05-26-2001

TECHNOLOGY: The Battle for Broadband

An alligator head, its teeth spilling over with Mardi Gras beads, greets
visitors to Rep. W.J. "Billy" Tauzin's office. The Louisiana
Republican, known for his down-home style, kneels on the floor in front of
his guests and gently closes the alligator's mouth. All those sharp teeth
can be a little intimidating, he says.


But to most visitors, the teeth are probably not as intimidating as the
debate over broadband, in which Tauzin, chairman of the House Energy and
Commerce Committee, has become a central figure. His bill, which is
co-sponsored by Rep. John D. Dingell, D-Mich., the ranking Democrat on the
committee, would change the Telecommunications Act of 1996 to give the
Baby Bells, the telephone companies that dominate regional markets, more
control over their emerging high-speed networks.


What exactly is broadband? Also known as high-speed Internet access, it is
a group of technologies that enables faster transmission of larger
quantities of data than traditional phone lines and the standard 56K modem
allow. A broadband connection is also continuous, meaning there's no need
to dial up to establish a connection, and it lets users both receive and
transmit data at high speeds.


Computer users with broadband access can download software, video, or
other data-rich files in seconds, which would allow them to, say, view
movies on their home computers or laptops. The torrent of digital data
that can flow via broadband is expected to yield enormous revenues because
more consumers will be able to take advantage of a vast array of
entertainment options (movies, sports, video games) plus services such as
online banking, video telephone calls, and education courses-all of which
will attract advertisers.


Broadband transmission methods include cable; an enhanced telephone-line
service called digital subscriber line, or DSL; and satellite. A high
percentage of U.S. businesses in urban areas have broadband, but only
about 8 percent of U.S. households have the service. As telecommunications
companies race to develop and market residential broadband, the challenge
for policy-makers in Washington is to build a regulatory foundation that
encourages the rapid and profitable deployment of this new technology to
every corner of the country, while also stimulating competition. The
players fighting for slices of the broadband pie are cable television
companies, regional phone-service providers, competitive telecom firms,
and wireless and satellite companies.


The cable television companies, especially AT&T, AOL Time Warner, and
Cox Communications Inc., have about 5.5 million customers and dominate the
broadband market. They are largely unregulated by the federal government,
but the companies are subject to many city and county rules that treat the
cable companies as local monopolies. The companies are upgrading their
cable pipelines so that customers who are willing to pay roughly $40 a
month can receive and transmit much larger amounts of data at higher
speeds than is possible with rival technology.


In another corner are the seven Baby Bells' four consolidated descendants,
who are now selling broadband services via their upgraded networks to
approximately 2.4 million customers for about $50 a month. The Bells' DSL
technology converts their telephone lines into high-speed, two-way data
conduits. The Bells are heavily regulated by the 1996 Telecommunications
Act, a law that was designed to force them to share their networks (wires,
telephone poles, neighborhood switches, etc.) with a new generation of
competing telephone companies called competitive local-exchange
carriers.


These upstart CLECs occupy a third corner of the debate. They are
concerned that legislation such as the Tauzin-Dingell bill will eliminate
requirements now placed on the Bells to share their new broadband DSL
networks.


In the fourth corner are the wireless and satellite companies, which are
pushing their own broadband technologies, and the advocates for small
Internet companies and rural communities, who worry that they will be left
behind as the giants in the race for broadband market dominance rush
toward the future. Whichever group or groups prevail will likely capture a
large portion of the high-speed Internet market, producing many billions
of dollars in future profits for the winning executives and
shareholders.


On April 25, the players came out of their corners to argue in the
high-ceilinged hearing room of Tauzin's House Energy and Commerce
Committee. Those involved-AT&T, the Bells, CLECs such as Covad
Communications, and the respective trade groups-had hired line-standers to
get into position at 3 a.m., six hours before Tauzin gaveled the hearing
to order. Tauzin argued that his bill, which would give the Bells greater
control over their networks, would lift the current regulatory structure
that he sees as a disincentive to investing in DSL networks.


The Bells: We Need Incentives to Build More Networks


One of the most difficult parts of Gary Lytle's job is arguing his side of
the broadband debate in terms that are understandable. Lytle is the
interim president of the United States Telecom Association, which supports
Tauzin-Dingell. He has to find stories and explanations that show
legislators "why the public would give a damn" about the debate,
he said.


Tauzin-Dingell is necessary, Lytle says, because the 1996 act put the
Bells at a disadvantage. Because they have to share with the competitive
local-exchange carriers any new DSL networks they build, the Bells have
little or no incentive to upgrade their copper-wire networks to handle
high-speed data, he says. "If you want to bring high-speed Internet
to the country ... how do you incentivize our members to do more of
this?" Lytle asked. His answer: Give them more control over-and thus
more returns from-any new DSL networks they build.


That's pretty much what Tauzin said in his opening statement at the
hearing, as did several other legislators who support Tauzin-Dingell. Bell
Verizon Senior Vice President Thomas Tauke said repeatedly during the
day-long hearing that the Bells need regulatory relief. After the hearing,
Lytle said that "an unpleasant surprise" of the day was the
fiercely worded opposition to the bill that came from Rep. Chip Pickering,
R-Miss. Pickering called the bill "a sham," "fundamentally
flawed," and damaging to the Bells' rivals, companies such as Covad
and telecommunications giant WorldCom. Rep. Edward Markey, D-Mass., who
played a central role in getting the 1996 act passed, also came down hard
on the Bells, saying they were working to limit the competition that the
1996 act sought to create.


Markey introduced an amendment that crystallized one of the criticisms of
the bill: that it is impossible to tell the difference between data and
voice as each travels across the network (both are digitized into binary
code), so the regulatory relief for data promised in the bill would by
default apply to voice as well. The tongue-in-cheek amendment brought
claps and cheers from the hearing room. It stated that "someone,
preferably a senior corporate employee with years of experience in
analyzing zeros and ones, shall possess the authority to determine which
bits are which as they zip through a network literally at light
speed."


But Lytle sees Tauzin-Dingell as a way to get DSL service to all
Americans. If the Bells, with their ubiquitous networks, can't compete,
customers will turn to the only other network that comes to the doorstep
of nearly all Americans: cable.


Cable: Enforce the 1996 Telecom Act


James Cicconi, general counsel for cable giant AT&T, showed his
ability to handle fastballs at the hearing. When he was a kid, he said, he
wasn't great at pitching, but he "practiced and threw constantly
until I was able to make up in arm strength and technique what I lacked in
natural ability." He now pitches in a hardball league.


While other cable-TV players, such as AOL Time Warner, remained out of
sight at the hearing, Cicconi faced repeated questions from the authors of
the bill. They accused AT&T of wanting to keep its competitors heavily
regulated. Cicconi disagreed, saying, "Cable has all sorts of
regulatory impediments," especially from state and county
governments. "Congress has historically set up different regulatory
schemes" based on a particular industry's circumstances, he noted.
Cable companies already have more than 70 percent of the broadband market,
compared with the 30 percent share owned by the Bells and some competitive
local-exchange carriers.


Dingell, in particular, tore into Cicconi. The Congressman demanded to
know whether AT&T would invest billions of dollars in cable networks
should it be forced to share those upgraded networks with rivals, as the
Bells must. It's not that simple, Cicconi replied, before Dingell cut him
off by demanding a yes or no answer. "I absolutely was most
uncomfortable being questioned by John Dingell," Cicconi said later,
because of Dingell's knack for phrasing questions to "compel you to
give answers that support his position and undermine your
own."


Cicconi emphasized the uncertain fates of the many telecommunications
companies, such as Covad, which were created in the wake of the 1996 act
that tried to encourage competition. He said Tauzin-Dingell "would
destroy the people who invested based on the act and transfer their
investments into the pockets of the local monopolies."


Bell Rivals: Share Networks to Spur Competition


That argument played well to a number of legislators and was echoed by the
chief executive officers of two Bell rivals, Covad and McLeodUSA Inc.
"The Bells were trying their hardest to ignore us," hoping that
legislators would also ignore the Bell competitors and their uncertain
economic future, said Jason Oxman, Covad's senior counsel.


Bell competitors such as Covad have a steep climb in front of them, said
Oxman. The climb can be a literal one. For example, when Covad sought to
offer DSL service in New Jersey via Bell Verizon's phone network, it had
to build its own staircase into the telephone-exchange building after
Verizon refused to let it use the main entrance.


Upstart companies routinely face such hurdles when trying to provide
service, and they stand to lose the most in the debate over Tauzin's bill.
Because the telephone network was built under a heavily regulated monopoly
and would be financially and physically impossible to replicate, lawmakers
said, competitors should have access to that infrastructure. Eliminating
line-sharing requirements, as Tauzin proposed, would cut competitors off
from their customers. Many would go out of business, thereby giving the
Bells a chance to scoop up their competitors' assets and cement their own
regional telephone monopolies. Just talking about it in this already-shaky
economic climate may deter investors, thus cutting off Covad and other
companies from much-needed capital, opponents of the bill said.


The potential harm to Bell rivals is an important issue to legislators
such as Markey, who say that the Bells kept DSL technology on the shelf
until they feared competition from Covad and others. "What has
happened?" Markey asked. "Paranoia. [Not] until they faced
competition did the Bells decide to do something with the
technology."


Silicon Valley: Jump-Start Economy With Bell Networks


Sitting beside Covad's CEO at the witness table was Peter Pitsch, a
lobbyist for Intel Corp., which dominates the microchip market. Pitsch's
argument is relatively straightforward: Congress should accelerate the
deployment of broadband technology by giving the Bells more control over
their DSL networks. That would be good news for Intel, because its
microchips are the building blocks of the information economy. Pitsch
emphasized that a rapid broadband rollout would also help many software,
computer, and Internet firms in California, Texas, Virginia, and other
states, perhaps rescuing some from the dire straits they've fallen into
with the decline in the technology sector's fortunes.


Pitsch's argument was so appreciated by Tauzin that he asked him to repeat
it several times throughout the day. But Pitsch also had a kind word for
the smaller telephone firms: He argued that the Bells should still be
forced to share their traditional telephone voice networks with the
upstart phone companies, as required by the 1996 act.


The FCC: In the Middle, at Least for Now


The Federal Communications Commission, charged with implementing the 1996
act and ensuring that the Bells play by the rules, is stuck in the middle
of the debate. As a federal agency, it can only implement the law; it has
no authority to change it. But the FCC does have some leeway in its
enforcement authority, and many industry observers are keeping close watch
on President Bush's recent appointments to the commission. Five
commissioners head the agency, with up to three coming from the party that
has the White House. In January, Bush promoted commissioner Michael
Powell, a Republican, to the chairman's seat. On April 6, he named two
Republicans, Kathleen Abernathy and Kevin Martin, and one Democrat,
Michael Copps, to fill open seats. Gloria Tristani, a Democrat, was
appointed in 1997 by Clinton.


Powell has made some statements in support of deregulation, but he has
also endorsed the 1996 act as a success. In his first press briefing as
chairman, Powell said, "Deregulation is a critical ingredient to
facilitate competition," not a "dessert" to be offered
after competition is demonstrated. But he later asked the House
Telecommunications and the Internet Subcommittee to increase the FCC's
enforcement authority. "Our fines are the trivial cost of doing
business," and the agency must be able to send the signal to
companies that "if you cheat, I'm going to hurt you and hurt you
hard," he said.


Tristani will oppose any FCC shift toward deregulation. On the day of the
Tauzin-Dingell hearing, she took a 7 a.m. flight from Baltimore-Washington
International Airport to Puerto Rico, her home, where she met with
executives from local telecommunications firms. Like Covad, these firms
say the FCC must force the Bells to share their networks if consumers are
to get the benefits of competition. But Tristani believes the omens in
Washington are not good for these firms. "Everything I've seen from
the new Administration sends a signal that they do not believe in a level
playing field," she said. Things could get worse for these firms:
Tristani plans to leave the FCC, a move that would allow Bush to pick a
fourth commissioner. But because Tristani occupies one of the Democrats'
two FCC seats, top Democratic legislators will have a strong say in who
replaces her.


The Outsiders: Give Us `Open Access'


While lawmakers and industry executives were clashing on Capitol Hill,
Stephen Heins was out in Wisconsin driving down to a nursing home in Fond
du Lac. Heins is the marketing manager for NorthNet, a small Internet
service provider in Oshkosh that doesn't own any communications lines. His
visit to the home was part of a program that brings Internet-ready
computers to the elderly. Local companies donate the computers, and
volunteers upgrade them so the seniors can chat via e-mail. The program is
good for Heins's business, which-like many small Internet vendors-is
rushing to win as many subscribers as possible before cable companies
offering high-speed service snatch them up.


Those large cable firms are Heins's chief worry because they face few
legal barriers to reserving their high-speed lines for their own TV
programs, online magazines, music, advertising, and other Internet
content. Small firms such as NorthNet worry that their online customers
will be unable to use the cable lines unless they agree to use the cable
company's Internet access service as well. Many fear the cable company
will push its own and its business partners' news, music, and other online
content, as well as advertising for products such as cars and food, and at
the same time block out competing Internet service providers. Last year,
Heins said, Time Warner showed just such a controlling tendency when it
kicked Disney programs off its New York cable-TV lines during a contract
dispute.


This is the main concern of "open-access" advocates. They
include content-making companies such as Disney, but they come primarily
from the political Left and include some state and federal legislators,
such as Markey. They say public debates could become skewed toward
corporate priorities unless the federal government requires the major
broadband companies to share their networks with many content providers,
including small ones, such as rival news sites-just as the Bells are now
required to share their networks.


Last year, the FCC imposed some open-access rules on AOL in exchange for
approving its merger with Time Warner. The agency is currently considering
whether cable networks should be viewed as telecommunications services
that are required to open their lines to competing companies. A decision
could come as soon as this summer.


Rural Interests: Connect Us Quickly


Tauzin's hearing generated support for regulations that would push the
Bells and the cable companies to provide broadband technology in rural
areas. Tauzin is receptive to some types of rural remedies, partly because
these might provide the votes he needs to beat back legislators who favor
regulation of the Bells. Tauzin issued a warning: Unless the Bells are
given more control over their own networks, "areas in which broadband
services are not available are in jeopardy of being left out of the
Information Age. Internet-dependent businesses will not locate in rural
areas if broadband is unavailable."


Critics say Tauzin's bill would do nothing to encourage broadband in rural
areas, because it fails to create a financial incentive to offer the
service to relatively few customers spread over large areas. But at the
full committee vote on the bill, an amendment was added that would require
the Bells to keep extending high-speed service. They would have to be able
to offer DSL service to 20 percent of their customers within one year of
the bill's passage, 40 percent within two years, and 100 percent within
five years. Critics say the measure is disingenuous, because the Bells
already plan to offer DSL service to 40 percent of their customers by late
2003. They wouldn't have to do much extra work until 2004, when the
requirement hits 70 percent.


The rural-urban divide will be an important part of the broadband debate
when it begins again in the Senate. Three Senators who have shown a keen
interest in broadband come from states with significant rural populations:
Sam Brownback, R-Kan., John D. Rockefeller IV, D-W.Va., and Conrad Burns,
R-Mont., who chairs the Communications Subcommittee of the Senate
Committee on Commerce, Science and Transportation. Concerning broadband,
Burns is still on the fence in the fight between the Bells and rival phone
companies such as Covad, said his press secretary, Gina Carty.
"That's totally up in the air. He's been having an ongoing series of
meetings with both sets of representatives."


The Entrepreneurs: Technology Will Change The Debate


Some 3,000 miles away in California, as legislators and witnesses traded
barbs in Tauzin's committee room, Cliff Skolnick drove his Audi TT
roadster from his apartment in San Francisco down to his house in Santa
Cruz, at the north end of Monterey Bay. He is a wealthy high-tech
consultant. His usual attire is jeans, sneakers, and rock `n' roll
T-shirts.


Skolnick is pushing a new technology that could profoundly affect the
debate about broadband. Called "WiFi" (a corruption of hi-fi),
this technology uses compact transmitters to provide broadband service to
modified computers within 200 feet of a rooftop antenna. The antenna-which
costs roughly $400 and is attached to an electronic box about the size of
a hardback book-can receive and transmit about six megabits of data per
second to laptop computers, televisions, wireless phones, and other gear.
The WiFi antenna can't solve the entire broadband problem, however,
because users must also rent communications links, such as DSL lines or
cable lines, to move the data over longer distances to another antenna.
But the WiFi antenna can easily swap data with many types of nearby
computers. Such technology-and others under development-could spur demand
for broadband, while reducing its cost.


On May 9, two weeks after Tauzin's hearing, his bill was approved by the
full committee, 32-23, after the narrow defeat of an amendment that would
have required the Bells to continue sharing their upgraded networks. The
bill now heads to the Judiciary Committee, and then to the House floor.
There is little sign of action in the Senate, and no one expects a quick
resolution to this controversy. Like the teeth in Tauzin's alligator,
broadband's tangle of issues will continue to intimidate.


Teri Rucker is a senior writer at National Journal Group's
TechnologyDaily.


Neil Munro and Teri Rucker

National Journal