Om Malik has another excellent blog entry that discusses where Chairman Martin’s vision is taking us.
“What we have hear is a failure to communicate.”
It’s no secret that the United States has a serious deficiency when it comes to deploying broadband even though the extent of the problem is debatable. One thing that is clear is that a fair portion of this country has limited (if any) choice as far as broadband connectivity is concerned. In my last commentary I took a hard look at what our options are and made an attempt to show that we need a mix of connectivity specialties in order to ignite broadband deployment in this country. Instead, we now can look forward to a very different landscape.
Here’s the deal, line sharing is dead. Maybe not right this minute but take this to the bank, it will be. In this very short statement released on the FCC’s web site commenting on the decision made by the Supreme Court on the BrandX case FCC Chairman Kevin J. Martin said,
“This decision provides much-needed regulatory clarity and a framework for broadband that can be applied to all providers. We can now move forward quickly to finalize regulations that will spur the deployment of broadband services for all Americans.”
This is what you need to know, for quite some time now the lobbyists for the telecommunications industry have been consistently repeating the same message to the FCC. Reduced to its most simplistic the message is that competition, as it is mandated by the current interpretation of the Telecommunications Act of 1996 is causing the current problems the US is facing with respect to broadband deployment. The argument has some validity (all lies have a kernel of truth, right?) if we follow the logic.
Independent ISPs are only interested in deploying in the areas that will make them money (DUH) and there is no parity (there’s that word again) to the mandate that universal coverage needs to be provided. Since the telecommunications world uses a model that utilizes the densely populated areas to subsidize the rural (read less profitable) areas if the independent ISPs are allowed to usurp the revenue the telecommunications industry needs to provide service universally.
Let me translate that for you in case you’re having trouble with the telecommunications industry’s ability to communicate.
We need the entire market all to ourselves in order to make our business model work.
Certainly, we can see that this is something that would be great for this country based on over a century’s worth of empirical data we have collected. After all, the American public was completely satisfied with the way we were all treated when we had a monopoly telephone company in the past.
(The sarcasm I felt when I typed those last two sentences was nothing short of scalding.)
Let’s not talk about the fact that the telecommunications industry wanted no part of this “Intraweb Thingy” when it was first announced. They completely ignored developing any business in this new experiment leaving it instead to the private sector. Let’s also not discuss that the deal that was struck when the Telecommunications Act of 1996 was formed was that the “Baby Bells” would be granted access to the revenue generated from Long Distance if they opened up their networks. We also need to forget the promises Verizon (then Bell Atlantic) made to deploy broadband in exchange for huge tax breaks in Pennsylvania that were never kept. As long as we can follow the above recommendations we can all go to bed and sleep comfortably knowing that our friends at the telephone company have everything in hand and under control.
What is the bottom line?
Here’s the scoop, the Internet is made up of quite literally millions of connections all exchanging information with each other. At the risk of stating the obvious, the more each one of these connections cost the more expensive it becomes for all of us.(DUH)
Any of us that have a long-term memory that stretches back to the telecom monopoly days can easily remember when $.25/minute was a “good price” for a long distance call. The reason all of us enjoy the inexpensive rates we do today is solely because the monopoly was broken up and competition was allowed to drive down the cost. Need further proof? When was the last time you received a notice from your friendly local telephone company informing you that your rates were going down? What? You can’t remember? That’s funny, I’m sure you can remember when the several increases in your phone bill, I certainly can. Now, anyone care to guess what might happen if the telephone company was to become the sole source of Internet connectivity at retail rates?
This is what line sharing is all about. The Telecommunications Act of 1996 allowed independent companies to get reduced (the term is wholesale) rates from the telephone company to provide services over the telephone network. The telephone companies were a little less than cooperative in this with numerous reports of all kinds from too many companies to count claiming “questionable” behavior on the part of the telephone company. Most recently, SBC has dropped rates on their DSL service in many of the markets they service but the cost of the wholesale line, as provided to independent providers, is billed at such a rate that independent ISPs are claiming that there is no way a wholesale provider can match that price. How can that be? Isn’t that the definition of Antitrust, you ask?
“U.S. legislation designed to prevent businesses from price-setting or other secret or illegal collaborations that circumvents the natural forces of a free market economy and gives those engaging in the anti-trust conduct a covert competitive edge.”
-Definition courtesy of Legal-Explanations.com
All that that is extraneous to this conversation and instead we should be looking at what this direction that Chairman Martin has declared might mean to us.
I would submit that we all benefit from the fact there is competition in this industry. It stands to reason that if there was no pressure created for the telecommunications industry we would expect to see their pricing structure rise – as history has repeatedly shown us. What happens if line sharing is taken away? Where is the competition going to come from? Certainly not the independent ISPs that provide service using the wholesale circuits.
What about wireless? Isn’t this a great thing for the WISP community? The short answer as I see it is NO!
Let’s take a look at that short-sighted answer, shall we?
Where do most WISPs get their connections from? The answer to that question is complicated because WISPs tend to get their connection from the least expensive source possible. This is usually not the telephone company as they are almost never the least expensive option.
If we eliminate the telephone company we have a list that is made up largely of CLECs (these are usually the very same people who purchase their connectivity and delivery from the telephone company at wholesale pricing) and the independent bandwidth providers like Cogent that have agreements to interconnect with the carriers.
Anyone else is irrelevant at this point because they probably connect to one or the other choice listed above.
What happens when the CLECs are legislated out of business by the removal of their ability to purchase services at wholesale rates? I think it is safe to assume the replacement cost to connect is not going to be as cheap as the one WISPs had. But that leaves the independent providers, right? It most certainly does! If you were one of these providers and a large portion of your competition was removed from your market, what would you do? If you answered that question honestly, you probably said you would raise your prices.
Yes, I do know that many of you have contracts and that affords you some protection, right? I’m sorry, you did read that contract right down to the very small print that allows your upstream provider to terminate your contract any time they choose. Every single one of the contracts I have ever read or heard about contains just such a clause. Add to that the reality that if the FCC removes your upstream provider’s ability to deliver connectivity then you are out of luck, period.
So, want to celebrate how good this decision is for you Mr. WISP?
Then think of this…
Frank Muto, of the WBIA tells me that the FCC looks at it this way, the independent ISPs are one homogeneous group. We will stand together or fall together but we are one solidified group in their eyes.
We just watched the decimation of our larger, more established half and we are next in line.