Ringing the Call to Yank Support for Bells

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You can decide if this is a "when" or an "if": The Federal Communications Commission abandons all policies that support the adolescent Bell companies, including their switched-network technology — and especially their broadband initiatives.

An eclectic collection of academics and Internet analysts has issued just such a recommendation to FCC chairman Michael Powell, encouraging a "fail fast" policy that would validate the idea that the telecom industry's current troubles are "not a disaster but a natural event."

In their "Paradox of the Best Network" manifesto (www.netparadox.com), the gang of 41 urges the FCC to "resist telephone-company pressure tactics to prop up businesses that technological progress has made obsolete."

Their argument — of course, just another advocacy group's invective — has captured the mindspace of some telecom revolutionaries. Thanks to Weblogging and viral e-mail, the Net Paradox campaign has been the diatribe du jour for a certain breed of digerati.

Write 'em off

David Isenberg, Net Paradox's ringleader, insists that the FCC's "proper course is to write off all circuit-based telephone assets to reflect their obsolete value." He'd like to see the industry recapitalize itself with as little government intervention as possible.

Isenberg generated a modicum of fame (and a front-page profile in The Wall Street Journal) several years ago for a rare distinction: his unceremonious dismissal from AT&T Corp. For decades, he'd worked at Bell Laboratories and allied research organizations.

While an AT&T employee, he began to champion his personal vision of "The Stupid Network" (www.isen.com), a non-traditional view of the role of connectivity. Isenberg is a charming fellow curmudgeon and a thoughtful ally of George Gilder (one of his few foibles).

He's also an eloquent rabble-rouser.

Last month's Net Paradox screed was triggered in part by the early October's FCC "Telecom Recovery" en banc hearing, at which Wall Street and academic experts expounded on the broadband debacle. Isenberg's cabal contends the suggestions generated that day overlooked the reality that "balance sheet weaknesses, long-haul over-capacity and even the recent speculative bubble are effects, not causes" of the meltdown.

An "Internet-based end-to-end data network has subsumed (and will subsume) the value that was formerly embodied in other communications networks," says the open letter to Powell. "Weak last-mile competition prevents the most powerful technological advances from reaching all but a few customers."

The letter urges a policy of "fast failure" by resisting telco calls for bailouts. It suggests that non-Internet communications equipment, while not yet extinct, is economically obsolete, and the Commission should forbear actions that would artificially prolong its use.

The missive's signatories range from Harvard University and University of Pennsylvania academics to digital entrepreneurs and telecom analysts.

Reform lacking

The Net Paradox proposal surfaces amidst growing dismay with the FCC's lip-service to broadband reform — with little action to support it.

In a recent Journal
op-ed column, Jeffery Eisenach — president of the conservative Progress and Freedom Foundation — chastised Powell for giving "speech after speech criticizing the pro-CLEC [competitive local-exchange carrier] policies of his predecessors" but doing nothing to modify them after nearly two years in office.

"The administration has maintained an eerie silence on the whole affair," Eisenach lamented. He condemned Congress for devoting "hearing after hearing to individual scandals" but not calling upon former FCC Chairman Reed Hundt "to explain what he was doing when he created the conditions for this mess" or on Powell "to explain why he still hasn't changed them."

Separately, a series of independent reports point to other soft spots in the Bell situation.

In a study issued last week, Probe Research noted that the Bells now receive more than $12 billion a year from "special access" fees, up from $2 billion in 1985. The fees include charges levied to connect carriers, including Internet-service providers, inter-exchange carriers and mobile providers to local networks.

Current changes to network architectures will affect those fees, which the Bells increasingly rely upon to shore up their economic models.

'Negative growth'

With many competitive carriers gone, the reduction in competition "will start to undermine special access," said Probe chief operating officer Allan Tumolillo. "The combination of declining number of access lines — shifting to cable modem and mobile and UNE-P [unbundled network element-platform] — and the migration of voice calls … to mobile and e-mail has put the telcos in a negative growth situation."

Predictably, the Bells have not issued a formal reply to the criticisms or the Net Paradox call for the FCC to abandon all Bell safety nets in favor of an Internet Protocol-based landscape.

A Bell defender contends (on background, of course) that doing away with UNE-P and adjusting Total Element Long Run Incremental Cost (TELRIC) pricing would hasten the failure of firms with uneconomic business models. He also singles out the Net Paradox proposal for community or municipally run transmission networks, arguing that cable companies will oppose any such efforts themselves.

Indeed, the Net Paradox plea raises rancor from many sectors, which is presumably what Isenberg and his co-conspirators are seeking to achieve.

In the process, they offer a timely reminder that regulatory policies are falling more out of touch with technological and marketplace reality. So when will the FCC and other regulatory entities seriously grapple with the underlying policies — and not just the daily confrontations — that are reshaping the broadband landscape?

Contributing curmudgeon Gary Arlen opines regularly in Broadband Week.

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