Mixed Message on Data Regs

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Were it a movie, the title might be Broadband Confusion: The Sequel. For the second time in less than a year, potential broadband regulation divides the cable industry, with the leading trade association making policy pronouncements that its top two MSO members do not endorse.

Earlier in the year, House broadband legislation sympathetic to the Baby Bell phone companies drove a wedge between the National Cable & Telecommunications Association and its largest member, AT&T Corp.

The NCTA was neutral on the Tauzin-Dingell bill (HR 1542), while AT&T was an implacable opponent.

The bill passed the House, but stalled out in the Senate.

The issues today are largely the same, but the arena has shifted from Capitol Hill to the Federal Communications Commission, which, in a sense, is proposing to craft via regulation at least some of the things Tauzin-Dingell had proposed through statute.

Under one FCC proposal, the Baby Bell phone companies would not be required to provide broadband access to unaffiliated Internet-service providers, a move that would create regulatory parity between the giant phone and cable companies.

ISPs looking to sign up broadband subscribers over cable and phone lines would have to negotiate for space with the owners of the network.

ISP-ACCESS ISSUE

The FCC is reviewing thousands of pages of comments submitted in connection with at least four rulemakings that, in their totality, could thoroughly remake a regulatory landscape for data services that has its origins in the 1960s.

ISP access to broadband networks figures to play a prominent role in the pending debate.

FCC chairman Michael Powell, a Republican installed last year by President Bush, is driving the agency, at least rhetorically, toward a regime in which broadband providers operate with minimal regulation.

But it's still doubtful just how far Powell's FCC can go — both legally and politically — in a sector hobbled by investor pessimism due to fraud and bankruptcy.

"Tauzin-Dingell was just a warm up fight for this," said Precursor Group media and telecommunications analyst Scott Cleland. "Tauzin-Dingell was all about setting this debate up at the FCC."

The NCTA's message is that the FCC should refrain from imposing access requirements on cable. And with respect to digital subscriber line (DSL) service provided by phone companies, NCTA is declining to take a position on whether ISP access rules ought to apply.

ONE-WAY STREET

AOL Time Warner — owner of No. 2 cable operator Time Warner Cable, with 10 million subscribers — is backing the NCTA halfway: It opposes regulation of cable-modem service, but advocates the continued application of open-access requirements for DSL.

It's not hard to see why. As owner of the world's No. 1 ISP, the 34-million-subscriber America Online, AOL Time Warner wants unimpeded access to as many potential customers as possible. Today, 3 million AOL subscribers access the ISP over broadband networks, but the company won't reveal how many do so over cable and how many over DSL.

In a recent FCC filing, AOL Time Warner said regulatory parity between cable-modem service and DSL was not required by law. The company said an open-access regime was appropriate for DSL, but not for cable, because government has mollycoddled the phone companies with guaranteed rates of return in monopoly markets where they're used to being common carriers.

AT&T'S STANCE

AT&T's position is broader than AOL Time Warner's.

AT&T — parent of AT&T Broadband, the No. 1 cable operator with 14 million subscribers — advocates continued DSL access for ISPs and retention of FCC rules requiring the Baby Bells to lease critical broadband facilities to competing data carriers.

Neither requirement is appropriate for cable-modem service, AT&T adds, citing some of the same reasons as AOL Time Warner.

AT&T spokeswoman Claudia Jones said DSL needs to be regulated because investors funded cable networks, while ratepayers paid for the buildout of phone networks on which high-speed data services ride.

"Cable was built by entrepreneurs who got venture capitalists to fund the buildout of their networks," Jones said. "The phone line, which is the origin of DSL, came from a guaranteed rate of return from ratepayer dollars. That's why [DSL] needs to be regulated."

TRUE NEUTRALITY?

What's going on here? Is the NCTA's neutrality toward DSL regulation just a pose, with cable's true position revealed in comments by AOL Time Warner and AT&T calling for maximum freedom for themselves, but regulatory handcuffs for their high-speed competitors?

Daniel Brenner, the NCTA's senior vice president of law and regulatory policy, said AOL Time Warner and AT&T are staking out positions consistent with the profiles of their companies: AOL is a huge ISP and AT&T has long-distance and local-phone businesses to protect.

"AT&T and AOL have other business units," Brenner said. "Those companies, when they speak as a company, have to reflect the views of their different business units."

In a speech last Monday, NCTA president Robert Sachs spelled out the differences he sees between cable and DLS and reaffirmed cable's antipathy toward grafting DSL open-access rules onto cable-modem service.

If "regulatory parity" means anything, it should mean loosening restrictions on all competitors, Sachs told the Progress & Freedom Foundation.

In due course, some of the confusion within cable's ranks should disappear when Comcast Corp. completes its merger with AT&T Broadband.

In FCC comments, Comcast has declined to take a position on which future rules should apply to DSL.

TELCOS SMELL BLOOD

Cable's mixed message has not been lost on the phone companies. SBC Communications Inc. called cable's lobbying "schizophrenic, patently self-serving advocacy."

SBC has put the FCC on notice that final broadband rules that go easier on cable than DSL don't stand much of a chance in court, especially when cable controls the lion's share of the residential broadband market.

"The simple fact is that, in the broadband Internet-access arena, cable operators and incumbent [phone companies] provide the same service. They should be subject to the same rules," SBC said.

BellSouth Corp. spokesman Bill McCloskey said his company is squarely behind deregulation of DSL and cable-modem services.

"We think the right way to go is parity. We are not looking for more regulation on cable. It's that simple," he said.

Cable operators dominate the high-speed-data business, with 8.8 million customers and a 65 percent share of the market, analyst Leichtman Research Group estimated.

BIG TWO BACK NCTA

NCTA officials said lawyers at Time Warner Cable and AT&T Broadband received copies of the trade group's FCC filing and endorsed it.

"The NCTA and its membership have been consistent in their embrace of deregulatory public policies," NCTA spokesman Marc

Osgoode Smith said. "Our membership seeks to maintain market-based competition over regulation and we have not sought to regulate our competitors."

By contrast, Time Warner Cable spokesman Mark Harrad said his division's views on DSL regulation track with those of parent AOL Time Warner.

"The NCTA is neutral on this because NCTA is a trade organization. When all the members don't agree and there is not one position that's why they remain neutral," Harrad said. "There is no difference between Time Warner Cable's viewpoint on this and AOL Time Warner's viewpoint."

When the House was about to debate the Tauzin-Dingell bill last winter, the legislation triggered a massive media assault from both sides.

When the FCC nears its key broadband votes — perhaps this fall — some expect a reprise of the negative ad campaign.

"It will be one of the most hard-fought decisions in the Bush-Powell era, as will media ownership next year," said Precursor's Cleland, who expects the FCC to ease up on DSL access rules. "I think they are going to regulate down for DSL. I think that's pretty clear.

"There is not a lot of appetite to regulate up cable and there is an appetite to regulate down DSL."

Consumer Federation of America research director Mark Cooper said cable and phone companies may be in for a surprise. The FCC could end up imposing ISP-access rules on both cable and DSL.

"They'll say something like, 'You are obligated to give carriage.' I think they are going to impose them on cable, too," said Cooper. "When you look at this record, if you let the cable guys off scot free, it's politically unsustainable."

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