Little Fish, Big Pond

Tiny cable openings expand rapidly for ISPs

To hear the cable operators tell it, they would like nothing more than to open their high-speed pipelines to competing Internet service providers.

Already, the nations two largest cable companies, AT&T and Time Warner, are clearing a technical path for multiple providers with trials in Boulder, Colo., and Columbus, Ohio. Comcast, the third-largest operator, is following suit in Philadelphia early this year.

"Within the next year, were going to see most, if not all, operators cutting similar deals," says Cynthia Brumfield, president of research firm Broadband Intelligence.

But while the promise of open access sounds quite neighborly, linking a cable system to multiple Internet service providers (ISPs) continues to pose daunting technical challenges.

After spending $20 million to create a two-way path to competing providers, AT&Ts Boulder trial is progressing cautiously with a few hundred customers. When the trial began Nov. 1, AT&T invited EarthLink and Juno Online Services to compete with its own Excite@Home service. Smaller rivals Flashcom, FriendlyWorks, RMI.Net and Winfire also joined.

Then, six weeks into the trial, AT&T found itself in a surprising showdown with giant rival Qwest Communications International over access to the cable modem service. The broadside signaled a new front in the war between the regional Bells and their local cable competitors, and could serve as a pretext for government intervention.

In Colorado, competitive tensions have grown with AT&Ts success in luring away some of Qwests best customers. Backed by state and federal regulators, AT&T has tapped into Qwests network as a competitive local exchange carrier. Now, Qwest has turned the tables, demanding access to AT&Ts cable network. "Weve proven our commitment to competition," says Steve Davis, Qwests senior vice president for policy and law. "Were now giving AT&T the opportunity to not just talk about joining the new world of telecommunications choice, but to live up to its word."

Accusing Qwest of diverting attention from its own anticompetitive tactics, AT&T spokeswoman Sarah Duisik says the regional Bell is playing a dangerous game.

Although Qwest was not part of the original group of ISPs in the Boulder trial, AT&T agreed to let the telecom giant take part, with the understanding that the customer base was minuscule. "There is no technical, scalable solution that would allow Qwest to come aboard," Duisik says. "What theyre proposing is that they plug in and flip a switch, and thats not how it works."

The Qwest dustup came the same day that Time Warner acceded to Federal Trade Commission demands for unprecedented openness. To win approval of its $109 billion merger with America Online, the nations No. 2 cable company had to agree to three conditions:

1. Time Warner must open its cable system to at least one competing ISP before AOL can begin service, followed by at least two more services within 90 days.

2. Time Warner cannot disrupt the flow of content to consumers through rival ISPs or interactive TV services on its network.

3. Time Warner has to offer AOLs Digital Subscriber Line services equally to all subscribers.

Looming in the background is the threat of an order from the Federal Communications Commission forcing open access, a scenario no cable company wants. Citing the concept of "vigilant restraint," FCC Chairman William Kennard has avoided hearings on the subject for two years. But with a new president about to take office, Kennard has launched an inquiry on cable access, pushed by a coalition of nearly 1,000 ISPs and related companies under the name openNet Coalition.

But cable operators counter that a government mandate would do nothing to speed access, pointing to the so-far ineffectual Canadian open access order issued in July 1999.

Putting a brave face on the newly competitive arrangement, the cable giants use the "win-win" bromide to describe the future. While open access will give ISPs a wider market for their service, cable will also draw new revenue streams from ISP customers migrating to their medium.

"Its really irrelevant to us who the customer picks as an ISP," says Susan Marshall, senior vice president for data services at AT&T Broadband. "Having said that, we also have to pick a business model that will serve us as well as the ISP. What we want to be is something other than a big, dumb pipe."