September 16, 2003
Bway.net, a New York-based Internet service provider, is hoping to rally other ISPs together to file a class action lawsuit against the Federal Communications Commission (FCC) in response to its Triennial Review ruling (see TeleTruth, ISPs Lobby FCC).
The Review, released last month, stipulates that line-sharing must be phased out over three years. This means ISPs will no longer be able to get low-cost access lines to their customers by sharing the high-frequency portion of copper local loops with competitive carriers (see FCC Rumbles on the Rules ).
”The result is a disaster for ISPs,” says Kristopher Twomey, telecom and Internet lawyer and regulatory consultant based in Washington, D.C. He says it’s likely to price ISPs out of the market as they will not be able to afford the increased charges to connect to the Bells’ networks. Twomey estimates there are about 2,000 to 3,000 ISPs in the U.S. and a significant number of them will be affected, as they are in rural areas and generally cater to only a few thousand customers.
Bway.net, which serves 5,000 users in New York, says it will be tough to survive these new regulations. Joe Plotkin, director of marketing at Bway.net is attempting to organize ISPs frustrated with the new rules to pitch in and lobby the FCC. TeleTruth, an association of users and service providers with a history of FCC bashing (see Teletruth: FCC's Breakin' the Law), is putting its weight behind Bway.net's litigation initiative.
Plotkin notes that organizing ISPs is difficult. “The same spirit that makes them innovators and entrepreneurs makes them not always in lockstep with regulations.” However, he says they need to wake up to this situation. “The FCC is going to create a duopoly between the telcos and the cable companies… and we must find a way to stop this."
Worldnet, a rural ISP in Louisiana with 5,500 customers, says that without line-sharing it fears it will not survive.
Worldnet purchases its line from a competitive carrier in Louisiana that rents "dry copper" from BellSouth Corp. (NYSE: BLS), for between $3 and $8 a month, depending on the length of the local loop. The competitive carrier (Worldnet declines to identify it) then installs its own switching and transmission equipment so that it can resell capacity to retailers. Worldnet buys the high frequency portion of a line for $500 a month.
Believe it or not, Worldnet expects this rate to double if it has to buy the same line directly from Bell South. “It scares me to death that I might have to roll my services back into BellSouth," says Robert Rose, Worldnet founder. "$500 is pretty horrible unless the alternative is $1,000."
He adds, “The reality is, we created the demand in this market, we were selling Internet services way before AT&T and all the Bells entered the fray… We took the risk and proved the market, and now they want to take it from us.”
Analysts say the FCC is giving ISPs time to work out new contracts by maintaining the current line-sharing rule for three years. “Prices will still go up in this period, but it forces ISPs to decide what they want to be when they grow up,” says Dave Kosiur, senior analyst at The Burton Group.
Still, most ISPs believe the FCC’s rules show no consideration for their business or the future of broadband. “They’ve preserved switched voice competition, which is being surpassed by wireless and VOIP anyway, and at the same time they’ve mortgaged the future of DSL so that Ma Bell can re-monopolize the last mile… That’s an outrage,” says a network administrator of a large Atlanta-based ISP, who requested anonymity.
Larger independent ISPs such as Speakeasy and EarthLink maintain they will still be able to operate their businesses: They will simply have to form contracts directly with the phone company, instead of having to work with competitive wholesale providers -- an eventuality that critics say will likely keep prices higher.
”We saw this ruling coming and put long-term contracts in place, so we know our costs won’t increase for some time,” says Mike Apgar, Speakeasy's founder and chairman. The Seattle-based ISP has between 50,000 and 100,000 customers and turns over about $60 million in revenue a year.
Because of its size, Speakeasy can afford to go to the ILECs and RBOCs directly and negotiate contracts. “We bring a lot more customers to the table and therefore more sway than smaller ISPs,” says Apgar. “It’s very unfortunate for the smaller guys and bad for customers not to have an environment that creates lots of competition... Consolidation is inevitable... We would be interested in these customers.”
— Jo Maitland, Senior Editor, Boardwatch
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