Why Compete when we can cheat?

[David Farber <dave () farber net>]

Begin forwarded message:

From: Barry Ritholtz <ritholtz () optonline net>
Date: November 23, 2004 7:07:55 AM EST
To: Dave Farber <dave () farber net>
Subject: Why Compete when we can cheat?

Hey Dave,

Why should companies actually compete in the marketplace? Its so much 
easier to merely pay off corrupt politicians (call it a campaign 
contribution). See the latest stupidity below in an article in today's 
WSJ

As long as firms can rely on the sheer (and utterly astonishing) 
incompetence of the FCC -- which seems much more focused on preventing 
the exposure of an errant breast (oh, Lord, a BREAST!! We're all going 
to hell) than actually doing their damned jobs -- competition may 
become the exception and not the rule.

Here's a crazy idea:    What about if the FCC spent less time on 
censorship, and more time on enabling intelligent technologies to enter 
the marketplace?


Barry L. Ritholtz
Chief Market Strategist
Maxim Group
britholtz () maximgrp com
(212) 895-3614
~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Big Picture:  A blog of capital markets, geopolitics, with a dash 
of film and music!
http://bigpicture.typepad.com/comments/



        
November 23, 2004
TELECOMMUNICATIONS

Telecom Giants Oppose Cities On Web Access
http://online.wsj.com/article/0,,SB110116864041881375,00.html
By JESSE DRUCKER
Staff Reporter of THE WALL STREET JOURNAL
November 23, 2004; Page B1

Dozens of cities and towns across the country are rushing to provide 
low- or no-cost wireless Internet access to their residents, but the 
large phone and cable companies, fearful of losing a lucrative market, 
are fighting back by pushing states to pass legislation that could make 
it illegal for municipalities to offer the service.

Over the past few months, several big cities -- including Philadelphia 
and San Francisco -- have announced plans to cover every square block 
with wireless Internet access via the popular technology known as 
Wi-Fi, short for wireless fidelity. Cities say these plans will spur 
economic development and help bridge the digital divide, making Web 
access nearly ubiquitous.

But that's bad news for the large Bell telephone companies and cable 
operators, who are looking to their digital-subscriber-line (DSL) and 
cable-modem businesses for growth. Wi-Fi, technically known as 802.11, 
takes existing high-speed Internet connections and wirelessly extends 
them by several hundred feet, allowing dozens or even hundreds of 
people to share one subscription.

Philadelphia announced during the summer that it would hook up the 
entire city with Wi-Fi. Its current Wi-Fi service is free, but it 
hasn't decided whether that would continue with wider deployment; it 
may charge a small fee. "There are some very specific goals that the 
city has that are not met by the private sector: affordable, universal 
access and the digital divide," says Dianah Neff, the city's chief 
information officer. She says that less than 60% of the city's 
neighborhoods have broadband access.

However, last week, after intensive lobbying by Verizon Communications 
Inc., the Pennsylvania General Assembly passed a bill with a deeply 
buried provision that would make it illegal for any "political 
subdivision" to provide to the public "for any compensation any 
telecommunications services, including advanced and broadband services 
within the service territory of a local exchange telecommunications 
company operating under a network-modernization plan." Verizon is the 
local exchange telecommunications company for most of Pennsylvania, and 
it is planning to modernize the region using high-speed fiber-optic 
cable. The bill has 10 days for the governor to sign it or veto it.

The Pennsylvania bill follows similar legislative efforts earlier this 
year by telephone companies in Utah, Louisiana and Florida to prevent 
municipalities from offering telecommunications services, which could 
include fiber and Wi-Fi.

Critics denounce this legislative tactic, arguing that the U.S. lags 
behind other countries in broadband Internet access because the phone 
and cable companies have been slow to roll out the service in some 
areas.

"We should be encouraging our municipalities to take a major role in 
broadband, the way other countries are doing," says James Baller, an 
attorney in Washington, D.C., who represents local governments on 
telecommunications issues.

The telecom companies argue that it is unfair for them to have to 
compete against the government. They say that the legislation enables 
them to improve service to their customers by investing in their 
networks. "If we put that money at risk, and here comes government to 
compete against us, with advantages that government has -- not paying 
taxes, access to capital at good rates ... that severely limits the 
opportunity and limits our interest in taking the risk," says Eric 
Rabe, a spokesman for Verizon. Pennsylvania Gov. Edward G. Rendell has 
until November 30 to act on the bill, and hasn't said yet which route 
he will choose.

Telephone companies have long used local legislative muscle to stave 
off competition. After Congress passed the landmark Telecom Act in 
1996, which required local telephone providers to open their networks 
to allow competition, several municipalities, including some municipal 
power companies, sought to offer telephone service. After extensive 
lobbying by the Bell telephone companies, roughly a dozen states passed 
laws prohibiting municipalities from offering telecommunications 
services. Currently, 621 municipal power utilities around the country 
provide some kind of advanced communication service, including 
telephone, high-speed Internet access and cable television, according 
to the American Public Power Association; a minority of these utilities 
sell those services to the general public.

The U.S. Supreme Court earlier this year found that such legislation 
was legal, so cities and towns are particularly anxious to quash such 
legislation before it gets passed.

The tactic is being revived by the increasing interest in using Wi-Fi 
to spread broadband access, as well as interest in fiber. Wi-Fi 
equipment maker Tropos Networks Inc. says it has supplied gear for 
public networks in roughly 50 towns and cities, including Philadelphia, 
Los Angeles, and Corpus Christi, Texas. Scottsburg, Ind., last year 
built a network using a different type of wireless technology that 
covers nearly all of the surrounding county's residents, using 
equipment from Alvarion Ltd.

Earlier this year, the attempts by local telephone companies BellSouth 
Corp. and Qwest Communications International Inc. to push for severe 
restrictions on municipal broadband service in Louisiana and Utah ended 
in compromise, in some cases with existing plans being allowed to 
continue but new plans limited.

The legislative provision in Pennsylvania -- a small portion of a much 
larger telecommunications bill that gives telephone companies 
incentives to modernize their networks -- was originally prompted by 
the fiber deployment of a small town called Kutztown. But people 
involved in the legislative process say the provision took on added 
importance for legislators and the state's big phone companies after 
Philadelphia announced its Wi-Fi plans.

Cities have been able to deploy Wi-Fi relatively cheaply: Philadelphia 
says it set up its initial wireless zone for $85,000, paid out of the 
city's budget. The city-wide offering is expected to cost $10 million, 
and could be paid for by a combination of borrowing, private donations 
or selling rights to the poles on which the Wi-Fi equipment will be 
deployed.

The annual cost of operating the system is expected to be roughly $1.5 
million. Since the city has said the plan would be "cost neutral," a 
prohibition on levying any fee for the service could make it tough to 
deploy. "That's been made more difficult by current legislation," says 
Ms. Neff. However, she adds: "It's not stopping us. It may have 
eliminated some options."

The city deploys its current system much like a larger version of a 
wireless setup in a Starbucks coffee shop: A high-speed line connects 
to a wireless antenna mounted on a light pole that essentially sprays 
out the connection for several hundred feet.

Unlike high-speed connections into people's homes -- a service 
dominated in Philadelphia by Verizon -- the city could choose a variety 
of high-speed access providers for its Wi-Fi offerings, including MCI 
,Sprint Corp. and Level 3 Communications Inc.

The Pennsylvania bill, first introduced in 2003, was passed by the 
state Senate late Thursday night and then passed for a second time by 
the state House of Representatives late Friday night by wide margins. 
Senate supporters agreed with Verizon's view of the legislation. Don 
Houser, a spokesman for Senator Jake Corman, the Senate sponsor of the 
bill, said "the thinking was the telephone companies didn't want to 
have local municipalities using tax dollars to compete with private 
dollars."

Verizon spokesman Mr. Rabe says the legislation is not a giveaway -- it 
also contains incentives for the phone company to deploy broadband 
service throughout the state, which he says will cost hundreds of 
millions of dollars. The bill also has a grandfather clause, giving an 
opening to providers who have some types of service in place before 
Jan. 1, 2006, but it is unclear how that would affect Philadelphia's 
plans.

Write to Jesse Drucker at jesse.drucker () wsj com 4

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