America’s Intentional Broadband Duopoly

 

Michael Powell

When was the last time someone offered to sell you Broadband over Power Line (BPL)?

BPL was one of the FCC’s five “modes” of competitive access, and the FCC traded this flawed concept of “intermodal” competition for true open market competition.

In 1996, Congress passed The Telecom Act, a major update to the previous 1934 telecommunications law. The updated Act set out to foster true competition in local communication services, and, by extension, broadband. And, it almost worked.

The Act separated services – voice, data, etc – from the physical infrastructure they ran over (copper wires) and allowed competitors uniform access to the cabling to deliver these services. The incumbent sold access to the copper lines, at a profit, to multiple competitors who deployed the equipment connected to the ends. This recognition of the copper lines themselves as a natural monopoly, while services over them were competitive, was the key to the goal of vibrant and open competitive access.

This innovative Act spurred the widespread deployment of DSL services, and a tumultuous period of competitive over-construction and subsequent bankruptcies. These failures don’t condem the concept of competition, but were an over-exuberance of investment ahead of demand. Startup telcos also suffered during the dot-com crash in 2001; as funding dried up, large cash consumption rates caught up with reserves for many of these companies.

In the late 1990’s, most other developed nations followed the U.S. example in separating structure from services. They have stayed the course, and in Europe and Asia today competitive access has driven up broadband speeds, at lower costs.

But, in global broadband rankings, the U.S. isn’t even in the top ten! This is because despite Congress’s expressed intention of creating competition with The Act, the FCC decided that five competitors was enough. And, three of them were non-starters.

With the appointment of FCC Chairman Michael Powell, and lobbying by incumbents, a new theory was born: Intermodal competition was better than true open competition. The modes: Cable, Telco, Power Line, Satellite and Wireless. Each, an effective state-created monopoly. This was done under the banner of the free market, a topsy-turvy way to look at the elimination of actual competition.

With the shift away from the 1996 Act’s open competition model toward this constrained intermodal goal, the FCC began to make a series of decisions to clear the decks of meaningful competition, freeing Cable to spar with Telco, with Broadband over Power Line and Wireless. Satellite would bring up the rear for those unlucky enough to live in a region not worth investing in by the designated modal monopoly.

To create these modal monopolies, the FCC began to foreclose meaningful competition. First, they set aside access to available idle incumbent fiber optic lines for competitors, meaning the the suburbs, which are served by fiber-fed digital loop carriers and remote terminals, were out of reach. In their Triennial Review Remand Order of 2004, the FCC wrote:

In our Triennial Review Order, we recognized the marketplace realities of robust broadband competition and increasing competition from intermodal sources, and thus eliminated most unbundling requirements for broadband architectures serving the mass market

Robust broadband competition? Really?

Then, in the Brand X decision, they ruled that Cable would not be required to allow competitors to lease their lines either. The FCC did this by reclassifying broadband Internet access as an “information service”, rather than a “telecommunications service”. As a result, common carriage rules could be set aside, allowing for an incumbent Cable monopoly. This decision was challenged all the way to the supreme court, who ruled in 2005 that the FCC had the jurisdiction to make this decision.

To close out Powell’s near-complete dismantling of competitive services in the U.S., the FCC took up the issue of ISPs resale of DSL using the incumbent’s equipment, also known as wholesale “bitstream” access. If Cable is an information service under Brand X, why shouldn’t Telco have the same “regulatory relief”? The result: the FCC granted forbearance (in other words, declined to enforce its rules) from the common carriage requirements for telco DSL services.

As for robust intermodal competition, the fact is that BPL hasn’t worked. And Wireless is slow and expensive. And of course satellite, with its round-trip to outer space and back really isn’t a contender.

So, much of the U.S. has ended up with exactly what the FCC intended: intermodal competition, an effective duopoly. The predictable result: the U.S. is no longer a broadband leader.

There are pockets of competitive offerings. Most businesses can choose telephone and Internet service from a competitive company. And, in metropolitan regions, there may also be competitive choices like Sonic.net’s Fusion service, or Covad ADSL2+.

For those in the suburbs, competitive prospects are pretty dim. That was the intention.

  • Scott Doty

    Great article, Dane…makes me angry all over again.

    Regulatory wonks have a term to describe what the FCC did, and continues to do: “regulatory capture”…

  • The ’96 Act mandated competion over the telco “straw” while the cable “firehose” remained the exclusive domain of the cable provider — no, nothing wrong with that picture at all.
     
    While the industry and the FCC wrangled over how many angels could drink from the straw, the firehose remained unencumbered while gobbling up broadband market share. 
     
    The telcos have yet to make up the lost ground, even as folks like Dane Jasper and Scott Doty continue to wonder why competition didn’t flourish on the straw, all the while ignoring the firehose in their midst . . .

  • Anonymous

    I discuss Brand-X in the article, and that attempt to classify Cable as a common carriage medium as well.

    -Dane

  • plwww

    Ultimately, Congress should never have even been involved in the last-mile infrastructure debate. It’s a state issue; rather than arguing for Congress to “get it right”, we should be arguing for them to “get out of the way” and take the debate to the State legislatures; Competition isn’t just good for businesses, it’s good for governments too. Let the States have their own say on the matter. There’s more chance of getting the laws right at least “somewhere” when you have 50 different governments each analyzing the issue.

  • Fletcher Kittredge

    Plwww;

    People who have looked at this issue seriously believe your solution is a bad idea.   First, and most importantly, telecommunications infrastructure is an economies of scale game.   The larger the company, the cheaper it is for them to provide access.   Most costs associated with providing broadband:  equipment, development, maintenance and support labor, regulatory, all are cheaper in large amounts.   50 different regulatory regimes would result in higher compliance costs and a fragmented market.

    A second reason it is a bad idea is there is voluminous evidence that “regulatory capture” would be no less at the state level.   State legislatures are just as vulnerable, if not more so, then the federal level.

    Finally,  the US has a failed broadband regime.   We used to be number one and now we are number 24 to 28 depending on who is counting.    If you look at the problem from the view point of an economist, a businessperson or an engineer, one would adopt the best practices of those better than us.   No other country does it in the way you describe.   Trailing our competitors in this key portion of our economic infrastructure, we no longer have the luxury of allowing our policies set by ideologues.   It is time for science and facts.

  • plwww

    “50 different regulatory regimes would result in higher compliance costs and a fragmented market”…higher compliance costs only for inter-state companies. Companies like sonic.net,  who serve primarily one State, would not need to worry about the regulation in other states. They would have *one* regulatory regime to consider. And the rest of the “economies of scale” would stay intact. Regulations on last-mile access won’t change the physical operation of a fiber or DSL system. The same physical solutions made for Texas would work in California just the same, so only a small part of the overall costs(regulatory compliance) would have to be duplicated.

    “regulatory capture would be no less at the state level.”. Indeed, I never would claim it would be. But it is far easier for the State governments to react to regional market needs than the Federal government. We have more of a chance of some areas improving if it wasn’t a nationwide policy. Some areas will get worse for sure; but then those states can “adopt the best practices of those better…”

    “It is time for science and facts”…indeed. And science and facts seem to show that many of the top 10 countries by broadband speed, have populations comparable to individual U.S. states, suggesting “economies of scale” may not be such an issue. Instead, there are other issues at play, such as population density. The fact is, the United States does not consist of a single last-mile market. By nature of our large physical size, we have many different regions with different needs.

  • I live in a big new apartment complex on the immediate outskirts of downtown, in the 10th largest city in the US — San Jose, California. I have fibre in my walk-in closet in the bedroom, serviced by AT&T.  Yet the fastest internet they offer is 18Mbps downstream and 1.5Mbps upstream.

    I get faster upstream on my T-Mobile myTouch 4G through UMTS / HSUPA compared to what AT&T offers.  And I actually pay less to T-Mobile in total than to AT&T for the internet alone!

    Through another blog entry of yours, I stumbled across a link to a map of the US featuring symmetrical FTTH offerings, and was I surprised to find out that only smaller rural areas have fast internet in this country!  For example, Brigham City in Utah has 50Mbps/50Mbps internet for only 77 dollars a month, yet here in San Jose in the capital of the Silicon Valley we get the mere 18/1.5.  As such, I disagree with your final observation regarding metropolitan versus rural availability — in Northern California, you can’t get any closer to metropolis than San Jose, yet the internet is complete bollocks.

    Do I hope that AT&T will one day offer me 1Gbps, or even 100Mbps/10Mbps, whilst I’m still living here in this very complex?  They already have the fibre in my closet, after all!  Nope:  I’m a reasonable person, and based on prior events, my only hope is that somehow Sonic or a similar other local ISP would step up and service the fibre as it should be serviced.

    Above gets me curious.  Who owns the fibre in my 2010-constructed apartment complex?  Would it still be AT&T, and would they still do everything in their power to slow it down from being used by another ISP?  I’m honestly surprised how come with all the new apartment and condominium complexes being built, the smaller ISPs don’t seem to care to lay out some fibre or Cat6, and offer competitive solutions to the new apartment or condo residents.

  • Nitin Gupta

    What I can’t understand is this, before the internet, money was found to lay down 2 distinct wire networks (telephone and cable), why is it that we can’t find the money to lay down a brand new “wire” network for internet? ideally a fibre network, if a “infrastructure” company were to own this and provide open access to providers for running internet/telephone/video services on top that would be the most meaningful progress forward, no?

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  • Scott Doty

    No clue why fgoodwin would say we’ve ignored cable, when our entire history has shown this not to be the case.

    The “Brand X” Supreme Court decision shows how the system can fail big-time — and where was fgoodwin back then?

  • Mike Ely

    Ironically, I live about three minutes walking distance from Sonic’s headquarters in Santa Rosa in a subdivision built in 2002, and I can’t get Fusion.  Why?  I’m mired behind the very digital loop and remote terminal trap Dane mentions in his blog post above.  I joke on a fairly frequent basis about buying a spool of glass and walking it over to Sonic, but the reality is that it sucks – royally, and don’t get me started on AT&T’s consumer-facing business practices here.  I’m stuck with the local cable monopoly instead.

  • Anonymous

    Chris Pirillo rages against the duopoly machine — refers to Comcast as “anti-consumer”.

    http://www.youtube.com/watch?v=EH71QofIV38

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  • Jeremy

    I am disappointed in your decision to stop offering wireless DSL service. Out here in the sticks we have to put up with CDS Wireless and their continuing pattern of outages. My neighbor uses your wireless DSL service but when I called to sign up was told that you no longer offer it to new customers, although you support the existing ones. This is a shame.

    Jeremy

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