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Tauzin-Dingell Takes Another Step

Light Reading
News Analysis
Light Reading
2/28/2002
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The Bell brigade has won the first skirmish in the war on telecommunications deregulation. After two years of lobbying by the regional Bell operating companies (RBOCs) at a cost of over $19 million, the U.S. House of Representatives yesterday passed the controversial Tauzin-Dingell bill.

Competitive carriers and large long-distance carriers like AT&T Corp. (NYSE: T), Sprint Corp. (NYSE: FON), and WorldCom Inc. (Nasdaq: WCOM) strongly oppose the bill. If it becomes a law, which now requires passage by the Senate, it will allow RBOCs to offer broadband Internet services over upgraded and newly built long-distance lines without opening up that network to competition (see Last Mile Political Battle Heats Up).

Reaction to the news that the bill passed in the House has been predictably mixed. The RBOCs are ecstatic, while opponents have expressed disappointment (see SBC Cheers Tauzin-Dingell, Verizon Applauds Tauzin-Dingell, and Sprint Slams Tauzin-Dingell).

"This policy change is sorely needed. America is still in an investment-led recession,” Tom Tauke, senior vice president for public policy and external affairs for Verizon Communications Inc. (NYSE: VZ) said in a statement. "This is exactly what the economy needs. This will make billion-dollar investments in the Internet make sense again.”

Opponents to the bill caution that the battle may have been won, but the war isn’t over yet. The bill must still make it through the U.S. Senate where powerful leaders on the Commerce Committee, like Senators Ernest Hollings (D, SC) and John McCain (R, AZ), are poised to kill it upon arrival.

“I think this is the high-water mark for the RBOCs,” says Robert McDowell, vice president and assistant general counsel for the Competitive Telecommunications Association, a lobbying group for CLECs (competitive local exchange carriers). “It just isn’t going to go anywhere in the Senate. We’re focusing a lot of our attention on similar battles in the Federal Communications Commission (FCC). I think you’ll see a lot more action in the FCC than on Capitol Hill this year.”

But what does all this mean for the sagging telecom equipment sector? How are these players reacting to the news? Most companies aren’t saying much. And who could blame them? Companies like Alcatel SA (NYSE: ALA; Paris: CGEP:PA), ADC Telecommunications Inc. (Nasdaq: ADCT), Cisco Systems Inc. (Nasdaq: CSCO), Lucent Technologies Inc. (NYSE: LU), and Siemens AG (NYSE: SI; Frankfurt: SIE) sell broadband access equipment to both incumbents and competitive carriers. These companies also sell gear to cable operators, which are also competing for broadband business.

“We don’t really have a position on this, but our feeling is that anything that will stimulate more buying in this sector is positive,” says Rob Clark, director of public relations for ADC. “The RBOCs have been sort of dragging their feet for awhile, so if they can get more clarity on the regulatory issues they should start spending again.”

For the past year, RBOCs have slowed their DSL deployments, complaining that they have been unwilling to spend money building out their networks when the fate of those networks is still so uncertain. According to Jon Cordova, an analyst with market research firm Infonetics Research Inc., shipments of DSL customer premises equipment was down 17 percent in North America in 2001 from 2000. DSLAM aggregation equipment for the central office was down 43 percent in 2001. A closer look at the numbers reveals that much of the drop came in the earlier part of the year, while unit and port shipments actually grew. In Q4 2001 CPE shipments were up 3 percent and DSLAM port shipments were up 60 percent.

Cordova says there are several reasons for this. For one, carriers were trying to fill up excess capacity, so they didn’t need to buy as much equipment. Secondly, several CLECs went belly-up in the first half of 2001, reducing the number of customers buying gear. And the third reason he cites is that RBOCs were indeed slowing deployment because of the uncertainty in regulation.

“I think the stage is set now for aggressive RBOC DSL deployment to begin,” he says. “We know that in the past, RBOCs have taken their sweet time deploying DSL services, so maybe this last quarter is an indication that they suspect legislation will get pushed through that favors them.”

But Cordova says that not all equipment vendors would benefit equally from Tauzin-Dingell becoming law. He sees bigger players like Alcatel, Lucent, and Cisco, which have a strong presence in the U.S. RBOC market, benefitting more than some other companies. For instance Copper Mountain Networks Inc. (Nasdaq: CMTN), which traditionally has sold to CLECs, would suffer if things continue to get worse for them. It will also potentially hurt other smaller equipment providers who are just starting to develop their DSL equipment businesses.

”Tauzin-Dingell could be great for those companies already in RBOC networks,” he says. “But for the ones who are just starting to compete in the DSL market, it’s not so great.” — Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com

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Faubert
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Faubert,
User Rank: Light Beer
12/4/2012 | 10:50:33 PM
re: Tauzin-Dingell Takes Another Step
This bill by passing could kick start the telecom industry out of a depression. Think about it there have been between 250,000 and 400,000 telecom industry related people put out of work in the last year. Many today are still out of work or under employed or have changed industries due to the frustration of not being able to find work that they are suted for.

This bill passing could create more jobs than any government legislation on the table today.

Who wins?
skeptic
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skeptic,
User Rank: Light Beer
12/4/2012 | 10:50:29 PM
re: Tauzin-Dingell Takes Another Step
This bill by passing could kick start the telecom industry out of a depression. Think about it there have been between 250,000 and 400,000 telecom industry related people put out of work in the last year. Many today are still out of work or under employed or have changed industries due to the frustration of not being able to find work that they are suted for.

This bill passing could create more jobs than any government legislation on the table today.

Who wins?
-------------

You are totally and completely wrong about what
this bill is and what effect it will have.

This is a bill aimed at crushing competition for
RBOCs. What is does is give them no incentive
to do anything at all. If it passes, even
less equipment will be sold, and even more
people will lose their jobs.

What good is a bill that pretends that SBC
and verizon (after wiping out the CLECs) are
facing unfair competition or over-regulation.

packaging-man
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packaging-man,
User Rank: Light Beer
12/4/2012 | 10:50:26 PM
re: Tauzin-Dingell Takes Another Step
You are totally and completely wrong about what
this bill is and what effect it will have.

This is a bill aimed at crushing competition for
RBOCs. What is does is give them no incentive
to do anything at all. If it passes, even
less equipment will be sold, and even more
people will lose their jobs.

What good is a bill that pretends that SBC
and verizon (after wiping out the CLECs) are
facing unfair competition or over-regulation.

-----------------

Exactly! I this bill offers no relief in sight for the ailing telcom equipment industry. If I might go a step further, I think it is obvious that the only impetus that drove the telcom build-out over the past 5 or so years was the Tellecommunications Act of 1996. While it attempted to make significant competition a viable option to business and home users, it did not have the teeth to beat the RBOCs.

What happened was simple... 1) VCs (et al) believed the 1996 leglislation was an incredible opportunity to make big $$$ on start-up telco carrier to compete with the big boys, so start-ups like Global Crossing, 360 Deg Networks, etc. were funded. Additionally, other big names pulled in big investment dollars (Enron, Williams, Tyco (Tycom), etc.) What this did was spur tremendous spending on the equipment side of the equation, the results of which are obvious.

The big problem with the plan was that the RBOCs still had all the power. While they did have to open up competition, they did not have a prescribed time-frame. Also, they were able to skirt the co-location issues with the CLECs by doing things such as charging $1000 per kilowat of electricity and more that made the profitiability equation impossible to solve.

So now were back where we started, all (or most) of the insurgent carriers are long gone (Quest doesn't count since it wisely bought US West). And all of the equipment makers are clammoring for a chance to sell to the RBOCs (Verizon, SBC, etc). The problem is, all of the competition for the RBOCs has been eliminated, resulting in very little incentive for them to build-out or improve their networks.

So what does this mean for us? You guessed it! Those who have already been unfortunately affected by these dynamics and layed off should seriously start looking at alternative industries, those who are still hanging on should also start considering their next move. Essentially 95% of the start-ups will have no option but to shut down. Even if they're developing such innovative technologies, there is little impetus for the carrier to buy it, and if they do want to buy it, they will first ask an established equipment vendor such as Lucent, Nortel, Acatel, or Cisco to do it. Additionally, they will be more than willing to wait for a larger vendor to do the development as they won't care about the delay in rolling out the service, and it will result in a more seamless solution with what they currently have since the Network management will be more integrated. Established players with solid reputations for servicing the RBOCs will continue to survive, although at a much smaller size.

I am not saying that telcom start-ups will die away completely, however I believe the scale of them will be reduced by an order of magnitude at the very least. One might summize that the recent influx of minimal spending by the VC community is a sigh of a turn-a-round. I would suggest otherwise. Just as in the stock market, you can always get someone to buy a worthless stock on it's way down, there will always be those VCs who do not look at the dynamics of the industry before throwing away there money. In a similar sense, I believe what is happening with this spending is very similar to what happens in the stock market when it takes a big dive. Often times you get what is termed a "false bottom", where the market makes a short-lived upward trend, only to return on its downward slide. I suggest that with the current market drivers that the inevitable reduction in telcom jobs will return the industry to a point very close to 1995 levels.

This is of course no slight to my friends who are at many established telcom makers and start-ups, as most are just like myself, happy to be still receiving a check. It's funny how one's interpretation of reality can change so quickly.
rjmcmahon
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rjmcmahon,
User Rank: Light Beer
12/4/2012 | 10:50:22 PM
re: Tauzin-Dingell Takes Another Step
What is does is give them no incentive to do anything at all.
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Don't be fooled. They *will* go after the long distance networks and then turn their attentions to the content owners. Notice the big three are already making noises with MSN.

Our world should be a place WHERE ANYONE CAN PUBLISH AND BRAND, NOT DISTRIBUTION, PROVIDES COMMERCIAL INTERESTS the mechanism to aggregate wealth.
optigirl
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optigirl,
User Rank: Light Beer
12/4/2012 | 10:50:21 PM
re: Tauzin-Dingell Takes Another Step
I have a question about the LD networks. Are the RBOCs allowed to "co-mingle" their networks for LD and local traffic?

I harken back to the days of 1993-1995 when residential broadband was the rage. 500 channels, fiber to the home (should tell you something), CATV would offer local and LD voice, RBOCs would get into CATV and we would all just be nice and happy. I would not expect the operators to be anything but slow and ponderous about DSL deployment based on past experiences. They will be lucky to be nothing more than donkeys for the content providers.

However....

We have the Internet and how much premium content is being sold over the existing infrastructure? Note the failure of Dot Coms and that should tell you what might lie ahead. There are plenty of things for us to buy but I already and I am hard pressed to think that your average household is going to spend that much money over the new connections to make this a huge market.
rjmcmahon
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rjmcmahon,
User Rank: Light Beer
12/4/2012 | 10:50:20 PM
re: Tauzin-Dingell Takes Another Step
I am hard pressed to think that your average household is going to spend that much money over the new connections to make this a huge market.
_______________________

The markets of concern are not today's streaming over always-on. It is when video goes unicast and interactive then the combined direct and indirect markets will be huge.

The cost per trillion bits from Boston to Los Angeles has dropped from $150,000 in 1970 to $0.12 in 1999. Bit distribution is being squeezed by technology and innovation. In its fight to survive it can only look to production. And it can't rest on its laurels as its current revenue stream based on audio access is going mobile fast, where it should be because humans don't have leashes ;-)
cfaller
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cfaller,
User Rank: Light Beer
12/4/2012 | 10:50:16 PM
re: Tauzin-Dingell Takes Another Step
"This bill passing could create more jobs than any government legislation on the table today."
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And let's all just quietly ignore the fact that Verizon just announced 10,000 layoffs, days after this bill was passed...
Faubert
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Faubert,
User Rank: Light Beer
12/4/2012 | 10:50:16 PM
re: Tauzin-Dingell Takes Another Step
I appreciate you point of view. One thing I have done is write my congressperson and senitor asking them to set manditory time lines for BB deployment.

Remember the CLECs have put themselves out of business because they were finacially mismanaged. (You do not build out 25 to 30 cities at once while everyone else is and expect business to come - i.e. build it and they will come.)

You can blame the RBOCS for thier restrictive access requirments for accesz but how come no one was smart enought to sue to change those restrictions as anti-competitive. The CLECs supported the restrictions by not understanding the business they were in and by not fighiting the RBOCs in court against the restrictive and expensive rules.
optigirl
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optigirl,
User Rank: Light Beer
12/4/2012 | 10:50:14 PM
re: Tauzin-Dingell Takes Another Step
Yes, but that still doesn't really work. Telling a business that they have to open their networks and provide facilities without being able to charge for it in return is no incentive. While it is true that Telcos get a monopolistic environment, they cannot just raise phone service rates without going to PUCs, they are required to provide certain levels of service and are also heavily unionized.

Competition is the only answer in this mess. When consumers (be they business or residential) have a choice, prices come down.
rjmcmahon
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rjmcmahon,
User Rank: Light Beer
12/4/2012 | 10:50:14 PM
re: Tauzin-Dingell Takes Another Step
One thing I have done is write my congressperson and senitor asking them to set manditory time lines for BB deployment.
_______________________

The two principles which should apply, in my opinion:

A) Any entity must provide open access to their loop, regardless of its material constituents, once the loop has been fully amortized and ownership has become essentially free.

B) Manufacturers of consumer electronics, including PCs, need to protect the interests of *all* who produce intangible goods.
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