Getting a lock on broadband

How the FCC is paving the way for a few big companies to control everyone's high-speed Internet access.

By Jeffrey Benner
Published June 7, 2002 11:04PM (EDT)

The Federal Communications Commission is quietly handing over control of the broadband Internet to a handful of massive corporations.

In March, the FCC ruled that cable companies do not have to open their networks to competing Internet service providers, or ISPs. A FCC proposal to extend the same exemption to DSL service is pending. If approved, the proposal will allow local phone companies, now down to four "Baby Bells," to deny other DSL providers access to local phone networks. Currently, all DSL providers are guaranteed access to phone networks under the FCC's interpretation of federal telecommunications law.

Telecommunications, cable, and media companies (increasingly one and the same) and their allies in Congress have campaigned for years to deregulate most aspects of the telecom industry. Under the current administration, and the leadership of FCC chairman Michael Powell, those efforts have finally begun to pay off.

The trend profoundly concerns consumer advocates and some Internet policy experts. They warn that if the FCC goes through with its plans, cable companies and the Baby Bells will quickly establish a monopoly on broadband service over their own networks. Consumers accustomed to thousands of competing ISPs to choose from for dial-up narrowband Internet access will be left with just one or two options for broadband service. One worry is that the lack of competition will yield high prices and poor service. But the far more urgent concern is that media conglomerates will use their control over broadband pipes to restrict access to content, information, or technologies that compete with their own content or otherwise threaten their interests.

"The past two decades on the Internet have been a uniquely consumer-friendly environment," says Mark Cooper, research director at the Consumer Federation of America. "Now that is up for grabs. The essential ingredient of the Internet was preventing the owner of the facilities from dictating content. Now, eight cable companies will decide what the public will be offered, not 8,000 ISPs." The CFA, along with the Media Access Project, the Center for Digital Democracy, and the Consumers Union are challenging the FCC ruling on cable broadband in federal court.

Despite those dire warnings, the FCC's policy on broadband enjoys strong support. Companies with a stake in the matter are gung-ho for it, at least for their own networks, and many independent economists and public policy experts also find the FCC's deregulatory approach to broadband enlightened and long overdue. They scoff at the idea that the freewheeling Internet can be controlled by any company or group of companies. And they argue that the current regulations, particularly the open-access requirements for DSL, actually discourage private investment in new broadband infrastructure and technology. Who wants to build a new network -- whether it's DSL, satellite, or "fiber to the home" -- if you then have to share it with competitors?

If the government steps aside, they say, robust competition will develop between different technology "platforms" such as cable, phone, satellite and local wireless, giving consumers plenty of choices and stimulating a build-out of broadband infrastructure at the same time.

"If you have competition between platforms, consumers will be better off," says Randolph May, a communications policy expert with the Progress and Freedom Foundation. "The problem is that [regulation] impedes investment and new entrants to the market."

Further complicating the picture is the massive consolidation in the media and telecommunications industries that has been building for years. That consolidation is expected to accelerate as the FCC throws out limits on how large and broad media companies can grow. Once those limits are gone -- some have already been eliminated -- it is quite plausible that a single media company could control the broadcast television stations, newspapers, radio and broadband Internet access in a single city.

Even some conservatives worry about this concentration of power among the very companies seeking unregulated control over broadband Internet access. Kenneth Arrow, a Stanford economist who won the Nobel Prize for his free-market theories, supports the deregulation of broadband. But he also expresses concern about pushing reliance on the free market too far. "I am worried about concentration in the media," he says. "That does bother me."

The heart of the anti-deregulation camp's argument is that the narrowband Internet owes its phenomenal success as an engine of innovation, creativity and economic growth to government regulations that guaranteed open competition. Current telecommunications regulations, originally written to break up the Bell telephone monopoly, require open access to phone lines for all ISPs and forbid the Baby Bells to tweak with the content flowing over their networks. If such protections are not extended to broadband service over cable, and are lifted from DSL over the phone lines, those against deregulation fear that the openness, innovation, and creativity that made the narrowband Internet revolutionary will wilt in the tight fist of corporate control. Huge media companies -- increasingly fearful of the threat posed by the Internet to their proprietary content -- will jump at the chance, they say, to lock things down.

"There is a fundamental battle going on," said Larry Lessig, a Stanford law professor and an expert on Internet history and policy. "There is a strong political movement to remove all obligations to keep the network open [and] the Internet as we knew it."

On March 13 the FCC commissioners ruled, 3-1, that cable broadband is an "information service" rather than a "telecommunications service." By toggling definitions just so, the commission cleverly managed to exempt cable broadband -- widely acknowledged as the key communications network of the future -- from all the rules that apply to telecommunications services under the Telecommunications Act of 1996. The most important piece of telecom legislation in 60 years, the act, among other things, requires telecommunications companies to open up their networks to competition.

This open-access requirement is the reason you can choose from among hundreds of long-distance carriers and from among thousands of ISPs for dial-up access to the Internet. Under the law, local phone companies must allow other companies to sell services over the phone lines, even if they compete with the phone company's own services or products. The Telecommunications Act also forbids network owners from meddling with content on their network. This is why narrowband users -- and thus far, DSL users -- can fax, or talk, or download music off the Internet without permission or fear of interference from the local phone company. The rules were written to prevent the owners of the telephone wires from using their power over the lines to control content or stifle competition.

Over the past several years, as cable companies have begun offering services generally considered to be telecommunications -- Internet access, digital telephone service, video conferencing -- there has been an increasingly bitter battle between cable companies and consumer advocates over whether open-access requirements and other regulations that apply to telecommunications should also apply to cable. The March ruling settled the question: Telecom rules won't apply to cable broadband.

The 1996 act defines "telecommunications" as simply "the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received." Consumer advocates argue this should apply to cable broadband. Although the act, and the FCC, have long referred to high-speed Internet access as "advanced telecommunications services," the FCC decided in its March ruling that cable broadband is really better described as an information service. Although technically still under FCC jurisdiction, there are no significant regulations on information services, which include services like voice mail. As a "declaratory ruling," the commission reached its decision without a hearing or public comment period.

FCC commissioner Michael Copps, the lone Democrat on the four-member commission, wrote in his dissenting statement that the ruling amounted to a breach of the Constitution.

"Today we take a gigantic leap down the road of removing core communications services from the statutory frameworks established by Congress," Copps wrote, "substituting our own judgment for that of Congress and playing a game of regulatory musical chairs by moving technologies and services from one statutory definition to another. Last month I remarked that we were out-driving the range of our headlights. Today I think we are out-flying the range of our most advanced radar."

But the FCC is not stopping there.

For years there has been clamoring from all sides that the same regulations should apply to all types of broadband access, although opinions differ on what the rules should be, or if there should be any at all. Public policy for broadband is particularly confusing, because the service is offered over cable, phone and wireless connections, and each of those sectors has traditionally had a separate set of regulations. Chairman Powell has made it plain he would like to clear up the confusion and have consistent rules.

In February, the FCC proposed lifting the current open-access requirement for DSL service. No decision has been reached yet, but now that the FCC has ruled that cable companies will not have to open their networks to competition, and given Powell's enthusiasm for consistent regulations -- or lack of them -- it seems a safe bet the FCC will let the Baby Bells shut out their competitors, too. The logic is essentially that one monopoly deserves another.

The prospect of broadband provision reduced to a few competitors, each with a monopoly on their own platform, scares the hell out of consumer groups that have fought the creation of corporate monopolies over media and information sources for years. Because media conglomerates such as AOL have begun buying up the pipes that deliver the content they produce, the situation seems even more ominous. In short, consumer advocates worry these companies will mess with content in order to force the Internet to serve their own interests. They argue, for example, that a cable company will never allow streaming video to flow over its cable broadband lines if it competes with its cable television service. Even the right to "click through" to the Web won't be guaranteed, they warn, and companies are likely to turn the Internet into walled gardens of their own content -- think AOL with no escape hatch to Google.

"The path the FCC is currently on will change the Internet that you know," said Cheryl Leanza of the Media Access Project (MAP), a public interest telecommunications law firm. "Currently, rules prevent phone companies from controlling content in any way. There is no content protection for cable, and the FCC has proposed to take away the protections on content discrimination for DSL. The impact will be breathtaking."

Like consumer advocates, free-market supporters trumpet the importance of competition among ISPs, and fear a monopoly on broadband. But they think the access requirements and the other rules in the Telecom Act stifle rather than secure competition, innovation and investment, and the monopolist they are concerned about is Uncle Sam. "I'm a lot more worried about John Ashcroft than John Malone," quipped Gerald Faulhaber, chief economist of the FCC from 2000 to 2001, referring to the attorney general and to one of the top power brokers in the cable industry.

At the heart of the argument that the free market will save us lies the belief that competition between DSL, cable, satellite, local wireless and other technology "platforms" not yet imagined will be more than enough to guarantee that consumers will get the Internet when, where, and however they want it. Even if one company enjoys a monopoly on one of those platforms, the theory goes, it will not amount to a monopoly on high-speed Internet access overall. Better still, they say, encouraging a horse race between platforms will mean that billions of dollars in private investment will pour into broadband infrastructure and equipment.

"It's clear the FCC is moving toward putting cable off-limits to regulation [under the Telecommunications Act], and I think that's a great idea," said Faulhaber, who now teaches economics at Wharton. "I wish Michael Powell would do more to encourage platform competition. As long as people think this will be regulated, no [competitor] is going to jump in."

Competition between platforms would indeed steal an awful lot of thunder from those making dire predictions that mega-corporations are about to capture control over the next generation of the Internet. If my cable company won't let me click through to the Web or get streaming video, I can get DSL, or a satellite dish, or a wireless connection.

But the likelihood that robust competition will actually develop for a majority of households remains a hotly contested question. As of June 2001, the latest official statistics available from the FCC show 2.7 million U.S. households using DSL, 5.2 million using cable modem, and 200,000 broadband via satellite. Fifty-eight percent of U.S. zip codes (not necessarily households) had more than one broadband option available. Twenty percent of zip codes had no broadband service at all.

Advocates of broadband deregulation tend to be very optimistic about the potential for interplatform competition to improve; its critics are not.

The pessimists say that cable is too far ahead, that DSL doesn't have the bandwidth to compete with cable on key applications like video streaming, and that satellite broadband -- besides its tiny market share -- works well for downloading but not uploading. "In the abstract, no one would deny that 10 different platforms would be good," said Leanza of the Media Access Project. "But it's naive to assume that most people will have more than one platform available."

Optimists point out that DSL is catching up and network upgrades would make it just as fast as cable modem, that satellite is a real option just needing time to develop, and that new options like local wireless, fiber to the home, even networks over power lines, will take off if local, state and federal bureaucracies would stop standing in the way.

In the most extensive independent study of broadband to date, the National Research Council came to a mixed conclusion regarding interplatform competition. The report found that interplatform, or "facilities based," competition, is important and should be encouraged. But it also predicted it would not take hold everywhere and should not be relied on exclusively for consumer protection.

"The report found that facilities-based competition is important, but don't assume you're going to get it," says David Clark, a computer scientist at MIT and a coauthor of the NRC study. Some locations, like big cities, might get three competitors, others two, and some just one, he said. Nevertheless, Clark cautiously endorsed the current FCC policy of deregulation.

"The gamble is to get broadband out there, no matter what it looks like," Clark said. "You might try for a level of competition you don't get. You might gamble and lose. But I would say, get it out there."

That is a gamble consumer advocates are not willing to take. In their view, the best possible outcome of the bet is bad, the worst case catastrophic. "Even if three top platforms reached every household, we will be trading hundreds of [ISP] choices for three," says Leanza, but she thinks even that number is too much to hope for. "Deregulation can only work if competition is in place," Leanza says. "You can't have both deregulation and monopoly, and that is where we are headed."

Viewed in the context of the FCC's campaign to deregulate media and telecommunications in general, the concerns about who will control broadband become even more urgent. With quite a bit of prodding from the courts, the FCC has been tossing out or rewriting rules, called "ownership caps," that limit how large and broad media conglomerates can grow. The cap on how large cable companies can grow is gone. So is a limit on how many broadcast television stations one company can own. A "cross-ownership" rule forbidding cable companies from buying broadcast television stations has been scrapped. Another that forbids ownership of newspapers and television stations in the same market is under review, as is a restriction against owning more than one broadcast television station in the same city.

Analysts agree the regulatory changes already made will soon unleash a new wave of consolidation in the media sector. Among companies that deliver broadband, the consolidation is already under way. In December, AT&T agreed to sell its cable division to Comcast, in a deal valued at $72 billion. If approved, the combined company will have 27 million subscribers, or about 40 percent of the cable market. EchoStar and DirecTV, the top two satellite television companies, have also announced plans to merge. The combined company would essentially have a monopoly on satellite television. The two companies argue they need to merge in order to compete with the likes of AT&T Comcast.

"At the end of this, one company in a community could own the newspaper, several TV and radio stations, the cable company, the principal ISP -- maybe even the phone company!" said Jeff Chester, director of the Center for Digital Democracy. "This stands the First Amendment rights of citizens in the digital age on its head."

For those who, like Chester, are worried that deregulation will result in a dangerous consolidation of power among a handful of media companies in traditional media like television, print, and radio, keeping the Internet out of their control has become all the more urgent. In their minds, the battle for broadband could amount to democracy's last stand. "This is a war for the heart of the Internet," Chester said. "Will a few telecoms be allowed to seize control of it, or will it be preserved as a democratic resource? It's David versus Goliath."

The cable companies and Baby Bells disagree, arguing that there is sufficient competition both within and between platforms and that more can be expected. AT&T's cable division has voluntarily agreed to let EarthLink sell cable modem service over AT&T-owned cable in Boston and Seattle, and it is promising to open more markets soon. But skeptics say the company has been dragging its feet on opening access for years and is giving token access now to head off mandatory requirements as a condition of its pending merger with Comcast, another major cable company. As a condition of the merger between AOL and Time Warner last year, the Federal Trade Commission required the combined company to open its lines to at least three competing ISPs.

But, oddly, the same cable corporations that oppose mandatory open access for their own cable networks are among the most eloquent and spirited advocates of continued mandatory access for the telephone lines. Both AT&T and AOL Time Warner have asked the FCC to maintain open access for DSL -- a market both would like to crack -- arguing that the rules protect consumers. Both companies oppose placing the same requirements on their cable networks, markets they would like to protect.

"For decades, the FCC has successfully promoted the openness of our nation's wireline infrastructure," AOL Time Warner lawyers wrote in comments submitted to the FCC on its proposal to eliminate open-access requirements for DSL. "It understood that by ensuring non-discriminatory access to wireline networks, consumer welfare would be optimized."

Hearing AOL laud the benefits that open access offers consumers on DSL, despite its opposition to such access for cable, triggers eye-rolling fits among consumer advocates who want open access for both cable broadband and DSL. "This double standard illustrates what's at stake," said Chester. "Media giants are manipulating broadband for their own purposes -- not the public interest."

Asked why AT&T supported open-access requirements for phone lines of local carriers, but not for its own cable network, AT&T spokeswoman Claudia Jones said: "Cable and telephone are different animals. There is ubiquitous competition for cable. Satellite is really bringing competition to the cable market. But there is virtually no competition in the local telephone market. The Bells can't get what they wanted in Congress, so they are looking to the regulators."

"The hypocrisy is outrageous," said the Consumer Federation of America's Mark Cooper. He thinks getting regulators to overrule Congress is exactly what AT&T's cable division has done by successfully persuading the FCC not to apply open-access requirements to cable broadband.

In the end, the battle over broadband is about who has control over information. One unlikely but eloquent spokesman for the importance of fair access to information is FCC chairman Powell himself. Speaking at the Broadband Technology Summit in April, an event sponsored by the U.S. Chamber of Commerce, Powell said:

"You name it, and information plays a vital role in making a decision, making a commitment, taking a risk, or agreeing to part with something of value. Often in these transactions the information one has will determine if the transaction is fair, or whether someone gets taken -- the taker having superior knowledge about the deal."

For those who are convinced Powell's policy on broadband could permanently tip the balance of power over information toward massive corporations, the irony of his statement must be almost unbearable.

But catastrophe is hardly assured. Perhaps technology and the free market will come to the rescue. They have before. What is certain is that by deregulating broadband, the FCC is taking a tremendous risk that could have unforeseen consequences. A risk few people even know they are taking, fewer still understand, and only four get to vote on.

The scenario is not new. In 1981, Congress quietly eased restrictions on savings and loan houses, allowing them to invest their federally insured deposits however they pleased, even in, say, junk bonds. In the mid-1990s, the SEC softened rules that had prevented accounting firms from consulting for their auditing clients. Aside from a few stray government watchdogs, a handful of Beltway bureaucrats, and a clutch of corporate lawyers, those obscure but radical experiments in deregulation went unnoticed -- until it was too late.

Jeffrey Benner

Jeffrey Benner is a freelance writer in Brooklyn, N.Y. His work appears regularly in Wired News and Salon.

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