Telco Quest for Parity is an 'Electronic Land Grab'


The regional phone companies chicanery, masquerading as public policy legislation for high-speed Internet services, should be labeled as the hijacking it so transparently resembles: an electronic land grab.

The former Baby Bells, spun-off as seven regional phone companies during the initial devolution of AT&T Corp. in the mid-1980s, are now four mighty behemoths intent on squashing the competition under the guise of achieving regulatory parity with the cable industry.

Much is made of the fact that nearly twice as many homes rely on cable modems versus digital subscriber lines to receive high-speed Internet service.

The fact is the cable industry deployed its high-speed services while the phone companies dragged their heels. Cable passes over 95 percent of U.S. households with televisions, and of those, over two-thirds rely on cable. The phone companies' DSL technology, on the other hand, is limited to a three-mile reach from key switching stations along phone lines. So while phone companies actually pass more households than cable, they can only offer DSL services by making the capital investments needed to add new switching points. Hence their legislative maneuver to accomplish by law what would otherwise cost capital to achieve.

For all the importance the phone companies attach to regulatory parity with cable, the legislation, if enacted, would affect many other sectors and players. The real losers would be the smaller phone companies created by the 1996 Telecommunications Act; about 7,000 Internet service providers, which will be forced to negotiate with a handful of powerful, regional phone companies rather than in the current market of incumbent phone companies; the telecommunications equipment industry, which will have fewer buyers as the small phone companies die or become absorbed by the hegemonic Bells; and federal and state regulatory policy, which impels the phone companies to adhere to the 1996 law.

In fairness to the phone companies, they alone are impelled to interconnect with competitors, unbundle facilities, resell services and provide advanced services through subsidiaries. The phone companies claim they cannot make enough money on broadband if they have to live with those obligations. By contrast, the cable, satellite and fixed wireless industries can deal with whom they want on commercially negotiated terms.

The telcos' remedies are to let their competitors into the Internet backbone business, to let them off the hook by providing resources like line sharing that enable retail competition and to place their new broadband investments and Internet service markets beyond the reach of state regulatory commissions and the Federal Communications Commission. In other words, dial-up would in all probability emerge as the sole common access for Internet-service providers.

Instead of battling over legislation designed to place one industry at a temporary advantage over another, Congress and the FCC could consider policies to provide consumers with choice and control over their high-speed Internet service and with information they need to make sure they are getting the Internet quality they are paying for.

Internet quality of service monitoring enables the public to verify what it's paying for and to pressure broadband industries to sustain the openness of the Internet. Internet quality metrics would advance an information services industry providing broadband industries with the performance metrics they need to compete and succeed.

A universal server or universal digital box, capable of receiving high speed Internet services from all providers — cable, phone, satellites and broadcast — repays attention, too.

The box would stimulate more commercial activity across equipment, programming, transmission and distribution industries. Precedent exists. President Kennedy presciently signed legislation impelling television receiver manufacturers to build sets capable of receiving UHF signals, thereby opening up more programming on the basis of a common standard. Instead of Kennedy's 'All Channel Receiver Act', an 'All Media Server Act' could do the trick.

Both Internet quality of service monitoring and a universal digital box inflect communications industries to serve the public interest. They constitute marketplace solutions to the current public policy conundrum of Internet governance: leave unregulated, regulate or deregulate distributed networks.

Hugh Carter Donahue writes about cable, telecommunications and broadcasting industries and policies. He was formerly associate director, information and society program, Annenberg Public Policy Center from 1989 to 2001.