TCS Daily

Getting Connected

By Duane D. Freese - March 25, 2002 12:00 AM

Quotes are powerful weapons, especially when they come from an unexpected source.

So Rep. Billy Tauzin, R-La., and Rep. John Dingell, D-Mich., seemed to have unleashed a bombshell last week at Sen. Ernest Hollings' Senate Commerce Committee hearing on their bill to deregulate the regional Bell phone monopolies. They quoted AT&T CEO C. Michael Armstrong to support the thrust of their measure - to free the Bells of regulation for the high speed elements in which they invest. .

"No company will spend billions to become a facilities based broadband services provider if competitors who have not invested a penny of capital, nor taken an ounce of risk, can come along and get a free ride on the investments and risks of others," they repeatedly quoted Armstrong as saying.

Well, Armstrong did say that. But context makes both Tauzin's and Dingell's use of the quote either disingenuous, deceitful or just plain dumb - and neither man is stupid.

What was the context of Armstrong's statement? He made it to TR Daily back in 1998. His remark was a response to demands then being made by some states and communities that cable firms open their cable pipes to all Internet Service Providers. At the time, AT&T, in the aftermath of its purchase of TCI, was spending tens of billions attempting to make those pipes suitable for two-way data and voice traffic on top of the one-way video traffic they already carried.

The potential problem open access created for AT&T and other cable operators at the time was that cable was - and still is - a shared medium. What does that mean? Well Angele Gilroy and Lennard Kruger put it succinctly in their report for the Congressional Research Service, Broadband Internet Access. "Because cable networks are shared by users, access speeds can decrease during peak usage hours, when bandwidth is being shared by many customers at the same time."

Video subscribers might lose channels if foreign ISPs were given free rein for broadband services, and the broadband services themselves might slow to a 58k modem crawl without controls. With a shared system, there is always a problem of policing usage.

The same circumstance doesn't apply to telephone lines, as both Rep. Dingell and Rep. Tauzin are well aware. Phone lines are dedicated - from home to central office. So, having a host of ISPs doesn't matter. It's just a matter of hooking up phone lines.

The Bells tried to make the case that the Internet was overtaxing their systems. They protested mightily when the Federal Communications Commission denied the Bells per minute access charges in the early 1990s. Even an access charge of one cent a minute - 60 cents an hour -- would have raised the cost of surfing or working on the net by $10, $20, $30 or more a month. At the three cent to five-cent range the Bells hoped to charge, the Internet would have come to a screeching halt.

The clogged arteries of the old phone lines cleared up, though, when the Bells learned they could get a lot of customers to sign up for second phone lines for their web surfing.

In order to maintain the sales of those second lines, the Bells pulled another trick. After passage of the Telecommunications Act of 1996, with its requirement that the Bells open their lines to competitors, the Bells would force the new competitors - called competitive local exchange carriers, CLECs - to lease a second line from the Bells if they wanted to deliver high speed digital subscriber lines (DSL) to customers. The reason: They didn't want to risk an interruption of the vital voice service from DSL.

But DSL uses much higher frequencies than those for voice. So, as the CRS report noted above points out, customers with DSL lines "can talk on their telephone while they are online, and voice service will continue even if the (DSL) service goes down." This is one reason that the FCC in 1999 ordered that the Bells provide "line sharing" for the purposes of DSL delivery.

It was after that decision in 1999 that the Bells began their big push for legislation to free them from the strictures of the Telecom Act, all in the name of incentivizing them to deploy broadband to the nation. The Tauzin and Dingell bill, as passed by the House on Feb. 27, was the culmination of that effort. The sour greeting the bill received in the Senate should signal its end.

For to truly encourage broadband deployment, the need first is to create a truly level playing field. And to do that lawmakers and regulators need to take into account both the digital differences between mediums and the historical precedents that brought the nation to this broadband crossroads.

As much as people talk about a convergence of services and regulation, cable and telephone are not the same. Open access on one can degrade service, making it less viable as an alternative full-service telecommunications provider; on the other, it can promote vibrant competition, as long as a monopolist provider doesn't extort by its favored position huge sums.

Cable networks have been built almost in their entirety with private venture capital. The more than $40 billion expended to make it broadband compatible is a huge gamble if the industry cannot sell the new services. The money monopoly local phone companies invest has a pay back in reducing maintenance and other costs of its old copper network whether or not broadband customers sign up. Only that last little trip of fiber to the home is really costly, which is one reason that DSL capability is what the Bells are promising, not an all-new fiber network.

Finally, the free riders on the cable system actually would make no investment in the network. The so-called free riders the Bells worry about -- ISPs and C-LECS - provided the Bells with the wherewithal to expand their systems profitably. They also demonstrated how it could be done. After all, the Bells had DSL technology for a decade, but it took CLECs and ISPs to show them how it might be used.

TCS Daily Archives