Politics Take Center Stage

The last mile, the last crucial link between broadband networks and homes and businesses, has become a political minefield.

Many telecom experts believe that the U.S. Congress is about to send the equivalent of a large monster galloping through that minefield. The Internet Freedom and Broadband Deployment Act of 2001 (H.R. 1542), a bill that's sponsored by Reps. Billy Tauzin (R-La.) and John Dingell (D-Mich.), is stirring debate in Congress and coffee shops alike.

Congress is back in session this week and ready to resume work on the bill. The industry eagerly awaits the outcome, and lobbyists are furiously spending money to represent the competing interests of RBOCs and startup CLECs.

The Tauzin-Dingell bill would let regional Bell operating companies (RBOCs) get into the long-distance data market, provided they equip all of their central offices with gear to offer broadband Internet access and other high-speed data services. The bill's authors say it will speed the deployment of broadband service, especially in rural cities and small markets.

If the bill passes, it may encourage large RBOCs to complete broadband access networks at a time when such projects have stagnated. BellSouth Corp. (NYSE: BLS), for instance, says by the end of this year, it should be able to reach about 70 percent of its customers with DSL service. It likely won't go after the remaining 30 percent until it has some financial incentive, such as what's outlined in the Tauzin-Dingell bill.

But many fear the bill's passage would mark the final deathblow to the CLEC market, whose equipment purchases helped sustain several startups before the economic downturn of late last year.

"Passing H.R. 1542 would be like letting Godzilla use atom bombs," says one culturally tuned-in Wall Street analyst, asking to remain unnamed.

RBOCs like the bill because it would allow them to duck a key requirement of the 1996 Telecommunications Act -- that RBOCs could only offer long-distance services in a market after they had given up their monopoly over local phone service in that market. This bill, they say, will help them better compete with the cable, satellite, and broadband wireless offerings.

The RBOCs contend that at the time the Telecom Act was being debated, the Internet was barely on anybody's mind. They say the Telecom Act was designed to regulate voice calls within their local access and transport areas (known as intraLATA calls). The Act shouldn't be applied to interLATA data traffic, they argue. "We're just looking to not be burdened by rules that don't burden our competitors," says Bill McCloskey, director of media relations for BellSouth. "The cable companies are not impacted by any rules like the ones we have to follow."

The Bell companies also point out that cable modem users outnumber subscribers to DSL. There were 4.5 million DSL lines worldwide in 2000, versus 7.2 million cable modem users the same year, according to IDC, the market research firm.

Opponents of the bill say that if Tauzin-Dingell becomes law, it would hurt competition for local phone service -- the very thing the Telecom Act was designed to address in the beginning.

"The failure of local competition is bad enough," said Sprint Corp. (NYSE: FON) CEO William T. Esrey, in his May 17 remarks to the Executives' Club of Chicago. "Regulators should not compound the problem by opening the floodgates and allowing the Bells to enter long distance in states where local competition has not yet been irreversibly established."

"It's pretty well understood that if Tauzin-Dingell passes it would be the final straw for CLECs and long-distance providers, many of which are struggling," says Legg Mason's David Kaut.

Even with regulatory hurdles, the RBOCs are now offering long-distance service in five states -- having earned that right by reluctantly wholesaling local lines to competitors. This makes it easier for an RBOC to win away a long-distance customer than for the reverse to happen.

But those line-sharing requirements are why the Bells say they have no incentive to offer high-speed data access to all their addressable markets. "It makes no sense for us to have to build out to these areas when we have to turn around and give our competitors access to new technology below cost," says BellSouth's McCloskey. "Why should we invest that capital and, in effect, subsidize our competitors?"

Both sides of the debate claim, predictably, to have consumers' interests in mind, but, if passed, the bill's impact on consumers would be a long time in coming. The rural areas, where competition would supposedly be opened up, would still have to be within a few miles of a CO in order to be reached by an RBOC DSL line. "It's not like our central offices are in cornfields," says McCloskey.

Adding to the debate is Sen. Sam Brownback (R-Kan.), who introduced two bills last month that are similar, but less far-reaching, than Tauzin-Dingell. One of Brownback's bills calls for lifting regulatory restrictions on a phone company's data-only facilities, while requiring them to build out their high-speed Internet access capabilities. The other provides regulatory freedoms to carriers that serve rural areas.

Brownback's bills, however, lack broad support from lawmakers. Sprint Corp., which is headquartered in Brownback's home state, is among those that have voiced concerns.

All the while, both sides have lobbying firms that are pouring money into advertising their views. Connect USA, a group in support of the Tauzin-Dingell bill, spent $62,070 between January 2001 and March 2001 on radio, TV, and print advertising, according to CMR, a media research company. Voices For Choices, a group opposing the bill, spent $126,630 on advertising during that time, CMR says.

Wall Street analysts following the bill expect that it will eventually pass the U.S. House of Representatives but won't make it through the Senate.

- Phil Harvey, Senior Editor, Light Reading
gpearson 12/4/2012 | 8:07:14 PM
re: Politics Take Center Stage Between celluar/PCS, Voice over IP, and high-speed data modems, I'd say there is lots of competition in the local phone market. Many CLECs failed because they focused on "data-centric business customers" who themselves disolved when the internet bubble burst. Competition in long distance is already so intense, the addition of three more companies is not going to change it much.
fk 12/4/2012 | 8:07:11 PM
re: Politics Take Center Stage I disagree that there is "plenty of competition" for the local phone market. There is very little penetration of competitors into the local loop. It's also interesting to note that in direct contrast to long distance pricing, the price of local telephone service has increased in recent years. This is reflective of the virtual monopoly enjoyed by the RBOCs, particularly in the consumer market.

I think Tauzin-Dingell is a bad idea. The last thing we need to do is reduce competition for local service. Maybe the solution is to force some level of divestiture in the local loop and THEN pass Tauzin-Dingle.

If we don't have competition, there is very little incentive for the incumbents to modernize. Holding back on modernization is not very good for our industry...
gpearson 12/4/2012 | 8:07:10 PM
re: Politics Take Center Stage sorry...

should have said

"100+ year old architecture"
gpearson 12/4/2012 | 8:07:10 PM
re: Politics Take Center Stage If you mean there are not a lot of companies running copper wire to the home, then of course you are right. My point is that trying to copy the 100+ architecture of the RBOC local loop is not where competition is going to happen. Competition is now between technologies (copper loop vs. mobile phones, VoIP, and VoDSL/cable modems). One noticable impact, for example, is Bell South's decision to get out of pay phones. People have generally stopped using them, using mobile phones instead.
fk 12/4/2012 | 8:07:09 PM
re: Politics Take Center Stage Competition is now between technologies (copper loop vs. mobile phones, VoIP, and VoDSL/cable modems).

There is not much competition between the copper loop and mobile phones at present given the widely differing levels of service that each provides. Quite frankly, not much else competes very well with the copper loop for providing voice and data to residential customers. The fundamental obstacle to effective competition is the lack of wiring, be that copper or fiber, to the vast majority of american households. Without that basic infrastructure it is difficult to get a foothold.

There is certainly a small amount of competition for large business users, but for small dollar consumers there is effectively one choice.

There is a basic level of infrastructure that needs to be built in this country to provide for broadband to the masses. The current state of affairs chokes off broadband on the access side, preventing the proliferation of broadband services and content that will drive the equipment vendors into sustained profitability.
cfaller 12/4/2012 | 8:07:07 PM
re: Politics Take Center Stage It appears to me that gpearson is imagining a lot of local competition simply because there are a lot of differing technologies capable of delivering local voice/data.

What gpearson has ignored, however, is that in 5 years of "competition", the RBOCs still control 97% of all customers. We're not talking controlling the loops, we're talking customers. In 5 years, CLECs have only managed to snag 3% of the market. Does anyone really believe that's because everyone loves the $#@%&* phone company, and doesn't want or need better service?

Competition this is not. This is the RBOCs playing the regulator game, one that they have mastered over 100+ years of experience.

Furthermore, most of the technologies gpearson mention have no bearing on the Tauzin-Dingell bill. PCS, VoDSL, and VoIP are all voice technologies, and are not relevant in legislating data services.

The only real solution is to divest the RBOCs, but that is not politically viable...
fanfare 12/4/2012 | 8:07:06 PM
re: Politics Take Center Stage I agree.

Currently, RBOCs are not facing any real competition from the CLECs. For them to say that they are holding off on last mile buildout because they fear being taken advantage of by competitors is a lot of BS. It seems pretty clear that they are using this tact in order to duck the potential for future competition .... and, in turn, give them more control over future rates/service quality etc. In other words ... 'give us the money first .. then we'll think about building a better infrastructure ... we are not required to sustain any degree of risk (as is the rest of corporate america) in order to gain an advantage over a developing industry ...'.

We need to move toward an era of 'one pipe'. If the RBOCs want to continue to drag their feet ... let them. Eventually technology will provide a means to "one pipe - all data" ... a true merging of voice/video/entertainment/etc. Revenue potential from this consolidated industry will foster the buildout needed. The only question is ... will the RBOCs be in or out.
jzanthony 12/4/2012 | 8:05:56 PM
re: Politics Take Center Stage BTW...'DSL..Did Someone Larf?' and moving right along..amongst the acronyms..

Two problems..our legislators don't understand any technical issue..from hard drives to software (they DO understand SOFT money, though) and second, the RBOCS have got them all conned as they cry 'Uncle, help me, for we are beset, if not beseieged, and we have been around forever. Please keep it that way and vote for the nice Mr. Tauzin's bill in the sacred name of Mom & apple pie etc'. (Do they have telecomms courses in Louisiana colleges, I wonder).
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