12-07-2002

TELECOMMUNICATIONS: The Battle for Broadband

The battle over broadband technology is shaped by six self-interested
factions fighting for a prize that is huge because,industry experts say,
the high-capacity, high-speed communications technology can supply
consumers with a cornucopia of online entertainment, advertising,
communications, and services such as banking and bill payment.


The first front in the battle is the heavily regulated telephone sector,
where the Baby Bell telephone companies are struggling to extract their
new broadband businesses from existing telephone regulations.


The second front is the digital communications business, now dominated by
cable-TV companies such as Comcast and AOL Time Warner. These giants face
opposition from several factions, which fight in different arenas for
marginal advantage, simultaneously trying to win in the marketplace, in
state governments, at the Federal Communications Commission, and in
Congress, the White House, and the courts. The fights engage armies of
marketing executives and engineers and employ battalions of lobbyists and
lawyers.


Baby Bells


With the United States Telecom Association as their vanguard, the Bell
telephone companies-including Verizon Communications, SBC Communications,
BellSouth, and Qwest Communications International-have enjoyed success
over the last year. Customers are buying the companies' digital subscriber
line, or DSL, broadband services. The Bells hope the FCC will soon define
their broadband offerings as "information services," exempting
them from significant telephone regulation. Also, the Republican House
passed the much-debated Tauzin-Dingell bill, which would partially
deregulate the Bell companies' broadband offerings. Bell executives hope
that if their broadband businesses are released from the telephone
regulations, the Bell companies will win more investment, better
technology, and more customers. That in turn will foster competition
against cable-TV firms, generating more good for the public than federal
regulation can, say the Bells' advocates.


But the Bells have their problems: They're suffering from a lack of
investment capital, their DSL lines are seen as inferior to cable-TV
broadband services, wireless phones are cutting into their business, and
they're beset by rivals eager to lobby against them at the FCC or sue them
in court.


Rivals of the Bells


Represented by CompTel, or the Competitive Telecommunications Association,
the Bells' rivals are the small and midsize telecommunications companies.
Many were created after passage of the Telecommunications Act of 1996,
because the act required the Bells to let rivals use their networks under
terms to be set by the FCC. But the rivals have complained bitterly ever
since that the Bells have used myriad stalling tactics to avoid living up
to the act.


The smaller companies have been hit hard by competition from the Bells and
by stock market losses. Through CompTel, they're now trying to stop any
Bell-supported rollback by the FCC of network-sharing regulations in the
broad- band sector. Under the 1996 law, the Bells "have an absolute
obligation to open up their [network] facilities" for their rivals'
use, said Russell Frisby, CompTel's president. The FCC has many options in
this rollback debate, including one that would give state regulators much
leeway to set local policies-an option CompTel favors, said Frisby. In
these battles, CompTel and the smaller communications companies often have
the backing of the long-distance companies, such as AT&T, which
support existing telephone-sharing regulations.


Cable-TV Companies


The cable-TV companies are focused on the FCC's pending rules on cable-TV
"information services," including broadband offerings. The
industry, represented by the National Cable & Telecommunications
Association, is now unen- cumbered by major regulations and has invested
tens of billions of dollars to upgrade its lines into two-way broadband
networks. That investment is paying off: Broadband cables run within reach
of 75 million homes, and they have already won 10 million customers, or
roughly 70 percent of the broadband market. The largest cable companies
are Comcast and AOL Time Warner. Comcast, for example, sells broadband
services to 3.5 million of its 21 million customers. It is also providing
telephone service to 1.3 million cable-TV customers, much to the Bells'
distress.


The cable-TV companies have plenty of clout in business and in politics,
and they'll need to use it to fend off calls for curbs on their ability to
develop new revenue streams from new types of online businesses.
Executives at rival companies say they fear that the new businesses will
consist of the cable companies acting as well-paid gatekeepers between
retailers and consumers. For example, they say, cable companies could
charge other companies high prices for selling online services to
consumers. But Robert Sachs, president and CEO of the NCTA, calls this
"a fear campaign." He added that there are "a lot of
companies that use the regulatory process to advance their business
objectives."


High-Tech Companies


Many competing groups, among them Silicon Valley's TechNet association and
the Consumer Electronics Association, make up the high-tech faction. Its
main interest is accelerating the deployment of broadband services; the
technology is expected to spur demand for this faction's computer chips,
Internet routers, compact disc players, software, and online
services.


These groups dislike regulation and generally favor loosening FCC curbs on
the Bells' broadband divisions to help speed up DSL deployment. The
deployment of a Bell-managed broadband system would also create
competition for the cable companies, undermining their potential ability
to act as broadband gatekeepers. This "gatekeeper" threat is
sufficient to prompt some high-tech companies to suggest federal
regulation of the cable companies. The newly formed Coalition of Broadband
Users and Innovators is asking the FCC to prevent discrimination by cable
companies. Its signatories include the Consumer Electronics Association,
the Walt Disney Co., the National Association of Manufacturers,
Amazon.com, Yahoo!, and Microsoft. It is unclear how hard this coalition
will push for new regulations.


Content Owners


Hollywood and the music industry say they have a trump card in the
broadband debate: the consumers' apparent lack of enthusiasm for broadband
service unless it brings them the latest movies and music. These
copyright-based industries won't release movies or music until they are
reassured that broadband technology won't be used to pirate products on a
large scale.


The heavyweights are the Motion Picture Association of America and the
Recording Industry Association of America. They've been working with
Democrats such as Rep. Henry A. Waxman of California and Sen. Ernest F.
Hollings of South Carolina to promote laws and regulations that would
require anti-copying technology in high-tech products and broadband
networks. But neither the high-tech nor the communications companies want
to police the networks for piracy. Nor do they want to be held liable when
their products are used for piracy. They also do not want to announce a
copyright deal with Hollywood that would make their current products
obsolete and derail short-term sales. Indeed, some of the high-tech
companies advertise their products' usefulness in copying music-which is
legal when done for limited personal use, but illegal when done on a
larger scale.


The content owners would prefer a law protecting their copyrights on
material distributed over broadband technology. Even if they don't get
that, congressional threats to pass such a law may pressure the reluctant
communications and high-tech companies to sign an intra-industry deal
under which new consumer products would have to have anti-copying
technology. The content owners lost ground, however, in the GOP's November
sweep, which demoted Hollings to ranking member of the Senate's Commerce,
Science, and Transportation Committee. "We remain very
optimistic," said MPAA spokesman Rich Taylor.


Despite victories in the courts against such music-sharing companies as
Napster, this copyright faction's stake is also constantly threatened by
new technology that makes piracy easy or defeats existing anti-piracy
technology.


`Open-Access' Faction


Led by consumer groups such as the Consumer Federation of America, and by
advocacy groups such as the Center for Digital Democracy, the
"open-access" faction wants regulatory curbs on the cable
companies to prevent them from acting as broadband gatekeepers and
hindering consumers' easy access to diverse news and information. The
ideal of so-called open access, which is the norm when consumers use the
Internet through the regulated telephone industry, might fall victim to
the cable companies' new-business plans, says Mark Cooper, director of
research at the CFA. This faction also opposes copyright-protection
efforts by the content owners, saying that such efforts are excessive and
a threat to free speech.


This interest bloc has found common ground with some companies, such as
Intel, whose chip-production factories would benefit from a broadband
expansion. The faction may be further aided by the growing wariness among
high-tech companies about the cable companies' gatekeeper role. But in the
past, such corporate support for the open-access advocates has waned as
soon as the industry groups discovered common business interests. Thus
AOL's public criticism of cable companies ended as soon as it purchased
Time Warner and its cable-TV business.


The open-access faction relies heavily on lawsuits. One would require the
FCC to extend the telephone industry's "common carrier"
regulations to the cable-TV sector. The regulations include a legal
requirement to promote the "public interest." But the courts are
not as welcoming as they used to be toward public-interest claims,
prompting some in this faction, such as Jeff Chester, executive director
of the CDD, to begin developing a grassroots movement for open access.
Even if this movement wins only a modest number of supporters, its
influence could be magnified by the narrow divide between the two major
political parties, said Cooper. It is unclear whether this faction-with
its support among academics and consumer groups-will gain momentum in the
Democratic Party, perhaps creating a partisan division over cable-TV
regulation.


Some open-access advocates say they hope that wireless technology may give
them a winning hand. The hope lies in easy-to-use technology, such as
802.11 devices, which provide wireless broadband communications over short
distances. If vast networks of such short-range devices can be linked, the
result could be an alternative to the cable companies' offerings,
advocates say.


Neil Munro

National Journal