Bells dig in to dominate high-speed Internet realm

[David Farber <dave () farber net>]

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From: Dewayne Hendricks <dewayne () warpspeed com>
Reply-To: <dewayne () warpspeed com>
Date: Wed, 05 Jan 2005 01:24:33 -0800
To: Dewayne-Net Technology List <dewayne-net () warpspeed com>
Subject: [Dewayne-Net] Bells dig in to dominate high-speed Internet realm

Bells dig in to dominate high-speed Internet realm
By Leslie Cauley, USA TODAY
<http://www.usatoday.com/tech/news/2005-01-03-fiber-cover_x.htm#>

To hear BellSouth talk, high-speed fiber lines are the way of the
future. So why is it so determined to stop Lafayette, La., a rural
community in the heart of Cajun country, from installing its own fiber?

Joey Durel, Lafayette's mayor, has been asking himself that same
question. His city plans to build an advanced broadband network to
offer voice, data and video to its 116,000 residents. But local
officials claim BellSouth is trying to kill the project. And they say
it's getting help from Cox, the local cable-TV operator.

"We have the opportunity to do something great for this community ‹ and
in a state that needs a big win," Durel fumes. "They have to get out of
our way."

It's the dark side of the fiber story.

The regional Bell companies have made much of their billion-dollar
plans to run broadband networks across the USA. Yet they're also
quietly trying to erect hurdles that would make it hard ‹ or expensive
‹ for anyone to compete with them.

Besides municipalities like Lafayette, the Bells are going after their
phone rivals, Internet carriers and major metro areas ‹ anyone with an
interest in building services that might compete with the Bells.

Critics say the Bells' efforts are an attack on competition and that
consumers could be the big losers.

"If municipal governments and others are blocked from entering this
market, the vast majority of Americans are going to wind up on the
wrong side of the digital divide, because they will be unable to afford
high-speed services," says Gene Kimmelman of Consumers Union.

Atlanta-based BellSouth disagrees. Bill McCloskey, a company spokesman,
argues there are no barriers to entry into the broadband business, as
evidenced by the army of carriers ‹ cable, wireless, local governments
and others ‹ that are trying to compete.

"For anybody to say that there is no competition just doesn't compute,"
McCloskey says.

Broadband rates in the USA are already among the highest in the world ‹
$35 to $40 a month. And that's for relatively slow speeds of 1 to 2
megabits a second. In Japan, consumers pay about $15 a month for speeds
of 30 megabits or better, notes Raul Katz, CEO of Adventis, a
Boston-based consultancy.

The Bells have proved adept at using their fiber plans to persuade
regulators to grant them concessions. Without those concessions, the
Bells have warned, they wouldn't make their huge fiber investments. The
implied threat: that the USA, which ranks a lowly 13th in overall
broadband deployment, would slip further.

"Fiber is the pawn that allows them to extract concessions," Katz says.

Regulators aren't the only ones buckling. Consider Pennsylvania

Pennsylvania had considered legislation, backed by Verizon, to bar its
cities from selling broadband services. After a series of compromises,
Gov. Edward Rendell signed a bill in December letting Philadelphia and
other cities proceed with their own broadband plans ‹ until 2006. After
that, they must give Verizon a first right of refusal.

Verizon says the bill is fair, especially considering that Pennsylvania
is requiring phone providers to offer broadband statewide by 2015.

What's more, the Bells say, their local-phone turf is under attack from
rivals, forcing them into combat mode. They also note that wireless is
becoming a substitute for traditional "wired" phones, thus putting more
pressure on the Bells.

Well, yes and no.

The Bells themselves own two of the three biggest wireless companies in
the USA. That alone makes them a far-reaching presence in many
consumers' lives.

Cingular, the No. 1 player, is owned by two Bell companies, SBC
Communications and BellSouth. The No. 2 wireless carrier, Verizon
Wireless, is also controlled by a Bell company, Verizon.

Consumers could pay price

  Experts say they worry about diminished competition in broadband
services. Unless others can step into the fray and compete
aggressively, broadband could fall under the control of just two
players, just as the cell phone business did for years. With just two
cell phone carriers per market, operators tended to keep prices high.

The same could occur in broadband, warns Mark Cooper, research chief at
the Consumer Federation of America. "Two is not enough for real
competition," he says.

Cooper notes that the U.S. cell phone business, which was a legal
duopoly for years, turned competitive only when the Federal
Communications Commission chose to grant up to eight licenses per
market. The entry of six hungry players caused cell phone prices to
plummet ‹ a boon for consumers.

Since 2000, though, the wireless business has consolidated. Once Sprint
and Nextel complete their merger, there will be just three major
wireless carriers.

"It's just too easy for two or three players to figure out how to avoid
lowering prices," Cooper says.

Kimmelman agrees. The way things are going on the regulatory front, he
says, "consumers are going to end up paying inflated prices for
high-speed Internet access, which is becoming essential for day-to-day
life in America."

The future of Internet-based phone service, known as VoIP, is also at
risk, he says. In its final path to a home, VoIP travels over
high-speed lines ‹ a cable-TV or phone line. If access to that line is
blocked, Kimmelman warns, development of the service could stall.

Kimmelman says the situation is now especially urgent, with AT&T and
MCI retreating from the residential phone business.

"With AT&T and MCI exiting the consumer market, the only way consumers
are going to get real competition is through VoIP," he says.

The big Bells are taking advantage of that retreat by plowing ahead
with their fiber deployments. Their plans vary. Only Verizon vows to
extend fiber lines all the way to homes. Its customers could see top
speeds of 100 megabits or more.

SBC plans to take fiber only to the overall neighborhood, with speeds
of up to 25 megabits a second. BellSouth has committed to take fiber
only to the "curb" ‹ 500 feet or less from the home. Its speeds would
top out at 24 megabits a second.

The connection speeds for SBC and BellSouth are so much slower, in
part, because of the hybrid fiber-copper nature of their broadband
pipes. Copper doesn't have nearly the horsepower of fiber. That's one
reason Verizon has chosen to plunge ahead and build a 100% fiber
network directly to homes.

Just a few years ago, the Bells had pledged to run fiber straight to
homes. In return, they wanted the FCC to rule that they didn't have to
lease their fiber to rivals who could then turn around and use it to
deliver competing services.

Their request went to the heart of U.S. telecom policy. That policy has
long been based on the notion that the Bells were obliged to share
their networks with all comers.

The rationale owed to the history of the Bells. Their networks were
built over the course of a century using monopoly ratepayer money. Like
the U.S. highways, the Bell networks have been regarded as a unique
infrastructure that had to be open to others on terms that were fair.

But in 2004, in a nod to the changing nature of telecom, the FCC
granted the Bells' request. That concession paved the way for the Bells
to deploy fiber to homes.

That's when the foot-dragging began.

Instead of taking fiber to the home, BellSouth asked if it was OK to
just take fiber to the neighborhood, relying on its existing copper for
the final run from the curb to the house. But it still wanted to be
free of the sharing obligation.

The FCC said OK. The agency noted that the Bells didn't need to let
rivals use any line that wasn't set up for traditional phone service.

That led SBC to up the ante. Its argument: If it was OK to take fiber
just to the neighborhood and not share it, then surely it was OK to
take it just to the "node" and not share. (The node is the stretch of
copper between a central switching office and a home or business.)

So long as fiber exists in some part of the network between the node
and house, SBC thinks it should be treated, from a regulatory view, as
though it were running fiber all the way to homes. And it doesn't think
it needs the FCC's approval.

Meantime, all the Bells are pushing for a raft of regulatory
concessions that would make life difficult for would-be rivals. Dave
Baker, a vice president at EarthLink, an Internet service provider,
says the trend is inherently bad for competition ‹ and for consumers.

"By splicing in a little fiber, the Bells can squelch competition,"
Baker says. "There can be and should be competition in broadband
services on new networks."

[snip]

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