Broadband Alert

a publication of the

Personal Communications Industry Association

500 Montgomery Street, Suite 700

Alexandria,VA 22314-1561 USA

703-739-0300 phone: 703-836-1608 fax

To contact Broadband Alert, call Brent Weingardt

at 703-535-7484, or Taube Pecullan at 703-535-7494.

You can also e-mail at weingarb@pcia.com or pecullat@pcia.com, or fax to 703-836-1608.

Broadband Alert Page 10

Guest Editorial: The Dangers Of Open Access

Broadband access to the Internet continues to be mired in conflict with each side painting the other as being against choice and competition. At issue is whether cable infrastructure should be unbundled and opened like the wireline phone network. The debate over how and whether cable networks should be unbundled is just beginning. Congress, under heavy pressure from lobbyists, has held hearings on broadband access. AOL has sought to portray the battle as one of "open access and choice," taking the fight to every local franchise authority that has yet to vote on the transfer of TCl's cable franchise. What is lost in AOL's fight for "open access" are the implications that a forced opening of cable networks would have on other forms of broadband access, such as wireless.

Cable service traditionally has been regulated and delivered as an integrated video, information, content, and conduit service. Cable operators are not subject to interconnection or facilities unbundling requirements; rather they are subject to carriage requirements that require them to reserve channel capacity for certain programming provided by other entities. A forced unbundling of the network would slow down the migration to broadband access as the battle moves to the courts, thereby jeopardizing the expected consumer benefits and delaying the creation of broadband networks. Similarly, the imposition of new regulations governing the structure of these networks could grind the construction of broadband networks to a halt.

Under the guise of "open access," AOL and other groups are trying to gain access to the millions of potential cable modem subscribers. More than 60 percent of the nation subscribes to cable with many more potential subscribers, since cable networks pass through about 95 percent of all neighborhoods. AOL is worried that it will be shut out of the cable modem market since AT&T bundles Excite@Home's ISP service with all cable modems. Subscribers wishing to access AOL's proprietary e-mail and content would have to pay an additional $10 a month.

As all cable franchise transfers must to be approved at the local level, AOL and its allies, the Open-Net Coalition, have been pressuring local government authorities to rule that cable TV networks must be opened to all interested parties. By "opened" they mean that transport should be separated from the local network management and routing services provided by Excite@Home. AOL and others are claiming that since they do not need Excite@Home's ISP services, paying for these services is anti-competitive.

This battle has major implications on other forms of broadband access as well. This is especially true since the communications, broadcasting, wireless, computer, satellite and cable industries are converging. The demand for open access to the cable broadband network poses thorny policy issues with worldwide implications that could permanently alter the landscape of broadband communication to the Internet, not just by cable operators, but by wireless, fixed wireless and even satellite providers.

If cable networks are forced open using the principle of "open access," why not force open wireless networks, or even satellite networks. If you agree with the logic behind "open access," than the same case can be made for PCS, cellular, fixed wireless operators (DEMS, LADS, MMDS) and even satellite. No type of network architecture is safe. You might say, no, that will never happen, but it is not any more far fetched than today's open access debates.

PCS operators are just beginning to upgrade their networks to carry data, and it will not be long before they roll out data capabilities throughout their networks. Nextel already has begun rolling out data services, as have the GSM operators. In the near future, phones will become not only telephony carriers but also content carriers and ISPs. The Internet is everywhere; technology soon will be available that will allow people to get online from their watches, their walkmans, even their toasters. As IP (Internet protocol) becomes embedded into many different appliances, and as the Internet begins to permeate many of the functions of daily life, the role of wireless providers changes from simply a carrier of telephony to a carrier of entertainment content and Internet. Moreover, in the near future a newer generation of wireless services, called third generation operators, will be able to offer broadband speeds and beckon consumers with broadband multimedia applications and high speeds at their fingertips.

If all networks can potentially be broken up and sold piecemeal, firms have little incentive to upgrade or innovate. Wireless operators also have little incentive to build third generation networks if they would then have to be sold piecemeal to any company that wants to compete against them.

Regulation of broadband access would introduce uncertainty into the markets and likely would lead to a drying up of investments and capital into this area at a time when both wireless and fixed wireless carriers are on the threshold of introducing broadband access. Today most Americans do not have broadband access, and additional regulations will deter growth of broadband access. This, in turn, will stymie investment and Wall Street enthusiasm for broadband networks.

This is not the competition that Congress envisioned in the Telecom Act.

The goal of the Telecom Act was to open the local phone networks to competition, bringing consumers increased innovation, greater choices, higher service quality and lower prices. A key provision of the act was to open the local loop, the perceived bottleneck, by allowing competitors the ability to purchase only the specific network elements they need to operate. The government interfered in the local telecom marketplace because economists identified a market failure--the natural monopoly of the local loop. However, no such failure exists in the cable marketplace or in the wireless marketplace; thus any action to force open the cable network likely would create more problems and a loss of consumer benefits. As FCC Chairman William Kennard stated, "we don't have a monopoly or a duopoly in broadband. We have a NO-opoly." The only way to get broadband networks built and deployed is to let the marketplace function correctly without any interference by government.

There are no easy answers to resolving some of these thorny policy issues surrounding open access. Each side is drawing battlelines in the sand, with no side ready to budge. The FCC, the referee, also appears to be hesitant to act, mostly because it has not figured out how its actions affect the future deployment of broadband access to the Internet. The FCC had hoped to let the market figure out a solution to the open access issue. However, lobbying by AOL and others over open access has the potential for creating chaos in the marketplace. The legal battles in Portland, Oregon and in Broward County, Florida are harbingers of future conflicts. The FCC needs to create a national policy or risk having each of the 30,000 local franchising authorities or other government regulators adopt their own standards for broadband access. Varying standards for broadband access would bring chaos in the marketplace. Hasty government action or idleness could permanently slow the deployment of broadband networks and hinder the goal of bringing affordable broadband access to all Americans.

Judith Hellerstein is the President of Hellerstein & Associates , a research group specializing in communications issues. She can be reached via phone at 202-333-6517 or e-mail at Judith@jhellerstein.com.