SBCs Broadband Moves Anger ISPs

From San Antonio to San Francisco, ISPs that buy high-speed Internet connections from SBC Communications are hopping mad.

The Texas- and California-based ISPs, which have been skirmishing with the phone giant for years, are angry about SBCs plans to offer services such as video-on-demand to DSL subscribers on its network — even to subscribers who buy high-speed service from ISPs that lease DSL circuits from SBC. The ISPs are also miffed about a new contract that SBC sent out last month that will force the ISPs to change the way they provision their DSL circuits and reduce their ability to provide high-margin services.

Although SBC said the ISPs have nothing to fear, the lawyer for the 200-plus members of the Texas Internet Service Providers Association said he will file a complaint with the Federal Communications Commission about the recent moves. The California Internet Service Providers Association, which has more than 100 members, has already filed a complaint against SBC, claiming that the company is acting monopolistically and saying that the organization may file another complaint based on the new contract. The associations are also considering an antitrust lawsuit against SBC.

"I think the ISPs have a legitimate gripe," said Rod Woodward, a telecom analyst at Frost & Sullivan. But Woodward warned that SBCs deep pockets and political connections bode ill for the ISPs. "The process of fighting SBC is going to be very difficult," he said. "Very difficult."

This fall, SBC will begin testing its "broadband capabilities gateways" in Austin, Texas; Dallas; and Pleasanton, Calif. The company hopes that services including video, interactive gaming and home security monitoring will be popular with its DSL customers and provide additional revenue. But heres the rub: SBC said the new services will also be available to the ISPs DSL customers, who will be able to "toggle over" to a special SBC-operated site.

SBC wants "broadband access to Internet subscribers that arent theirs. They are ours. But theyre going to steal them without paying us," said Scott McCollough, an attorney who represents TISPA.

However, SBC spokesman Joe Izbrand said the new services should help the ISPs retain their customers. "We view this as being beneficial, because their customers can still have access to high-speed services without having to leave their ISP," Izbrand said. He added that the company is still talking to the ISPs about the new service and the new contract, but SBC does not intend to pay the ISPs.

Last year, the Texas ISPs filed anticompetitive complaints against SBC with the FCC and the Texas Public Utility Commission. Although the complaints were settled in June 2000, the treaty didnt last long.

Squeeze Play

"Ever since Northpoint Communications went out of business, weve seen a significant squeeze play put on us by SBC," said Dan Newman, president and co-owner of The Optimal Link, a Houston ISP.

SBCs new contract will require the ISPs to change the way they provision their DSL circuits. Currently, many ISPs use Point-to-Point Protocol-over-Asynchronous Transfer Mode or other methods to connect their customers to the nearest DSL access box. The new contract — sent to Texas and California ISPs — will require the ISPs to switch to PPP-over-Ethernet, a move that will require the providers to make additional investments in their infrastructure and reduce their ability to provide high-margin services such as static IP addresses and virtual private networks to their customers.

Without static IP addresses, it will be harder for ISPs customers to host their own servers because they may be cut off the network after a certain amount of downtime. It also allows SBC to conserve bandwidth, said Kristopher Twomey, a lawyer for the CISPA.

SBC, which has nearly 1 million DSL lines in service, is spending about $6 billion in an effort to make DSL service available to 80 percent of its customers by 2003 through its Project Pronto initiative.