Monopoly or Access?

As the FCC is tapped by the courts to rule on cable access, the US Internet Industry Association (USIIA), a pro-ISP lobbyist, argues that AT&T/Excite@Home and AOL/Time Warner will soon have unstoppable monopolies in place unless the FCC can move faster than government agencies usually do.

by Patricia Fusco
of internetnews.com

The Federal Communications Commission announced an intention to act when Chairman William Kennard said he would take a look at competitive access to cable networks.

At issue is independent Internet service providers' ability to gain access to cable companies proprietary high-speed systems.

The history
In November, the FCC unleashed a "Line Sharing" order that directed regional bell operators to unbundle elements of their networks by mid-June.

The FCC took last summer to review digital subscriber line competition in the U.S., this summer it intends to establish guidelines for formal proceedings to review cable access competition.

Just as deploying DSL service requires agreements with incumbents, independent Internet services providers strike deals with local cable franchises to deploy coax-based broadband services. While DSL agreements are becoming commonplace, cable deals remain elusive.

The future
Is the FCC ready to set the tone of future cable interconnections? Its line sharing order has been a key factor to accelerating DSL deployment nationwide. Could the communications regulator do the same for cable by forcing companies to play fair?

The present
At a press briefing last week, Chairman Kennard indicated that the Commission may drop its "hands off" policy toward cable in favor of a dirtying its hands in competitive policymaking.

Kennard said that the FCC's change of heart was the result of the 9th Circuit Court of Appeals ruling, commonly known as the "Portland Decision." He said the court paved the way for federal regulators to scrutinize competitive cable access in the U.S.

In its ruling on AT&T v. City of Portland, the court recognized that the FCC has the authority to establish a national broadband policy.

Because the court ruled that cable broadband access is akin to digital subscriber line service, the FCC is free to apply the laws on digital subscriber services to broadband cable networks.

While the FCC has been successful in ILECs to open COs to rivals, it remains to be seen whether the federal regulators would do the same for cable modem access to the Internet.

Portland, Washington
Kennard said that it's the right time to take a good look at competitive cable access.

"I continue to believe that there are powerful marketplace incentives that will move the cable platform to an open platform," Kennard said. "Now is an appropriate time for the FCC to address the legal issues and to assess developments in the marketplace."

The FCC filed a "friend of the court" brief in the Portland case that outlined the need for a national broadband policy. In its amicus brief, the FCC said it was leery of intervening in cable issues because neither Congress nor the courts had yet determined whether it had jurisdiction over cable-based high-speed Internet access.

Taking a partial cue from the FCC, the 9th Circuit Court determined that cable service is both a telecommunications and an information service.

Kennard said that calling cable a telecom service does not necessarily mean that it is subject to all of the common carrier regulations that apply to telephone companies.

The primary purpose of the forthcoming FCC proceeding is to resolve these issues and bring clarity and certainty to regulations applied to the broadband market in the U.S.

AT&T was quick to champion the Portland decision that would not allow the city to force an open access tenet on its cable franchise for the area.

AT&T's freedom to innovate
When the 9th Circuit Court of Appeals ruled on the case, Jim Cicconi, AT&T general counsel, said the firm was pleased with the decision because it clearly set the limits a local authority could place on the firm.

"Now that the court has made clear Congress' intent to bar ordinances like the one enacted by Portland, AT&T (NYSE: T) and other cable companies will be able to get on with investments that will bring advanced services to millions of Americans," Cicconi said. "In particular, AT&T looks forward to bringing our high-speed service to the people of Portland as soon as possible."

AT&T's celebration may have been premature. While the decision limited local authority, it opened the door to federal authority to regulate the broadband marketplace.

Cable Broadband service provider Excite@Home (NASDAQ:ATHM) and AT&T partner, also applauded the ruling.

The firm released a statement that noted similar decisions in state courts had rejected calls for regulation of cable access, adding "hopefully this will end the forced access debate."

Excitement
However, the official debate at the FCC is just beginning.

Whether it's dubbed open, shared or forced access, the discussion is likely to rage on well into next year. AT&T and Excite@Home have announced plans to share cable delivery systems with competitors when the exclusive nature of the company's original deal expires in 2002.

The FCC may determine whether a two-year timetable equates to competitive cable access or if a revised deal between the two companies may need to be struck now.

In the meantime, AT&T has laid the groundwork in Massachusetts to share its cable facilities with rivals after a consumer group agreed to drop its open access referendum from November's ballot.

The telecom giant also issued a letter of intent stating it would share its cable systems with EarthLink, Inc. owned MindSpring Enterprises.

AT&T's actions may make it difficult for the FCC to declare cable modem access non-competitive. But the FCC could decide that two years is too long to wait for competitors to share cable facilities.

Et tu, Brutus
At the moment, Cablevision Systems Corp. is a larger threat to AT&T's cable schemes and dreams than the FCC. The small cable player tossed a legal grenade onto AT&T's attempts to take control of Excite@Home cable operations.

Cablevision filed a lawsuit in the Delaware State Court alleging breach of contract against Excite@Home , AT&T , Cox Communications Inc., and Comcast Corp in June.

AT&T Cable announced its plans to rearrange relations with each Excite@Home partner in March in order to acquiesce control of its cable partner. The deal was set to close in last month after Excite@Home shareholders voted whether to accept the agreement, or not. The vote was abruptly postponed until Cablevision's court action is settled. Like any other facet of Internet connectivity, AT&T's ability to profit from providing cable modem access to the Internet depends on the scale and scope of operations. Operating control of Excite@Home is critical to AT&T's plans.

AT&T may think it's sitting pretty for a FCC review of cable competition, but the courts could throw a wrench into is goal to obtain an economy of scale in cable services.

Prey
The review of cable competition allows the FCC to determine the future of RoadRunner, at the heart of the America Online, Inc., Time Warner, Inc. merger. Although the media mega merger appears worthy of approval by both the Federal Trade Commission and the FCC, the deal is far from done.

Since America Online accomplished what Wile E. Coyote never achieved — capturing RoadRunner — it has been accused of betraying fellow ISPs, its former allies in the open access fight. The nation's largest online service also stands accused of greedily protecting its proprietary instant messaging services, like Winnie the Pooh protects his honey. And Time Warner is accused of eliminating ads from competing ISPs on its network (see "Time Warner Denies Advertising To Regional ISPs").

AOL, like AT&T, has publicly indicated that it would share cable facilities with rival ISPs. But no federal agency is tasked with reviewing AOL's dominance of narrowband Internet services in the U.S. and how its market power could translate to broadband monopoly when it crosses to the cable side of the street.

The big blue triangle vs. the death star
If AOL can keep RoadRunner intact during its Time Warner takeover bid, and Cable Vision stops AT&T's plans for Excite@Home in its tracks, AT&T has a lot more to fear than FCC scrutiny. It may become the Elmer Fudd of cable access, never capable of wrangling that rascally rabbit-like AOL, no matter what traps AT&T may have set.

Two things are certain as the battle for cable broadband services continues. First, consumer demand for the product is high and it's impatient, ready to leap on the first high-speed service provider that comes to town.

Second, no one's going to hear Porky Pig stutter "that's all folks" until the FCC sets forth a national broadband policy, once and for all.

Use the force
Indeed, those ISPs who feel betrayed have begun to fight back. Formed in 1994, Virginia-based US Internet Industry Association (USIIA) is a non-profit trade association organized to promote the growth of Internet businesses as a legislative advocate for more than 400 Internet services.

The USIIA Friday filed a petition with the Federal Communications Commission asking that cable Internet services be required to fulfill legal obligations to open their networks to rivals. Dennis Hayes, USIIA chairman, cited the 9th U.S. Circuit Court's June ruling in Portland as the basis for its filing with the FCC.

"The court has declared cable Internet to be a telecommunications service," Hayes said. "This ruling automatically subjects cable Internet services to laws that mandate open competition on their networks."

Hayes reprehended the FCC for its inactive stance on cable modem access issues in the U.S. "The failure to act, and continuing efforts to postpone consideration of these issues, will result in substantial and irreparable harm to the Internet industry and to consumers," Hayes said. "We are asking the FCC to do the job Congress gave it to do; open these services to competition, and do it now."

1996 = 1776
Hayes said the Telecommunications Act of 1996 specifically requires that the FCC to create and maintain a competitive environment for telecommunications service.

"The Commission has failed to do this in the cable Internet industry, which has limited the growth opportunities for more than 8,000 Internet Service providers nationwide," Hayes added. "We believe that the time has come for the FCC to stop protecting the narrow interests of cable operators and open their networks to the competition that consumers deserve."

According to USIIA, cable operators continued to avoid sharing networks with rival Internet service providers. The group said cable operators claimed that it was technically impossible for ISPs to interconnect with cable services, but that technical limitations were false.

USIIA said AT&T Corp. and cable partner Excite@Home contested the results because different cable headend technology was used, other companies have developed systems that share access to cable networks.

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Free the consumers, not the monopolies
Cable companies can no longer deny that sharing coax facilities is technology impossible. But USIIA's Hayes said the heart of the issue is consumer choice.

"We are in the midst of a revolutionary transition from dial-up connections to the Internet to a new generation of broadband services, and we must make this transition as seamless as possible to the individuals and businesses moving to broadband," Hayes said.

The USIIA noted that FCC Chairman William Kennard last week announced the nation's communications regulator would look into the competitive issues at work in the cable access arena. But Hayes said the FCC has not set a date for any proceedings nor indicated when they might begin.

The USIIA called for immediate action, demanding that telecommunications services be treated equally under the law, regardless of the facilities used.

—End