Copyright 1999 The Washington Post
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September 19, 1999, Sunday, Final Edition
SECTION: FINANCIAL; Pg. H01
LENGTH: 2547 words
How Much Room In the Fat Pipe?; Internet Providers' Fortunes Are Riding On Fight
for 'Broadband' Access to Homes
BYLINE: John Schwartz,
Washington Post Staff Writer
What in the world were these guys doing on this conference
The topic: regulation of high-speed Internet access in Portland,
Ore., and surrounding Multnomah County. The participants? Well, there was David
E. Kendall, the lawyer who defended President Clinton in the historic
impeachment proceedings. He handed off to Greg Simon, a former top aide to Vice
President Gore who now heads OpenNet, the coalition sponsoring the call; Simon,
in turn, introduced longtime Washington superlawyers Lloyd Cutler and Bruce
Ennis. (Simon's partner in the coalition, former Republican National Committee
chairman Rich Bond, was otherwise engaged that day.)
Obviously, the call
was about more than Portland--or even Multnomah County. The fight in Portland,
ostensibly over whether the local cable operator, AT&T Corp., should be
forced to open its cables to Internet service providers other than its business
partner, At Home Corp., is being played out in cities and towns across the
United States and could shape the next generation of high-speed Internet
service. It's one of two great battles that are shaping the nation's networks,
and which will help determine who will provide the high-speed access that
promises to change the way Americans get their video, telephone and data. The
dual battles have attracted some of the best-known names in politics. Former
White House spokesman Mike McCurry and former congresswoman and television
anchorwoman Susan Molinari have morphed into celebrity telecommunications
analysts for iAdvance, a coalition involved in the second of the two major
fights; they are trying to get Congress to pass legislation that would allow
local phone companies to offer data services across long-distance boundaries.
(The Federal Communications Commission opposes this, arguing that the
Telecommunications Act of 1996 prohibits such a move.)
Hearing terms such as "co-location" and "inter-LATA data relief" roll
off of McCurry's silver tongue, you can tell he has been doing his homework. But
why is he there at all? "I'm obviously making money doing it," McCurry
acknowledged, but he added that "how we use this technology--as citizens as well
as consumers and just people living our lives--is an important part of the
equation for democracy and our future."
A consumer advocate takes a more
cynical view. "There's an enormous amount of money at stake, and so big names
have been brought in," explains Gene Kimmelman, co-director of the Washington
offices of Consumers Union. "But the issue is much more important than these
The issue is the future of the Internet. The battles are
raging over "broadband," the fancy name for high-speed Internet access. (The
opposite term, "narrowband," means the familiar dial-up phone-line connection
used by most Internet users.) These broadband, or "fat pipe," connections allow
the convergence of telephone, Internet and even video delivery that has long
been promised by technology's boosters. "Consumers are going to be able to
fundamentally change their lifestyles" with services that consolidate voice,
video and data services with the ease of use of today's telephone, says Solomon
Trujillo, chief executive of US West Inc., one of the "Baby Bell" regional phone
About a million households now enjoy some form of broadband
Internet access, according to a recent report by researchers at the investment
bank Goldman Sachs Group Inc.; the company estimates that population will swell
to 73 million U.S. homes by 2008, accounting for 70 percent of all online
connections. The FCC estimates that today's Internet economy generated more than
$ 300 billion in revenue in the United States, and that number could only grow
as new services rise to take advantage of the capabilities that come with
Such estimates have made broadband the hottest topic
at the FCC, which has spent much of the past year trying to figure out ways to
promote the kind of competition that will speed the deployment of high-speed
"This is the oil field of the next millennium," says one
FCC official. "This is the gold rush."
Whether that future Internet
retains the best aspects of today's online world, however, is still an open
question--and will depend on what the FCC, Congress and telecommunications
companies do in the next few years. To observers such as Kimmelman, the worst
outcome is one that they see looming in the Portland fight--that giant companies
such as AT&T could end up controlling who gets to provide Internet services
AT&T, on its own and through a coalition it supports
called "Hands Off the Internet," has been fighting attempts by Portland,
Florida's Broward County and other local jurisdictions to force the
telephone-and-cable giant to open access to competing Internet companies such as
America Online Inc., Mindspring Enterprises Inc. and thousands of smaller
providers. AT&T says that it's technically daunting to open its pipes to
other players, and that doing so would reduce the company's incentive to spend
the money necessary to provide high-speed access.
For now, the FCC has
agreed with the phone giant, saying that AT&T is far from the only player in
the overall broadband market. AT&T partner At Home recently stated that
Portland was trying to "Balkanize the Internet."
To many of the
Internet's biggest fans, however, Balkanization is the Internet's greatest
attribute--the source of the heady competition that has seen thousands of
service providers come out of nowhere to offer Internet connections at less than
$ 20 per month. A closed network "will slow down the growth of innovative new
services and will slow down the growth of user adoption," says Kevin Werbach,
managing editor of the technology newsletter Release 1.0.
broadband network could mean big trouble for entrepreneurs such as Jack Singer,
president of Richmond-based Internet Connections. Call up the small company's
offices and the person answering with a crisp "Tech support!" might well be
Singer, who jokes that he also mows the company's front yard. The two dozen
staffers will walk the service's 10,000 customers through problems and even
install their modems for them.
Singer wants a chance to continue
offering his Internet connection service on a broadband pipe, although it is
unclear whether he would be able to afford the equipment needed to offer a
complete package of broadband services, including video and telephone.
If companies like his are shut out of the fast-growing cable-modem
services, Singer says, he will lose. "Once [customers] taste high speed," he
says, "they don't want to go back--they just want to go faster and faster and
Broadband can come to
the home via a number of routes, including satellite dishes and radio waves. But
there are two main contenders for the broadband prize: the telephone company and
the cable company, the two businesses that already have lines into most American
homes. The team of Goldman analysts concluded that cable and super-fast
phone-line service will each have a little more than 40 percent of the market,
with other technologies grabbing the remaining 16 percent.
technologies differ in important ways, but they both offer startlingly fast
Internet speeds. The telephone company's copper wires can, with a little
tweaking, provide high-speed access known as Digital Subscriber Line, or DSL, at
about 50 times the speed of today's 56K modems. The cable industry is offering
even faster Internet access through a new generation of cable modems (though the
speed of that network tends to slow down as more subscribers sign on, just as
many office computer networks do).
The crucial difference between cable
and DSL, however, is the degree of government control over each. As a product of
telephone companies, DSL is heavily regulated by the FCC, which has issued
numerous rules to ensure that the local telephone companies' copper wire into
each home is accessible to competitors at a reasonable cost. Cable, on the other
hand, has historically been more loosely regulated by the FCC, and providers
have not been required to open up their pipe to competitors. Little wonder,
then, that AT&T has invested so heavily in cable systems, with deals that
could eventually give the company access to more than half of the U.S. market.
AT&T On the Line
AT&T's supporters say
the company should be given the freedom to develop its network as quickly as
possible, since the threat of fast cable access has spurred phone companies to
offer high-speed data access more rapidly than they otherwise would. "This whole
thing is being driven by cable," says Blair Levin of At Home. "If not for the
cable guys, the telcos wouldn't be doing anything. From a consumer's
perspective, you want cable to get out there as rapidly as possible."
AT&T's critics say broadband delivery is so much richer than
traditional cable that the company should not be allowed what they argue will be
a virtual monopoly.
To Scott Cleland, an analyst with Legg Mason
Precursor Group, the special treatment that allows cable operators to shut out
other providers follows neither history nor logic.
"Cable is the fifth
wire into America's homes," Cleland says. "The principle of nondiscrimination
applies to the other four. The electric company cannot tell you what kind of
brand of appliance to buy, the gas company can't tell you what kind of furnace
or stove to buy. The water company can't tell you what kind of faucet or sink to
buy. The telephone company can't tell you what kind of or brand of phone to buy
or who to do business with over your phone. Why should cable?"
combatants in the fight over local phone companies' selling data access directly
to consumers across the boundaries that currently define local phone service is
a bit more arcane, but the battle is every bit as fierce. The Baby Bells and GTE
Corp., which provide local phone service across the country, are pushing for the
change in telecommunications laws. They argue the Internet was barely mentioned
in the 1996 Telecom Act, but now data traffic is burgeoning. They want the 1996
oversight to be corrected in favor of deregulation; to do anything else, they
say, will remove the incentive of those companies to deploy broadband technology
"Our view is it makes absolutely no sense to have a restriction
made for voice apply to data that has the specific detrimental effect of
discouraging and in some way prohibiting distribution of data services," says
John Raposa, associate general counsel at GTE.
Those opposed to changing
the FCC's interpretation, however, argue just as forcefully that these companies
under the 1996 act should not be allowed to cross those local calling boundaries
for data or voice services until they comply with the provisions of the 1996 act
and fully open their own local markets to competition. Data transmission, they
say, would be the kind of exception that could go against the entire purpose of
FCC Chairman William E. Kennard shakes his head when he
contemplates the effects of letting local phone companies into the
data-transmission business. "That just guts the act," he says. "It's over."
Kennard says the commission's philosophy, for the most part, is to "stay
out of the way of this new economy to benefit consumers."
mean the FCC is out of the regulation business entirely, of course. Kennard says
the new view comes down to whether "bottlenecks to competition," such as the
natural monopoly on local phone service historically enjoyed by the Baby Bells,
"What we're about is finding where there are those
bottlenecks to competition and break them open. Where there is competition,
deregulate." Kennard is fond of saying that the current broadband market, by
contrast, is nowhere near a monopoly--and is, in fact, a "no-opoly." So "writing
new regulations for new technology is going in exactly the wrong direction,"
Kennard argues. All-out competition among DSL, cable, satellite, wireless and
newcomers yet unimagined will bring the same benefits to consumers as has the
bloody competition for cellular telephone and long-distance service. "It's most
important for consumers to have multiple pipes into the home," Kennard says.
To Kennard, that position means allowing AT&T to have its way, for
now, in selling its cable services, and clamping down on the local phone
companies that want more freedom to market broadband.
Both sides of that conclusion have drawn attacks. The
commission's decision not to force AT&T to open its network causes
particular anguish for activist Andy Schwartzman, head of the Media Access
Project. "I just think he's so dead wrong," says Schwartzman, who argues that
the time to regulate is now, before AT&T can turn its powerful market
position into a new monopoly for the 21st century. "The serendipitous growth of
the Internet economy has depended on free and open access."
decision to hold the line on DSL upsets the companies that say they want to
serve populations in rural areas and less-affluent parts of cities that will be
bypassed by the cable industry; they say this is exactly where the FCC should
step out of the way. "My argument is, let's not let these regulatory issues and
fights of the 1990s gum up the works as we talk about the issues of the 21st
century," McCurry says. "The truth is that competition for carrying data traffic
is going to be so fierce that voice traffic is going to be ancillary."
One Kennard critic in Congress says the FCC chairman is wrong on both
counts. Rep. Robert W. Good- latte (R-Va.) has introduced legislation that would
force cable companies to provide open access to their networks through antitrust
law, and which would also open data markets to all telephone companies.
"We need everybody in it to provide that service who wants to get in
it," Goodlatte says. "We want to make sure that the Internet, which has been the
engine of growth in our economy, continues to grow in that direction by making
sure it remains open and competitive."
If Kennard is correct,
ultimately, what does gutting the Telecommunications Act mean to consumers? To
some analysts, not much. They say the act was obsolete the day it was passed.
Laura D'Andrea Tyson, former head of the White House Council of Economic
Advisers and now dean of the Haas School of Business at the University of
California at Berkeley, says, "Everything was moving so fast at the time the
legislation was written that you couldn't write down rules to get you the market
you wanted." Tyson, who now sits on the board of Baby Bell Ameritech Corp.,
says, "With all of the technology changing, the rules became in many cases a set
of constraints that had to be gotten around."
Cleland of Legg Mason says
the landmark 1996 bill is already outdated because of new technology. He calls
the law "The Maginot Telecom Act," after the line of heavy fortifications
erected by France in anticipation of World War II that failed to stop advanced
Nazi tanks. The act, like the line, "was designed for the past," Cleland says.
"They fought the last war."
LOAD-DATE: September 19, 1999