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The battle over broadband is about to begin in earnest. With a virtual stalemate on Capitol Hill, a group of high-tech CEOs will converge on Washington to try to move the front line from Congress to the Federal Communications Commission.
At issue are battling sectors of the telecom industry that are traditionally regulated in very different ways: the regional Bells, which were told they have to open their networks before they can offer long-distance service under the Telecommunications Act of 1996, and the cable industry, which is free from most federal regulations. The 5-year-old law is almost completely silent on the subject of the Internet.
To date, much of the political noise regarding broadband policy has sprung from a fight between the Bell companies and AT&T, the nations largest cable and long-distance company, over the degree to which the Bells burgeoning data networks should be subject to the same regulations that govern their voice operations.
The involvement of the broader high-tech industry in the debate demonstrates the urgency that the computer industry feels about the need to speed last-mile broadband deployment. Broadband, many industry leaders argue, is the key to high-tech growth: Spread it into peoples homes, and the foundering Net will rise from its commercial inertia and nurture new online businesses and services, forcing the industry to start buying software, chips and computers again.
The current stalemate has resulted from a division between Rep. Billy Tauzin, R-La., who has championed the Bells case in the House, and Sen. Fritz Hollings, D-S.C., who says the Bells dont deserve deregulation because they have engaged in anticompetitive practices.
This fall, “there will be more activity by the high-tech industry to find third ways,” said Scott Cooper, Hewlett-Packards manager of technology policy. “Not necessarily splitting the difference – that usually doesnt work – but working ways out of the impasse we are in.”
One of those third ways is the FCC, said Intels communications policy director, Peter Pitsch. “A number of us who care about broadband policy are focusing more on what can be done at the FCC,” he said. “We think the FCC has the jurisdiction. We think that, as the expert agency, they can perhaps move the ball forward, where perhaps in a more politicized environment things will remain stuck. Also, we think the FCC has before it – and will likely have placed in front of it in coming months – a number of last-mile regulatory issues. I think the smart money will be that the FCC will change the current policy.”
The high-tech industrys decision to join the fight to open broadband lines is welcomed by the regional Bells, which seem confident that the industry will sit in their corner.
“It would be enormously helpful if someone could address this from the perspective not of a local versus a long-distance carrier, but instead from the perspective of the Internet high-tech industry and the consumer,” said Tom Tauke, Verizon Communications senior vice president for public policy and external affairs. “I think they have the ability to have real impact in the development of policy in this arena.”
At the heart of the issue is the 1996 landmark law, written for a different generation of telecommunications and data technologies. Its purpose was to spur telecommunications competition, but it has fallen short as networks built to carry data, voice and television converged on the Internet.
Congress is given little chance to deal with the acts shortcomings, since Tauzin and Hollings – who chair the key telecom oversight committees in the House and Senate, respectively – are pushing opposite solutions.
Senate Commerce, Science and Transportation Committee Chairman Hollings proposes punishing the regional Bells for failing to open their lines to competitors by dividing them into separate retail and wholesale companies. House Committee on Energy and Commerce Chairman Tauzin, on the other hand, would reward the Bells by essentially rewriting the Telecommunications Act of 1996 and letting them handle long-distance data traffic through their networks, as well as permitting them to build new fiber networks without having to share them with competitors.
As those partisans dig deeper trenches, political gridlock looms – and the IT industry wants action. Fail to jump-start broadband, industry leaders warn, and the slump will continue. HP CEO Carly Fiorina has made this her mantra in speeches at industry and government events over the past month.
“Wall Street has been badly burned, and the general perception of the prospects in this market have changed dramatically,” Intels Pitsch said. “Were not into apportioning blame and trying to determine who did what wrong, so much as we are concerned about getting the fundamental policy right. We want it right, and the economics are going to drive this. We are convinced broadband is enormously valuable. We think if companies have the incentive to deploy it, it will get deployed and the consumer will buy it. And well see the same virtuous cycle between broadband and applications that we saw between PC hardware and PC software 10 or 15 years ago.”
So executives such as Cisco Systems CEO John Chambers, Intel CEO Craig Barrett and Microsoft Executive Vice President Bob Herbold plan to visit Washington to buttonhole lawmakers. They are part of a flock of high-profile CEOs expected to swoop down on Capitol Hill this month as part of an event planned by TechNet, a Silicon Valley organization that is part lobbying group and part political fundraiser.
The CEOs have not yet united on a set of policy principles and talking points, said Connie Correl, TechNets executive vice president. TechNets CEO-led broadband issue working group has been meeting for months and listening to all parties mired in the debate: the Bells, the long-distance carriers, the cable companies and the competitive local exchange carriers (CLECs, pronounced SEE-leks). The broadband working group was “charged with looking at the issue and coming up with broader solutions than weve seen to date,” she said.
While declining to formally choose sides, Intels Pitsch said the chipmaker endorses the deregulatory spirit of the Tauzin bill. As far as the company is concerned, broadband – whether its in the form of DSL, cable or wireless – comes first and trumps all other political calculations. As a result, Intel endorses deregulating the Bells. It also believes the cable industry should remain unregulated.
According to Pitsch, a big part of the problem is that the FCC under former Chairman William Kennard opted against making black or white some pieces of the Telecommunications Act of 1996 that are gray. Kennards FCC felt that making sharp distinctions in some of these matters would spawn lawsuits and bog down the deployment of broadband more than a muddy law would. Some of the fundamental issues in the law are still mired in litigation.
The current FCC under Chairman Michael Powell could simply decide whether the new fiber networks that regional Bells are laying for data are subject to the same colocation and sharing regulations governing their old copper-wire networks, Pitsch said. Intel wants the Bells data networks and equipment to be deregulated.
Also, the FCC is now formally seeking input about the regulatory environment surrounding cable modems. Currently, cable modems are generally not subject to FCC regulation, but there is a desire in parts of the industry to classify them as either cable services, telecommunications services or information services. Each classification has regulatory implications: A telecommunications service, for example, could be subject to the maze of laws governing telephone service.
Intel wants cable modems to be subject to as little regulation as possible, Pitsch said. So does the cable industry, according to Marc Smith, a National Cable & Telecommunications Association spokesman.
But while Smith welcomes the involvement of the high-tech sector at large in the debate over cable modems, he is leery of the sectors decision to charge head-on into the battle. There is concern, he said, that if the Bells cant win deregulation of their DSL and other data services, the next step is to push for regulation of their chief broadband rival – cable. And a strong alliance between the Bells and the Internet industry, he fears, could work against the cable industry.
Nancy Kaplan, vice president of Boston consultancy Adventis, however, said an alliance of the high-tech sector and the Bells is “a merger made in heaven.” In the future, Kaplan said, “Youll see more of the transport companies working very closely with the content people, either through acquisitions, mergers or strategic alliances.” Given the prospect for consolidation, its no surprise that the Internet industries are getting involved in the debate.
Telecommunications, Kaplan said, “is their business now, and they are going to want to see it open.”
While the Capitol Hill battle is important, Verizon intends to join high-tech CEOs and plead its case vigorously before the FCC, Tauke said. “The FCC could clarify what the pricing structure will be for new networking facilities, and the use of them by competitors. They could deal with the colocation issues surrounding new technology,” he said. “If they would deal with those issues, wed be most of the way towards solving these problems.”
Whatever the battlefield, its a safe bet that the Bells opponents – long-distance carriers, cable companies and CLECs – wont shrink from the new skirmishes.
“Suffice it to say we will not back down one bit in our fight for fair access with the Bell companies,” said James Fisher, a Sprint spokesman. “Whatever tactics they take, it comes down to the law of the land, and they have to open their markets, and thats what we are going to be fighting for.”
The NCTAs Smith, on the other hand, thinks the fight itself could hurt the future of broadband. “Unfortunately, war is one tool of diplomacy. In order to enhance leverage, people are looking for regulatory and legislative influences to push deals. We found in the past that doesnt help things,” he said.