The regional Bell operating companies (RBOCs) and U.S. long-distance and competitive carriers continue to duke it out over federal regulation of the last mile, the crucial link between broadband networks and homes and businesses.

Last week, the United States House of Representatives postponed until March a vote on the Tauzin-Dingell bill, likely one of the most controversial pieces of technology-related legislation ever considered by Congress. The bill, named for Reps. Billy Tauzin (R-La.) and John Dingell (D-Mich.), barely passed through committee hearings last summer and appears to be struggling to gain support (see Politics Take Center Stage).

If the law passes, it will allow local Bell phone companies to offer broadband Internet services over long-distance lines without opening up their local phone service monopolies to outside competition.

Essentially, the bill would rewrite a portion of the Telecommunications Act of 1996 that requires RBOCs to prove that they have opened their local phone markets before they can offer any sort of long-distance service, like voice and data.

Supporters of Tauzin-Dingell say that the new law would spur the rollout of broadband by allowing the RBOCs to reap a reasonable profit from the investment that they incur from the buildout of the new network infrastructure.

Opponents, which include large long-distance carriers like AT&T Corp. (NYSE: T) and Sprint Corp. (NYSE: FON), and competitive carriers like cable operators and Internet service providers (ISPs), say that the legislation will kill any chance of competition in the DSL market and would allow the RBOCs to regain their local monopolies.

But what does this all mean for technology investment? The RBOCs say that without the Tauzin Dingell bill, they have no reason to continue building out new last-mile infrastructure. The way the Telecom Act is laid out, they would be forced to allow their competitors to use their infrastructure below cost, eliminating the incentive for them to build the infrastructure in the first place.

“If the bill isn’t passed,” says Susan Butta, director of public affairs for Verizon Communications Inc. (NYSE: VZ) government affairs, "we won’t be making the investment in building the fiber broadband network. It’s that simple."

Cable providers and long-distance carriers say that equipment providers would be hurt by Tauzin-Dingell, because it would stymie competition, which means fewer service providers buying equipment. What’s more, they say that if the RBOCs monopolize the broadband market, they can roll out services whenever they feel like it, which would actually slow down deployment of new services. These providers argue that what is needed is more enforcement of the Telecom Act and not new legislation.

“The fact is that if competition is allowed to survive, the Bells would be forced to roll out DSL to keep up with the competition,” says Jim McGann, spokesperson for AT&T. “That’s what happened when cable started competing with them. But now some providers have gone out of business and they are raising prices and slowing down deployments.”

What do equipment makers think? Intel Corp. (Nasdaq: INTC) is one of the only companies that has gone on record in support of Tauzin Dingell. Most are keeping their mouths shut on the issue, afraid to take sides.

“Officially, we are neutral on this issue,” says an Alcatel SA (NYSE: ALA; Paris: CGEP:PA) spokesperson. “We have customers on both sides of the fence.”

Meanwhile, the ongoing political ping-pong between RBOCs and the rest of the service provider market is stalling growth and investment from the capital markets.

“Our feeling is that in times when the regulatory landscape is so uncertain it’s better to spend our money on building and maintaining our existing network,” says Verizon’s Butta, “and not on building out new infrastructure. It’s expensive, and then we have run around and allow our competitors to use it below cost.”

Tom Nolle, president of CIMI Corp., an analyst research firm, agrees that carriers will be less inclined to spend on next-generation equipment for the last mile. This is likely to hurt emerging IP startups and metro optical players. He sees incumbent equipment providers like Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT) being better positioned to weather the storm.

“Service providers are going to be more conservative this year,” he says. "And that will give the Lucents and Nortels a new lease on life. The next-generation companies that don’t have the cash will go away.”

The bill will be brought to the House again next March. Even if it passes, it is likely to face strong opposition in the Senate where Senate Commerce Committee Chairman Fritz Hollings (D-S.C.) has vowed to block consideration of the measure. He has proposed legislation that would actually increase federal regulation of Bell companies. Also, the Federal Communications Commission last week said that it would be issuing a series of new rules. Some believe the FCC might be working to kill the Tauzin-Dingell bill and instead try to address the issues through its own channels. More is expected to be known on that front early next year.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com