Will Deregulating Broadband Kill Choice?

Report warns that consumers and small ISPs will lose out if FCC continues its course toward deregulation.

Stephen Chiger, Medill News Service

The Federal Communications Commission's proposal to deregulate broadband will stick consumers with high prices and low-quality service, the Consumer Federation of America and the Texas Office of Public Utility Counsel charge.

"The FCC is proposing to wipe out a whole level of competition," says Laurie Pappas, deputy public counsel for the Texas Office of Public Utility Counsel. The state agency represents residential and small commercial customers of public utility services, including telephone and high-speed Internet services.

"[FCC Chairman] Michael Powell and the FCC are allowing [network] facility owners to strangle the Internet," says Mark Cooper, research director for the CFA. "Smaller ISPs have been all but banned from the high-speed Internet." The organizations jointly released their report on Monday.

Near-Monopolies Now

Under Powell's direction, the FCC is studying current broadband regulations and may scrap rules that force major local-service phone companies to open their networks to independent competitors. Deregulation advocates argue that the rise of broadband cable service provides sufficient market competition so that the access rules are no longer necessary. In fact, both cable and DSL firms are experimenting with tiered pricing and other consumer options.

Without mandated access, high-speed Internet will wilt because the telephone companies will be able to squelch competition, the report maintains.

"Nearly every innovation in the telecommunications industry has been because of competition or effective government regulation," says Mike Jackman, executive director of the California ISP Association. "We're looking at a future where consumers are going to get broadband from only a handful of ISPs."

A handful of major cable and telephone companies already use their stranglehold on the broadband market to oust competition, says the report. The research is backed by two Internet service provider trade groups and EarthLink.

CFA's Cooper says just six companies own about 80 percent of the country's cable wires. Four own the same percentage of the telephone wires, he says.

The upshot, says the report, is that independent ISPs are almost unilaterally prevented from accessing cable or telephone infrastructures--lifelines the ISPs need to provide broadband service. It says the cable and phone companies have blocked equipment access, manufactured broadband shortages, and slowed innovation to boost their own businesses.

These companies "have already whittled down the number of independent ISPs," Pappas adds. The number of ISPs has dropped in recent years because of these anticompetitive polices, according to the report. While there are about 15 ISPs for every 100,000 dial-up Internet users, there are only two for every 100,000 broadband customers, it says.

Inconsistent Expectations

This report is the latest volley of industry crossfire over the future of broadband in America.

Powell has named broadband his number one priority at the FCC, an agenda furthered by a May court ruling ordering the FCC to revisit broadband regulations imposed by the 1996 Telecommunications Act.

To stimulate competition and innovation, the telecom act forces regional telephone giants, known as the Baby Bells, to make their communications networks available to new competitors. However, the FCC has ruled that cable operators are not subject to the same requirement, a decision criticized by some industry groups and by consumer advocates, including CFA.

"The cable operators have been unregulated, and the DSL operators have been ineffectively regulated," Cooper says. That's because the Baby Bells have found ways around the regulations by setting unnecessarily harsh conditions for new providers who want to use their networks, he says. "Essentially, the business opportunity is stillborn once you see what the terms and conditions are," he adds.

But the Baby Bells, led by industry powerhouses like SBC Communications and Verizon, argue the requirements prevent them from expanding and developing new technology.

Companies like Verizon are just looking to level the playing field against the cable industry, which currently owns 70 percent of the broadband market, says Susan Butta, a Verizon spokesperson. Both Verizon and SBC have pledged to keep their lines open to competitors even if the FCC deregulates the industry.

Opponents of deregulation counter that DSL providers and cable operators are offering separate services, with separate business plans, and are therefore not trying to cater to the same set of customers.

Because cable is more suited to video transmission, it focuses on the home consumer market, they say. DSL, on the other hand, is more desired by businesses, which do not have cable subscriptions.

"Our study shows that they do not compete with each other; they instead act like monopolies," Pappas says.

Regulatory Road Ahead

Though the FCC's agenda may not be announced until 2003, Powell favors deregulating the industry. In June, President George W. Bush said the FCC will determine broadband's future.

Meanwhile, a number of competing solutions are making their way through Congress, such as the Tauzin-Dingell bill and legislation proposed by Sen. Ernest Hollings (D-South Carolina).

The industry groups have another proposal of their own. If the FCC does rule to deregulate broadband, in response "the lawsuit will come in the blink of an eye," says Cooper.