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Copyright 1999 The Washington Post  
The Washington Post

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September 19, 1999, Sunday, Final Edition


LENGTH: 2547 words

HEADLINE: 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 call?

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 celebrities."

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 companies.

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 high-speed access.

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 technologies.

"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 to consumers.

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.

A closed 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 faster."

Two Technologies

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.

The two 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?"

The 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 widely.

"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 the law.

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."

That doesn't 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, still exists.

"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.

Drawing Fire

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."

The FCC's 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

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