Critics Claim FCC Ruling Creates Duopoly

By Gene Koprowski  |  Posted 2005-08-10

Critics Claim FCC Ruling Creates Duopoly

Federal Communications Commission Chairman Kevin J. Martin says that the agencys new rules on broadband Internet access create a "level playing field." But critics—including leading investment bankers and Internet technology vendors—are alleging that the FCC is actually creating a new, unfair playing field, where cable and traditional telecom companies are favored over ISPs.

"We have to assume now that we are in a duopoly world," said Jonathan Taplin, a partner with Business Edge Solutions, a Los Angeles-based consulting company that works with telecom clients, in an interview with

The FCC on Friday ruled that high-speed DSL service would henceforth be classified as an "information service," rather than a telecommunications service. The government also issued an order allowing large telecom providers to shutter their DSL networks to ISPs.

Preferred Carriers?

One vendor told that the FCC is clearly showing a preference for certain carriers with its ruling. "If you read the order that came out, it takes us to a duopoly, because there are a lot of references to telecom and cable companies in there," said Jason Talley, president and chief executive officer of Nuvio Corp. "At the FCC, that is how they think the world is now." Nuvio, based in Overland Park, Kan., is a network developer that works with ISPs.

This policy has been in the works for some time—due to a number of factors. Since the telecom crash of 2000, Wall Street has not been interested in funding new CLECs (Competitive Local Exchange Carriers), which includes ISPs using VOIP (Voice over IP) to get into the marketplace. More than $2 trillion in investment in CLECs evaporated during the telecom market depression.

"The FCCs decision that cable companies and phone companies do not have to share fiber optic space with ISPs itself is not a surprise," said Eric Zimits, managing director of Granite Ventures, a San Francisco-based venture capital firm, in an interview. "The FCC has been on this path for several years."

Skype investor says firm should stay independent. Click here to read more.

What was stunning, however, was the severity of the ruling. The FCC, some critics claim, is turning over the Internet to a handful of companies in the telecom and cable industries. None of these companies have been responsible for significant invention on the Internet. "Not a single innovation related to the Internet has come from former Bell companies," said Mehrdad Saberi, chairman of the California ISP Association, based in Sacramento. "When DSL was being launched by other, smaller companies, the Bells continued to insist that DSL would threaten the quality of voice calls."

The ISPs are not calling for litigation—at least publicly, yet—to seek to overturn the FCCs Aug. 5 action. But some are averring that the ruling may be illegal, to the extent that it harms small businesses. "In 2002, President Bush signed Executive Order 13272, requiring federal agencies to implement policies protecting small businesses when writing new rules and regulations," said Saberi, of the California ISP Association.

Next Page: Ruling has some good, some bad, critic says

Ruling has some good,

some bad, critic says">

Effective opposition from Internet firms may, however, have already been subdued, behind the scenes by content developers and producers who didnt support the ISPs.

"Consumers have long worried about there being a walled garden in online content," said Taplin. "That is that one provider will advantage one content carrier over another. For example, was worried that a provider might favor, and, in a broadband era, provide one with good video, and another with grainy video. That could impact sales."

The larger online merchants, however, appear to have been the source of language in the FCC order that states that consumers have the right to access any content they want via the Internet. "Thats a bold statement," said Taplin. "So there is some good, and some bad, in the ruling."

The FCCs chairman, Martin, an appointee of President Bush, said that the telecom market has changed dramatically. The changes in the marketplace require what Martin calls "fresh" analysis. "In taking these actions, we recognize that change is never easy," said Martin. "Nor can it be effectuated overnight."

As a consolation, the FCC is ordering that telecom and cable companies continue to provide ISPs access to their fiber optic cable for another year, during a transition phase. Martin said the actions by the FCC—which may eliminate a number of ISPs—will actually "increase Internet access competition."

The only way that will happen, given the new rules, is if Earthlink, AOL and other major ISPs embrace "wireless Internet access—in a big way," said Nuvios Talley.

Gene J. Koprowski is a freelance writer who has written about the computer industry for 20 years.

Check out eWEEK.coms for the latest news, views and analysis on voice over IP and telephony.

Rocket Fuel