Cable Tech

Competitive Carriers Lash Out at FCC

The first round of comments on the Federal Communications Commission (FCC)'s proposed rules for reclassifying Internet traffic were released on Friday. Judging by the first glance at those comments, the debate is heating up.

First, some background: In February, the FCC published its "Broadband Notice of Proposed Rule Making," wherein it proposed the reclassification of retail wireline broadband Internet access services as “information services” rather than “telecommunications services." (See FCC Stirs Up Competitive Carriers.)

The bottom line is that if this proposal were to take effect, broadband would be exempt from regulation under Title II, the source of most regulations that apply to RBOCs (regional Bell operating companies). That would give the RBOCs new rights to deny access to their networks -- making it even more difficult for ISPs (Internet service providers) to break into the local loop with broadband data services.

Based on comments submitted Friday, the ALTS (Association for Local Telecommunications Services) and CompTel (Competitive Telecommunications Association), two industry associations representing competitive carriers, have joined forces with long-distance carrier WorldCom Inc. (Nasdaq: WCOM) to oppose the proposal. A group of economists, backed by Verizon Communications Inc. (NYSE: VZ), have banded together in support of it. Verizon had not filed its own comments on the proposal at press time.

The main allegation from ALTS, CompTel, and Worldcom is that the FCC is being influenced to side with the RBOCs.

“A rule that threatens existing competitive services in the name of promoting the current Commission’s ‘central communications policy objective of the day,’ is a bad rule,” they write. “It is a surrender to monopoly blackmail.”

As the controversial Tauzin-Dingell bill lingers in the United States Senate, many experts say that much of the real action surrounding broadband regulation will happen in the FCC, as the commission continues to push for changes in the rules (see Tauzin-Dingell Takes Another Step).

In their filing, ALTS, CompTel, and WorldCom argue that reclassifying Internet services would ensure the continued monopolistic nature of the RBOCs and deprive the undersigned of a piece of the market. They claim that DSL deployments are actually growing at a relatively strong rate, which is proof that the current regulations requiring incumbent carriers to share their facilities with competitors is working. Secondly, they argue that the FCC doesn’t have the real authority to make such rules that would contradict the 1996 Telecom Act.

But the economists argue that the current regulatory environment does not provide incentives for incumbents or new competitive carriers to build out DSL infrastructure. They argue that if RBOCs invest in new infrastructure and the business is profitable, they then have to open those facilities to competition, which kills their margins. And if they build the facilities and DSL flops, they’re stuck with a huge capital expenditure and no revenue.

“You don’t need to have a PhD in economics to see that this is not a good business model,” says Jeff Eisenach, who does have a PhD in economics and is one of those supporting the FCC rule-making proposal. He is president of the grandiosely named The Progress & Freedom Foundation, a policy think tank that gets contributions from telephone, cable, and computer companies. He says new carriers have no incentive to build out networks of their own, because they’re able to get access to facilities below cost.

What’s more, the economists contend that strong competition already exists from alternative technologies, including cable, wireless, and satellite. Unlike RBOCs, cable MSOs (multiservice operators) are essentially unregulated and have poured billions of dollars into upgrading their facilities. The result has been that roughly two thirds of the people in the U.S. accessing broadband get it through cable modems (see FCC Commissioner Weighs In).

“The critical point is that where, as here, a market is competitive, market forces are sufficient to encourage participants to make arrangements that will maximize consumer welfare,” says the filing signed by the economists. “And it is preferable by far that all such arrangements be negotiated on mutually beneficial terms rather than on terms set by regulators.”

Eisenach, who has followed telecom regulation for 25 years, says that if broadband were less regulated, carriers would be building out networks, stimulating growth in other areas such as equipment. But he acknowledges it’s difficult to quantify this. Instead he cites examples.

“Just look at Project Pronto from SBC Communications Inc. [NYSE: SBC],” he says. “They spent something like $2.5 billion to build out a DSL network, and shortly after the state of Illinois said they would require unbundling, SBC killed the project.”

— Marguerite Reardon, Senior Editor, Light Reading
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lilgatsby 12/4/2012 | 10:27:56 PM
re: Competitive Carriers Lash Out at FCC LR - do you have statistics on the % of CLEC DSL deployment across RBOC infrastructure?

Comparative stats for the regional CLECs that "do-it-themselves" and those who colo for the majority of their business is valuable data. How much revenue is dependant upon RBOC lines?

Also, how about a cable service cost/speed as compared to that of xDSL with pros/cons of each(pick the most commonly deployed DSL version).

Rather than reading these same repetitive arguments it would be nice to see data points.

Light-bulb 12/4/2012 | 10:27:45 PM
re: Competitive Carriers Lash Out at FCC Well, I'm sure I will take heat from this... I don't work for the Phone company either. RBOCs have been given BS rules to play by and its about time to even the play field. My opinion... If the USA had no communications infrastructure and a company was going to dig the trenches and lay the cable would the Goverment make that company responsible for giving access to that cable from competitors? I would sure hope not. The RBOCs created and deployed the infrastructure, and as far as I'm concerned should stop DSL roll-out all together until they can make the necessary dollars and Margins to justify the build-out. The Cable companies who are nearly unregulated have had it so easy. If a CLEC wants to have access to the RBOCs infrastructure they should pay a Flat fee (Based on the Number of people on the RBOCs Access lines) That would be nice, so no longer can they only lease the line to the home that is taking business from the RBOC they have to pay for everyone regardless of service or not Just like the RBOCs do when they roll out lines.
This legislation needs to happen. I'm in full support of leveling the playing field, and i'm completely for Capitalism!

rjmcmahon 12/4/2012 | 10:27:44 PM
re: Competitive Carriers Lash Out at FCC If the USA had no communications infrastructure and a company was going to dig the trenches and lay the cable would the Goverment make that company responsible for giving access to that cable from competitors?

We did so with our roads and became a powerful nation during an industrial age.

Did those before us make a mistake by not giving ownership of those roads to a private monopoly?
st0 12/4/2012 | 10:27:41 PM
re: Competitive Carriers Lash Out at FCC "We did so with our roads and became a powerful nation during an industrial age.

Did those before us make a mistake by not giving ownership of those roads to a private monopoly?"
rj, this is not valid comparison: when you construct a road, it only take few $, the maintainess fee is high (gov. will take care of it if you give it to the gov). Besides, the guys construct the road benefit from the real estate price increase from the land in the area, which could be 100x increase, such as residential land. In addition, if you "give" the road to gov, you can claim tax credit and the gov will supply schools, etc, other infrastructure facilities at no expense of your own, which in turn, increase your real estate value more. That is way even today, many private owner build the road and "give" it to gov.

As for Cable or network, can you draw the same benefit for a "company"? I havn't seen AT&T increase their stock 100X, may be decrease 1/100 profit since early 80s when FCC ruled break up.

By the way, thinking about Feb, 26, 1975 on second Ave of NY, the massive destruction of network was being repaired within 4 days and all the essential service restored within 24 hr. Compared to VZ and WCOM recent fiber cut of 2002, it is shocking that it took 5-6 days to restore the network today! The policy of FCC should not only consider the benefit in term of $$, but also performance and realiability! (personally, I believe the performance and function is more important...but I am biased ;-(

fiber_r_us 12/4/2012 | 10:27:39 PM
re: Competitive Carriers Lash Out at FCC >the gov will supply schools, etc, other
>infrastructure facilities at no expense of your own...

What country do you live in??? Last time I checked, *I* paid for those schools and infrastructure through property taxes! The governement *cant* do anything without charging the taxpayers. Nothing is for free.

The government (i.e. you and I) also funded building out much of that copper infrastructure decades ago. The LECs are already a monopoly built on top of government protection and subsidies. Look at all of those taxes on your phone bill!
Light-bulb 12/4/2012 | 10:27:38 PM
re: Competitive Carriers Lash Out at FCC Rjm good to see your post again... We had some interesting discussion in the past... So let me not delay..

You Said.
"We did so with our roads and became a powerful nation during an industrial age.

Did those before us make a mistake by not giving ownership of those roads to a private monopoly?"

So what you are saying is that back in the mid 1800s and 1900s that goverment roads were not payed for? That very infrastructure was produced for the growth of the nation. And it was funded publicly through the sales of Bonds. We are still in the industrial aga as far as i'm concerned. You really hate monopolies ehh? Well what do you think about the company supplying you power? Or how about the never-ending increase for Water... Or how about the choke hold the petro companies (Cartels) hold on the world...

In the Early 1800s well into the 1900s the vast majority of the road infrastructure were toll roads. In fact over 2000 companies controlled these roads. These Monopolistic roads... Now the mainstay of this was prior to 1845. The towns were largely responsible for their own infrastructure, and of course Farmer john and the neighbors happily came out and volunteered time to get the town roads set up... This is all Fact.

Thinking that the goverment provides and had control of these roads didn't happen until we (American Citizens) started paying exuberant taxes, and the goverment released contruction bonds... (Being the Stout Democrat I'm sure you love takes :) )
I have always thought you took too simplistic a view, an idealist view but it matters not.

The net net here is whats done is done. You can't tell them that what they had built is now community property. If that became true I would be putting on my Militia hat and fighting like all americans should. Whats done is done... What we should do is make the rules the same for all the companies in the communications business and not give one a huge advantage over the other. You notice ATT is not complaining about the RBOCs ownership of access lines, because ATT has access lines of their own that they could lose if the RBOC don't win this. WCOM is a sinking ship, they wan't to complain that its just not fair to have no access to the end user... I challenge them to lay their own Access lines... what is so unfair about that? All CLECs should be in the same boat, they want an access line to Farmer John they need to pay the install fee for that user... (Wouldn't that be lovely)

And I can say no those who came before us to deliver the roads did it a good way (since we all have roads to drive on know though many are toll roads-Well the good ones) however your facts are not correct. We live in a corporate world, I hope you agree that without large corporation our great country would be nothing. The goverment needs to deregulate, not apply more regulations, they may mean well, but in the end the more regulations always screws someone.

rjmcmahon 12/4/2012 | 10:27:37 PM
re: Competitive Carriers Lash Out at FCC As for Cable or network, can you draw the same benefit for a "company"? I havn't seen AT&T increase their stock 100X, may be decrease 1/100 profit since early 80s when FCC ruled break up.

Could you imagine the stock price of a company that was able to monopolize our roads?

Do you believe the US would have become a world superpower if such a company owned our roads?

Do you believe private interests won't demand excessive access fees and exclude many members of our society from participation?

Do you believe private interests won't limit the producers to the few who can afford the monopolists' distribution fees (not to mention the bribes) or afford to buy the monopolist outright?

If Embarcadero Center wasn't connected to a fiber 300 feet, isn't something painfully broken with our system?

How much productivity was stripped by that property owner? Why do the property rights of one preempt the productivity rights of so many?

It is past time to let go of these copper networks and their feudal business models.

It is time for a new network which provides access to entry for all.
cfaller 12/4/2012 | 10:27:36 PM
re: Competitive Carriers Lash Out at FCC There are only 2 purposes for the government to create a monopoly:

1. To develop infrastructure for the city/state/nation (e.g. a water system, an electricity grid, a phone network, etc.).
2. To guarantee universal service for the city/state/nation (e.g. plumbing, electricity, and phone lines into every single household in the nation).

If the FCC or the US government considers it a national priority to develop a broadband infrastructure, then so be it, let broadband be a monopoly service.

BUT...in order for the monopoly to be awarded, the private company must commit to certain milestones in the development. This is the flaw in Tauzin-Dingell: there are no commitments and no penalties for the RBOCs if they decide to do nothing. I believe that if the RBOCs were willing to commit to performance guarantees & penalties, a lot of opposition to Tauzin-Dingell would disappear.
2ToneTruck 12/4/2012 | 10:27:36 PM
re: Competitive Carriers Lash Out at FCC Hmmmm....

st0 12/4/2012 | 10:27:33 PM
re: Competitive Carriers Lash Out at FCC rj:
the basic business model should be benefit for both parties. Just in the same case you used for state your point: gov got the road, the owner got improved land price. If only benefit for one party, that is not a good business. That is part of the reason that we are in the down turn for so long. Lack of good business sense and long term vision. I believe AT&T did fair share of good work to bring the network up to date. As for the policy and trend of existing environment, let's wait for another 15-20 years, the history will be the judge (hopefully, US still lead the network, instead of Japan or EU at that time).
my 2 cents.

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