Brouhaha on Broadband

The prevailing question of today is: If we want more investment in broadband buildout, how do we achieve that and who pays?
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"Tivo is God."

Thus spoke FCC Chairman Michael Powell earlier this year at the Consumer Electronics Show in Las Vegas. Powell also publicly asked if there was a way he could file-swap digital recorded programs with his sister. (Note: there is, which is why ReplayTV, which offers that feature for its DVR owners, is currently in Hollywood hot water.)

That Napsteresque remark was just the beginning of this year's troubles for FCC boss Powell, the 38-year-old tech wunderkind, son of Colin Powell, and future GOP bigger wig. Although he may have taken flack for his off-the-cuff comments (some critics have even called for him to recuse himself from any FCC decision treating digital copyright protection), just a few weeks later he found himself in deeper doodoo.

That's when FCC commissioner Kevin Martin, himself supposedly a Republican with White House connections (that's how you get an appointment, you know), broke ranks with Powell to join the two Democrats on the commission. The Unholy Alliance passed one set of rules dealing with unbundling of local phone service, while the three Republicans kept in ranks to pass a second set of rules governing the unbundling of broadband.

TURNCOAT?

The results were somewhat bizarre. The FCC now says that broadband service providers do not have to lease their lines at discounted rates, but that each state gets to determine, based on its own market conditions, whether or not local telephone service providers will have to unbundle.

Martin's vote was lambasted as a "palace coup" by House Energy and Commerce Committee Chairman Billy Tauzin (R-La.), who said the "renegade" had "breathed new life into the dying era of big government control over U.S. telecommunication policy."

Chill, Billy. Things aren't that dramatic. Plus, these rules still have to stand their test in the courts, which have twice before overturned such FCC rulings.

But this mess is no trivial matter for broadband. Currently about 40 percent of DSL service flows through lines leased from the Baby Bells. Consumer groups are screaming that if the new unbundling rules go into effect, we'll see fewer DSL players and higher prices overall for broadband and phone service.

TAKING IT TO THE BANK

However, the more important numbers consumer advocates should point to are 70, the percentage of the broadband market controlled by cable, and 48, the percentage increase in cable rates since the 1996 deregulation.

We live in a capitalist society, the essence of which is that if I buy something and invest in it, it's mine. Cable operators have taken that approach to the bank, making themselves enormously profitable, and bringing pricing woes to consumers. But the 1996 Telecommunications Act, attempting to "deregulate" the industry, said those companies building out telephone infrastructure, including DSL, had to lease their lines at below-market rates in order to encourage competition.

This wound up being great for cheap phone rates, but only fair-to-middling for broadband. And that's because we've now reached the limit on broadband build-out.

Simply put, with the current arctic freeze on investment showing no signs of thawing, and the telecommunications industry staggering under an estimated $1 trillion in debt, Baby Bells are hardly going to have incentives to invest in more broadband infrastructure when they have to lease competitors their lines at steep discounts.

"The widespread deployment of broadband infrastructure has become the central communications policy issue of today," Powell has said, and he's absolutely right.

I genuinely like Powell. He's refreshingly outspoken and while all in favor of deregulation, he's also proved he's no corporate tool. Under his leadership the FCC for the first time in three decades blocked a major media deal, the DirecTV-Echostar merger (which I thought would have created a much stronger cable competitor, but apparently Mike didn't agree).

We should also remember to pity anyone who has to deal with that bear of a law, the Telecommunications Act of 1996.

Since being named chairman in early 2001, Powell has also done a lot to reinforce the notion that he actually has a telecommunications game plan. The FCC has laid the groundwork for ultrawideband technology deployment and cleared out more spectrum for Wi-Fi. Powell's also demanded more tech savvy from FCC lawyers and hired 40 engineers in his first year and a half (that's more than in the previous 20 years).

The prevailing question of today is: If we want more investment in broadband buildout, how do we achieve that and who pays?

Do you take a regulatory stance that encourages the "build it and they will come" approach, or do you focus on broadband services that can drive demand and revenues using current infrastructure, which will eventually pay for more build-out?

Do we listen to the Baby Bell claim that, freed from unbundling requirements and allowed to function as cable operators do, they will make that build-out investment?

It's all really a classic example of countervailing forces, with the FCC attempting to shape the regulatory environment to encourage competition.

The debate for broadband is a debate over the nature of that competition. DSL unbundling led to numerous small companies offering service, but those couldn't survive the financial meltdown of the last few years. Now we face consolidation into a handful of DSL and cable broadband competitors, leaving a mere two in most markets. Is that outcome inevitable and will it lead to better, cheaper broadband?

I don't have the answers, and I'm anxious to see if Powell does. And if he can keep the renegades from running his ship aground.

You can reach Will at willworkman@hotmail.com