Unbundling Cable

by Patricia Fusco ISP-Planet Managing Editor [May 18, 1999]

Market failure is the measurement utilized by the FCC to determine whether regulatory intervention is necessary in an industry. Market failure takes place when a single firm possesses monopolistic control of an essential or bottleneck facility, or where economic forces are such that unregulated competition produces a net welfare deficit.

That's bureaucratic-speak for how the federal government legally leverages large companies at the forefront of their industry into expending monetary resources in less profitable markets.

The prevailing FCC economic theory concerning third party rights of access to essential facilities has been reaffirmed in court. At least reciprocal compensation is still standing and it's reported that common local exchange carriers will divvy up over $12 billion this year in payments from incumbents.

There are three parts of the federal litmus test that determine whether a service is considered an essential facility. First, a service is considered an essential facility when a third party is required to use the service in order to compete. Second, if the third party can not purchase the service from another supplier, then the service is an essential facility. Finally, a service is an essential facility when it is not economically feasible for the third party to duplicate the facility.

Unbundling cable networks meets FCC essential facility criteria on all three counts. An ISP can not compete with broadband cable access without leasing the service from the local cable network operator. The Local Franchise Authority already assures that competition for broadband cable access is regionally specific, so an ISP has no other source from which to obtain the service. Finally, it is not economically feasible for most ISPs to build a new cable network so they can provide the last mile of broadband Internet access.

Cable companies are already putting up a good fight against unbundling. CEOs are citing the billions of dollars they have invested in building their networks to expand access. They have testified that any regulation requiring cable networks to open up access will result in higher costs for consumers, and decreasing development and deployment of broadband access.

The prognosis remains simple. It's not a matter "if" the FCC will move to unbundle cable networks. It remains a matter of "when" the federal government will move to legislate. Of course, the final negotiations to settle the matter will be "how much?" Cable companies can expect to benefit from unbundling their networks with compensation in the form of tax breaks and federal subsidies.

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