Critics Claim FCC Ruling Creates Duopoly

Agency says broadband decision creates a level field, but some say it gives telcos and cable companies a big advantage over ISPs.

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."


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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.

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