TCS Daily

Broadband All Alone as the New Economy's Weakest Link

By Duane D. Freese - May 29, 2001 12:00 AM

Heading into the Memorial Day weekend, Microsoft Chairman Bill Gates offered a bullish view of technology's future at his fifth CEO Summit in Redmond, Wash. But he offered a major caveat that lawmakers in Washington, D.C., had better consider as they go back to work.

"There is no hardware limitation that will affect what you want to do," he told the 140 corporate leaders, "but there is one exception and that is the cost of broadband."

Earlier this month, the House Energy and Commerce Committee approved a bill that, if enacted, would boost the cost of broadband even higher.

The misnamed Internet Freedom and Broadband Deployment Act, authored by Reps. Billy Tauzin, R-La., and John Dingell, D-Mich., and now in the House Judiciary Committee, would give the four regional Bell telephone monopolies a big plum: the right to provide long distance service for all Internet and data traffic.

In doing so, the act drives a huge hole in the Telecommunications Act of 1996 and its goal of creating competition throughout the telecommunications network. Key provisions of that law opened the door to the then-seven Bell operating companies getting into long distance service within their regions, but only if they opened their local networks to competition. In five years, they've sufficiently done so in only four states.

Now, by detaching data long distance from voice, the Tauzin-Dingell bill would give the Bells the most lucrative segment of the long distance market. And with many companies moving their voice traffic onto Internet Protocol technology, that means giving them access to the profitable voice long distance service for business, too. In addition, the Bells wouldn't have to lease parts of their high speed networks at discounted rates as the law requires them to do with other parts of their systems. Their 75 percent share of the DSL market likely will increase to the 90-plus percent they control in the rest of the local market.

It takes no genius to see that the Bells would then have almost no incentive to do anything but continue to drag their feet in opening up their local networks - networks paid for long ago by various access charges on long distance and other carriers. And there is little doubt of what will happen to prices with competition thwarted.

As Probe Research analyst Allan Tumolillo noted, with their competitors starved for capital, the Bells "are in position to roll out a strong regulatory agenda whose goal is to undermine whatever remains of the current crop of competitors and make the business a little more bleak for those that survive."

The Bells already have taken the opportunity offered by rivals' retrenchment and bankruptcy to hike local phone rates. In particularly bad news for broadband deployment, Bell giants SBC and Verizon have boosted charges for their broadband digital subscriber lines jumping 25 percent since February.

Furthermore, the reduction in competition and rising rates is having a perverse effect on Internet Service Providers. Lawmakers at least seemed to wake up a little to the reality that unleashing the Bells from regulation wouldn't achieve the goal of broadband deployment its sponsors initially envisioned. An amendment to the original bill offered by Dingell would require the Bells to deploy broadband in rural and inner-city areas in five years.

But that provision won't prevent the remonopolization of telecommunications by the Bells if the act is passed and more local competitors are put out of business. It won't lower broadband prices for the rest of the country. And this regulation means the bill won't even bring about the deregulation of telecommunications Tauzin said was its purpose. It would merely provide a means for the Bells to further squeeze and eliminate competitors.

To promote competition, rather than defanging the '96 Telecom Act, Congress needs to give it some teeth.

Federal Communications Commission Chairman Michael Powell at a telecommunications conference last week suggested that fines for companies that break the rules need to rise above "the noise level." The Bells paid nearly $500 million in fines last year; they amounted to less than a third of a percentage point of their revenues - a small price to pay to hold onto monopolies.

Powell held up the treble damages in antitrust cases as a potential model for providing telecommunications companies a real reason to obey the law.

The Computing Technologies Industry Group has endorsed a bill sponsored by Reps. Chris Cannon, R-Utah, and John Conyers, D-Mich. -- The American Broadband Competition Act - that would make violations of the Telecom Act's antimonopolization provisions subject to such damages.

As for Tauzin-Dingell, Tom Santaniello, public policy manager for the trade association of 8,000 companies and 8,000 information technology professionals, said that it "is the most harmful bill to the IT industry I have seen in the 107th Congress. CompTIA strongly supports and urges the Judiciary Committee to move on before the Bell's campaign of remonopolization is validated by their anti-consumer legislation."

And in remarks that resonate with Gates' a day later, Santaniello noted "Members in Congress need to understand that telecommunications and the IT industry are converging." he said. "If Congress wants to see continued innovation and economic prosperity, they must realize that dusting-off old brick and mortar monopolist policies for the New Economy will not work."

Competition, not remonopolization, is the key to making broadband widely available and more affordable. With competition, broadband would become a strength of a resurging economy and not its weakest link.

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