Last Mile Political Battle Heats Up

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
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HarveyMudd 12/4/2012 | 7:24:44 PM
re: Last Mile Political Battle Heats Up Any regulation regarding last mile has to be regulated by the consumer interests. The Telecom Act was passed after very exhaustive debate and represents eventual consumer interest.This act simply asls for the ILECs to open the last to competition. Somehow ILECs have not allowed this objective to be received.

Various competing broadband technologies is not an issue and should be made into one. The current broadband technologies are: Cable modems,optical last-mile, fixed wireless technologies, DSL, and Digital TV etc.

The Tauzin-Dingell bill isintended to fracture the 1996 Telecom and introduce spurios legislation for purely political purposes. It is motivated by promptings of the special interst groups who are interested in selling equipment.

All RBOCs have at least 100,000 times they invested in copper wire technology. They have realized their investments a long long time ago. The wire belongs to the consumers and not to the RBOCs or ILECs.

There are many other countries in the world where such a degree of conflict and selfish interests rto get rich at the cost of consumers do not exist.

The Telecom Act of 1996 tends to promote promotion and should be preserved.

Digital TV
lighter 12/4/2012 | 7:24:44 PM
re: Last Mile Political Battle Heats Up

From SMART Letter #64 -- December 16, 2001
Copyright 2001 by David S. Isenberg
[email protected] -- http://www.isen.com/ -- 1-888-isen-com
Two Scenarios for the Future of Telecommunications: Re-verticalization vs. Economic Reset
by David S. Isenberg

Roxane Googin's thinking suggests two scenarios.

Let us call the first scenario RE-VERTICALIZATION. It is
heir-apparent to the "official future". The alternative
future called Re-verticalization is a big-telco-controlled
future, in which the incumbent telcos (and their henchmen,
the content industry) continue to thwart the deployment of
new technology and the advent of new competition. To do
this, the open, end-to-end Internet is gradually whittled
away by a multi-front campaign employing massive lobbying,
scare tactics, endless litigation and other techniques
available to the big telcos. The idea that telecom
facilities are Common Carriers" (i.e., open to all comers
under public and equitable terms) is replaced by a regime
of Private Commercial Arrangements in which big players are
selectively advantaged and small, innovative players are
squeezed out. With no competition and weakened demands for
new services, the big telcos are no longer reminded that
their networks are completely obsolete twenty years before
they're depreciated.

The Re-verticalization scenario can play out in two main
ways. The first is stable and ugly -- the telcos and their
allies in government and industry use the new technology to
keep the lid on potentially disruptive communications
technology, to ensure that innovation within and around the
communications network is predictable and approved. This
would create a chilly environment for potentially
threatening innovation and keep the world safe for
incumbent businesses. The result would be permacession,
or, perhaps verrrrry slow growth, depending on where you
think economic growth comes from.

The second play-out is unstable, but a bit more heartening.
In this alternative future, advanced technology, such as
that which already exists, will be suppresses, but it will
be impossible to suppress it all. Forward-looking
countries, such as Canada, Sweden, and a handful of others
will deploy new communications technology and will reap its
benefits in compounded rates of economic growth.
Furthermore, in incumbent-telco-dominated countries like
the United States the behemoth telcos will move too slowly
to dominate the entire value space. Pockets of new
telecommunications will form (e.g., municipal fiber builds,
wireless community networks) and grow faster than they can
be surrounded, usurped and shut down. The news of advanced
telecommunications and economic growth from other countries
-- and from within -- will travel. This could resolve
peacefully (e.g., via policy shift) or cataclysmically,
because not only is economic growth at stake, but
fundamental human rights are too.

But Googin suggests a second scenario. Let's call it
ECONOMIC RESET. In this alternative future, the United
States, indeed the countries of the developed world, belly
up to the fact that the telecom plant became worthless
before it was fully depreciated, that advances in
communications technology have rendered existing telecom
infrastructure obsolete. This requires either (a) decades
fighting to stay out of bankruptcy court and decades in it,
or (b) a collective act of will to put the debacle behind
us. The latter collective act of will is to reset the
value of the worthless assets to near-zero, where they

Googin finds an analogy in the Savings and Loan Crisis of
the late 1980s. The causes of the S&L debacle were
different, but there was a big similarity -- the changes in
the economic underpinnings of the S&Ls were too fast for
the S&Ls to react to within the context of their
established business model. The massive institutional
insolvency that resulted, Googin says, will be seen again
in the demise of the world's established telcos. The S&L
bailout of 1989, piloted by President George Bush Senior,
effectively excised the infected parts of the economy. The
solution was not any prettier (or any fairer or more just)
than the problem, but it let the United States get on with
business; it let the wounds heal. Could it happen again?
The U.S. might once again have the right president for the

But the telcos, the government and incumbent network-based
businesses are living in the re-verticalization scenario.
They do not yet apprehend the economic devaluation of what
just yesterday was the most advanced network that money
could buy. Further, they might not be able to see the
imperative for change until their business model is in
cardiac arrest. The play is in motion but the score is not
tallied -- the telcos' accountants have not been called.
If the telcos succeed in the courts, in government and in
the court of public opinion, they may never be. It could
take a decade of permacession before we know the source of
our pain.

Meanwhile, humanity stands on the threshold of building an
omni-functional network that embodies the highest
principles of democracy, expression and entrepreneurialism.
Freedom-loving people should hold it dear. Should we delay
its construction to preserve yesterday's moribund
businesses? Must we endure permacession until the
incumbent telcos have played their last card?
rjmcmahon 12/4/2012 | 7:24:39 PM
re: Last Mile Political Battle Heats Up All RBOCs have at least 100,000 times they invested in copper wire technology. They have realized their investments a long long time ago. The wire belongs to the consumers and not to the RBOCs or ILECs.

The 1996 Telecom Act seems to have favored the cable cos which also seems problematic to an information society desiring free trade and freedom of expression.

The cable cos were able to use the "fair and reasonable" clause combined with their debt to preclude open access to the cable network. The recent bankruptcy of [email protected] likely would not have occurred if cable access were open.

The cable cos owning the set-top, a tactic likley learned from AT&T's historical patenting of the telephone, allows them to extend their monopoly control into the consumer premise.

Regulators, who have the obligation to to act as the proxy for the consumers, would do best for the future of our society if they gave open access a chance, as free trade and freedom of expression benefits all consumers and, more importantly, provides the foundations of a social contract.

PS. CA consumers were easily distracted into buying fluorescent light bulbs during the recent electric utility deregulation.
metrodude 12/4/2012 | 7:24:34 PM
re: Last Mile Political Battle Heats Up "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."

Open the market to anyone, sell the service, wire,
apps, everything and keep it open with competition to drive the price down. This would accelarate the wide scale odoption and deployment
of next generation networks, products, platforms and systems and the benefit of humanity.

Is this not obvious to the most casual observer.
dietaryfiber 12/4/2012 | 7:24:27 PM
re: Last Mile Political Battle Heats Up Actually, the market is open. Anybody who wants to build their own network is freely open to do so. However, nobody wants to build their own network. What the CLECs want is for the ILECs to build the network and then sell services on top of it. For this model to work, all parties must receive reasonable profit for their investment. That proposition is not clear at the moment for anybody.

Their are real issues here, especially when remote electronics is involved.

dietary fiber
rjmcmahon 12/4/2012 | 7:24:19 PM
re: Last Mile Political Battle Heats Up However, nobody wants to build their own network.

Many want to build a network, being able to afford it seems to be the first real problem. I have been told to budget a minimum of $500M per fiber overbuild, and a more realistic number is $1B. Not exactly startup money.

Agreed that the service proposition is unclear. In my opinion, no service proposition, no new network. Also, no consumer payments, no new network.

While the protectionist may believe this is fine, it seems like society as a whole loses out if information trade isn't developed.
dietaryfiber 12/4/2012 | 7:23:58 PM
re: Last Mile Political Battle Heats Up I think we disagree here. The "consumer" that is being argued about by the ILECs is generally the residential customer. CLECs generally did not want this customer anyway. Many people have built networks for large enterprises as overlays.

As for the point of not having the money, actually that is the point. If you had a business proposition that made money, you would be able to raise it. If not, you would want to use somebody else's network.

So ask yourself, why don't the cable companies have to unbundle? Would you build out a FTTH infrastructure if you were going to have to unbundle it?

dietary fiber
cfaller 12/4/2012 | 7:23:53 PM
re: Last Mile Political Battle Heats Up Actually, this bill is just a way to go back to square one and decide if we want the local loop demonopolized or not. Right now, it's in a state of flux- technically, the market is open to competitors, but practical realities keep the market closed.

If we want the local loop to be a monopoly, then pass the Tauzin-Dingell bill and be done with it. If we want to open the local loop business, however, then structural separation is the only way to make it happen.
rjmcmahon 12/4/2012 | 7:23:51 PM
re: Last Mile Political Battle Heats Up We agree. Nobody will build a next gen network until they see an ROI, and the CLECs tactics were more parasitic than competitive, hence their focus on the business customer and disregard for the consumer.

VC capital really seems to have blown it in these fundings of the infrastructure build out; first with their assumption of advertising revenue and second with their assumption of taking ILEC/RBOC revenue. The money still seems to be chasing more ellusive goals.

Maybe shifting the Telecom Bill to favor the ILECs would help? They have more cash and less debt. Would they spend it or invest it?
rjmcmahon 12/4/2012 | 7:23:46 PM
re: Last Mile Political Battle Heats Up If we want the local loop to be a monopoly...

Will making the local loop a public utility be the only way to move things forward?

Its hard to see any competitive reason to spend the last mile money, particularly when the two recurring revenue streams, pay-for-content and consumable-technology, are in such short supply.
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