Politics Take Center Stage
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
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