In the United States, he who lobbies loudest laughs longest. Blame the regulator if you can find him amidst the ample pockets of the Bells… 

The US Federal Communications Commission last week succumbed to pressure from the long-suffering Baby Bells (combined market cap among the fearsome foursome: c.US$300bn) and righted the injustice by which xDSL had been designated (and regulated as) a ‘telecom service’. It is now reclassified as an ‘information service’.

As expected, the ruling redresses the balance of power between the oppressed stalwarts of local loop operating and the laughing cavaliers of the cable industry, while simultaneously marginalising the broadband unbundlers. It enables the local network telcos to tell would-be DSL unbundlers where to get off. That’s appropriate: the Bells have a century-old history of doing precisely that, whether the FCC likes it or not, although they usually reserve that attitude for their customers.

Chapter and worse
The FCC says: “the changes will enable wireline broadband Internet access providers to respond quickly to consumer demand with efficient, innovative services and spur more vigorous head-to-head competition with broadband services provided over other platforms. The Commission’s action responds to market and technological changes marked by growth in the use of the Internet for communications and the availability of Internet service from multiple broadband pipelines, including cable, wireless, satellite, and power line networks.”

Good to hear that those power line networks are still exciting the regulatory gnomes of Washington (DC).

The FCC also says: “the Commission determined that wireline broadband Internet access services are defined as information services functionally integrated with a telecommunications component. In the past, the Commission required facilities-based providers to offer that wireline broadband transmission component separately from their Internet service as a stand-alone service on a common-carrier basis, and thus classified that component as a telecommunications service. Today, the Commission eliminated this transmission component sharing requirement, created over the past three decades under very different technological and market conditions, finding it caused vendors to delay development and deployment of innovations to consumers.”

In what passes for a dissenting opinion in the current FCC, Chairman Kevin J. Martin went into overdrive: “the Order that we adopt today is a momentous one. It ends the regulatory inequities that currently exist between cable and telephone companies in their provision of broadband Internet services. As I have said on numerous occasions, leveling the playing field between these providers has been one of my highest priorities. With this Order, wireline broadband Internet access providers, like cable modem service providers, will be considered information service providers and will no longer be compelled by regulation to unbundle and separately tariff the underlying transmission component of their Internet access service. Most importantly, however, the actions we take in this Order are an explicit recognition that the telecommunications marketplace that exists today is vastly different from the one governed by regulators over 30 years ago. The Computer Inquiry requirements that were adopted several decades ago were based on the assumption that, without the imposition of strict regulation, telephone companies would be able to exert considerable market power over unaffiliated entities in the provision of information services. To the extent that this assumption was true at the time, it is no longer true in today’s broadband market.”

One can only assume that Martin is ignorant of or else deliberately chooses to ignore VoIP. Oh no; not so! A quick click onto Skype’s website provides the following: “I knew it was over when I downloaded Skype,” Michael Powell, chairman, Federal Communications Commission, explained. “When the inventors of KaZaA are distributing for free a little program that you can use to talk to anybody else, and the quality is fantastic, and it’s free – it’s over. The world will change now inevitably.”

Powell was Chairman Martin’s predecessor as Chair of the FCC. He was not politically motivated in the way that his successor appears to be.

Chairman Martin says: “broadband deployment is vitally important to our nation as new, advanced services hold the promise of unprecedented business, educational, and healthcare opportunities for all Americans. Perpetuating the application of outdated regulations on only one set of Internet access providers inhibits infrastructure investment, innovation, and competition generally.”

The bottom line is that cable companies have been stripped of any if not all perceived advantages in the broadband market.

High dudgeon
Agitprops in the government affairs departments of what we might witingly now dub the ‘Bell space’ were quick to place their tongues firmly where the regulatory sun rarely shines. When incumbents applaud regulators in this way, you have an instinctive sense that the regulators have got it wrong. This sample of first night reviews for the FCC’s decision would appear to confirm that, not least the deafening silence of two players who frankly, my dear, don’t give a damn.

SBC, soon to be re-branded as ‘Oedipus Telecom’ once its merger with AT&T is complete, was oddly silent. Mind you, it is damned hot in Texas at this time of year. Qwest, the itinerant toddler that takes the ‘Baby’ bit of its name more seriously than the ‘Bell’ part, remains likewise mute. Not so the others

Herschel Abbott, BellSouth’s vp of governmental affairs, could not resist the opportunity to swoon: "Chairman Martin should be widely applauded for pushing to completion these sweeping changes that will allow BellSouth to move higher-speed products and services from the lab to the hands of American consumers in the very near future. The chairman's leadership has led to an order that is comprehensive and will result in greater innovation that will benefit every broadband consumer. It must be noted that this consensus was developed with commendable speed, a speed that is appropriate and necessary given the importance of rapid technology changes in today's marketplace.” Speak not ill of Abbott; he is only doing his job.

So too Susanne A. Guyer, Verizon senior vice president for federal regulatory affairs: “This is an important step toward a national broadband policy that allows consumers to enjoy the full benefits of competition. At last, regulations are catching up to where consumers and technology have been for some time. This decision will help accelerate deployment of broadband networks, enabling greater choice and increased access for consumers.We commend Chairman Martin and the commission for acting quickly to move us closer to the president’s goal of broadband deployment to all Americans by 2007.” Speak not ill of Guyer, she is only doing her job.

Blink and you are dead
To deconstruct these arguments, you can see that the former (aka ‘natural’) access monopolies have threatened to withhold investment unless the FCC ring-fenced their regulatory status. And the FCC blinked. Were this less funny and skewed I would laugh harder and more manically.

Instead it is clear that one lobby (comprised of the Bells) has won against the other (the cable companies). Endless legal and regulatory challenges could follow in what would be yet another payday for the Gucci-shod lobbyists. On average, spitting on their loafers in order to polish them would be a case of spitting five foot eight inches too low.

The final salvo of Chairman Martin (thank goodness his surname is not ‘Mao’) runs: “we recognize that change is never easy. Nor can it be effectuated overnight. ISPs currently rely on the transmission offerings that the telephone companies have been compelled by regulation to make available. Such a transition is vital to the continuity of service for thousands of customers. To this end, we require the telephone companies to make their current transmission offerings available for one year from the effective date of this Order.”

This is what BellSouth’s Abbott referred to when he said “the transition periods that have been agreed to are workable.” Perhaps this is a way of saying in shorthand that bottleneck providers are confident that they will prevail under the protective umbrella of ‘even-handed’ regulation, courtesy of the FCC. And that is what market regulation is for, is it not, Chairman Martin?
Jim Chalmers