or the dark cloud of newregulation.

Hey, cable: What's the big deal?

Don Janke is president of Internet Ventures Inc.