The Pizzo Files

An Argument Against Universal Broadband Access


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You've all seen the ads.. the nasty signs painted on people's houses in a tidy suburban neighborhood - "LOG OFF!" and "NET HOGS LIVE HERE." War has broken out for the hearts and minds of bandwidth loving Americans. The phone companies are -- after a decade of stalling -- frantically trying to roll out DSL service as Cable TV companies rush cable modems into homes they already serve with TV. The argument is over which provides the most capacity over time. Since cable capacity is shared among those in the same general area the phone companies claim that cable modems slow to a crawl eventually. But, for those trying to get DSL service out of their local phone companies, just getting the service installed and working properly has proved a challenge.

But a third battle is brewing as well. When long distance services were deregulated local phone companies were required to open their systems to other phone companies. Now, content providers, like America Online, are trying to muscle their way onto cable systems using the same arguments the phone companies use. Of course, the cable folks are not about to give AOL a free pipe through which it can resell its content to cable company customers. And so, the whole matter is now in the hands of the courts and Washington.

Recently we interviewed Jonathan Zuck, who is the president of the Association for Competitive Technology and a member of the board of Net Compete Now. Both groups are against federal regulations that would impose upon cable broadband providers the obligation of allowing independent ISPs to simply get a free ride on their cable systems.

Pizzo: While local governments can regulate cable TV access and programming within their markets, your group doesn't want them also regulating or having any say over broadband data services. Is that correct?

Zuck: Let me back up a bit first. What's at issue here is that a real business model has grown up around putting in a lot of phone lines and providing a bank of phones that allows modems to connect to the Internet backbone. And those businesses are called ISPs or internet service providers. In the cable world, that need for a translation to take place between the end user trying to get on the Internet has disappeared, and so a lot of ISPs would like to see a situation in which the cable companies are forced to allow them to play the role of ISP, which under a new regime would be more like just a reseller of services. In other words, they wouldn't be adding any kind of value to the underlying infrastructure. There's an argument to be made that they add value in other ways, as a reseller providing some other kind of value-added services, etcetera. But from an infrastructure standpoint, they no longer bring anything to the table. And so what you have is a situation in which some of those ISPs, although not all of them, have been arguing in favor of the government intervening, and the federal government has been very resistant to do so. Chairman Kennard of the FCC has said that the industry is far too nascent -- cable represents only about 2 percent of Internet access right now, so it's tough to think of it as any kind of a monopoly, and regulation at this point would stifle the growth of broadband Internet access. And so the proponents of forced access took this battle to the streets, so to speak, and started trying to challenge it in local districts, and while over 95 percent of these cable transfers have gone through unopposed, there have been a few localities that have ruled in favor of forced access. One of them was in Portland, and that was just recently overturned by the Court of Appeals.

Pizzo: How does the cable industry differentiate then between TV programming that it carries on cable, in which local governments do have some say, and data services? What's their reasoning?

Zuck: There's two answers to that question. One is that it dates back to a time when they were basically a government-sanctioned monopoly, which they were the only game in town. It was illegal in some places to compete with the cable company. And so whenever you're bequeathed a monopoly in this way, you accept some level of regulation from the entity that bequeaths this monopoly upon you. That monopoly is already beginning to erode. There's already competition from companies like Star Power and others that are competing -- there's the phone companies, the power companies, everyone is getting into the cable television wars. But second and perhaps the more important is that the nature of the content is very different as well. In that case, it's saying that the cable companies have to carry certain programming and make certain channels available, but in the context of the Internet, all content is available anyway. None of this has to do with censorship or restricting the user's ability to get to particular Web sites. Once you have an Internet connection in place, you're welcome to go to any Web site that you want to, and so it's very different in that respect, in that there already isn't any control by the cable companies or any other ISP for that matter of the content that people view.

Pizzo: One of the arguments that could be made on the other side, in favor of some degree of federal regulation, is the merger between AT&T and AOL. The proponents could say, "Look, we're seeing a convergence here and what's going to end up happening is these major cable companies are going to end up merging with major content providers until there's just a few broadband cable ISPs. And, when it all settles out what we really need to have is more competition as we did in the phone business, therefore some degree of regulated open access should be provided for smaller ISPs.

Zuck: Well, the value of competition, I think, has more to do with value-added services. Again, remember that in the context of broadband, the ISPs don't really bring anything to the table as far as the customer is concerned. They don't give you access to more information, and the more regulation there is, the less likely it is they're able to bring you any kind of different pricing. So it's really a reseller relationship that people are trying to get imposed on cable. It's not a question of choosing between infrastructure providers. I mean, so, it's very questionable what benefits would actually be derived, like creating a sort of contrived competition between resellers of broadband. And furthermore, cable is not the only game in town either. Not only is Time Warner not the only cable company, because you have AT&T, etcetera, and Talk, but cable is not the only game when you consider fixed wireless, satellite, DSL that comes you know from the phone company. There are four or five equally viable means of getting broadband access into the home besides cable, so there will be competition between infrastructure forms, if you will.

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