TCS Daily

Trust the Bells?

By James K. Glassman - April 24, 2002 12:00 AM

"Broadband needs a new paradigm because the necessary investment is not being made," Matthew Flanagan of the Telecommunications Industry Association told TR Daily this month.

There is no question that investment in broadband - high-speed connections to the Internet - could pay big returns to the economy, if it is the right type. TechNet, an organization made up of 100 top high-tech executives, sees in the widespread deployment of truly high speed broadband connectivity a potential revolution in learning, entertainment, working, health and, even, national security. Estimates of economic benefits reach above $30 billion and as high as $100 billion annually.

But some anxious tech officials and federal regulators appear all too ready to place their trust not in a truly new paradigm for rolling out this technology, but a stale and failed old one. They are looking at giving new incentives to the regional Bell operating companies - the RBOCs that monopolize the local phone network - to do the job.

These friends of monopoly support a proposal soon to be decided on by the Federal Communications Commission that would exempt high-speed Internet access services from the rules that foster competition in basic telephone service.

Such action by the FCC would gut the Telecommunications Act of 1996, which opened the door to the Bells entering long distance service only if they opened their local loops to competition. . The elimination of unbundling requirements on high-speed elements would offer the Bells a swift way to quash incipient competition from competitive local exchange carriers, or C-LECs.

"How can you expect someone to invest in something if they have to make it available to competitors?" Computer Electronics Association president and chief executive officer Gary Shapiro asked in advancing the Bells' push to remonopolize phone service.

The real answer to that question is one word: Competition. The fear of competition is the only thing that motivates the Bells. As Karen Kornbluh of the New America Foundation has pointed out: Only when competitors to the Bells spent $90 billion on building out the phone system's backbone did the Bells get started getting DSL into homes. Such competition - in all modes of telecommunications - is the only sure way to keep monopoly phone and cable providers from simply dividing the telecommunications' market as they have for decades.

Without the stick of competition, the Bells will do nothing - no matter how you try to provide incentives.

Proof of that came at the end of March when the Pennsylvania Public Utility Commission had to order Verizon to amend its 2000 report on the rollout of broadband in Pennsylvania.

The reason: Verizon wasn't delivering what it had promised.

In 1993, Pennsylvania's legislature, at the urging of Verizon's pre-merger predecessor, Bell Atlantic, had given the phone monopoly rate relief to maximize profits. In return, Bell Atlantic promised to put the money into broadband that would reach all homes by 2015.

While the law itself left it up to the PUC to set the bandwidth, with a minimum of 1.544 million bits per second, Commissioner Terrance J. Fitzpatrick noted that Bell Atlantic/Verizon had committed to deliver nearly 30 times that speed - 45 Mbps -- on several occasions since 1995. Only in 2000 did Verizon lower that to 1.544 Mbps, he said, and the DSL technology Verizon had chosen for that task often didn't meet even that standard.

For current dial up users, with crawling bit speeds of 56,000 or less, the 1.544 Mbps speed may sound like heaven. And Verizon's Debra Berry, director of regulatory planning in Pennsylvania and Delaware, tried to make that point when she told the commission that 45 Mbps was a waste of bandwidth and transmission capacity.

That analysis ought to set off bells, all right, in the tech industry - big alarm bells.

For Pennsylvania's broadband requirements are truly modest compared to what TechNet proposes. In a January report urging government support for broadband's rollout, it set a goal of 100 Mbps to 100 million homes by the year 2010. Such speed is needed to provide the kind of real-time delivery of high definition graphics and sound and host of channels for a true communications revolution. It thus wants 55 Mbps more speed five years earlier for the nation than Berry and the Bells say is feasible or desirable for Pennsylvania.

So, while Verizon got the flexibility to charge consumers more - how much more, Pennsylvania has yet to assess - Pennsylvanians didn't get video on demand or the 300 to 800 extra channels they were being promised. Instead, they'll get asynchronous DSL - on which it will take them half an hour to download a movie, if they can afford it.

And what is true in Pennsylvania is true in such other states as neighboring New Jersey and Ohio as well. Rate relief has produced not advanced broadband but merely higher profits for the Bells.

Not happy with how they are being treated by state regulators, the Bells are using state legislatures to rid themselves of these obstacles. A recent example is a bill that passed in Oklahoma that removes broadband completely from oversight by state regulators. As a result of a huge lobbying effort by Southwestern Bell, the legislation passed handily. However, a competitive broadband industry had its heroes, such as State Sen. Bernest Cain who said about the bill: "It just builds in that there's not going to be any competition for small businessmen who want to compete with Southwestern Bell or get their services other than Southwestern Bell."

A better solution is what New Jersey's ratepayer advocate suggests - break up the Bells. Structurally separate their local network so that one arm could then lease at fair wholesale rates to everyone while a competitive retail side would make money from rolling out truly advanced broadband services.

The surest dead end for broadband is to give the Bells carte blanche to kill off their competitors and do what they think is best. The FCC and tech execs need to only look at Pennsylvania to see what they will get - not real broadband, but something much less.

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