I'll miss my ISP when its gone, *sniff*

Sometime real soon now (perhaps as early as tomorrow), the FCC will reclasify DSL as an “information service” and the same rules that right now apply to cable broadband (i.e., none) will apply to DSL.

I have been very happy as a residential phone and telco subscriber to Cavalier Telephone. I’ll sure miss them when they’re gone . . .

O.K., odds are good they won’t disappear tomorrow. The ILECs aren’t that greedy and stupid. But the days of independent ISPs as DSL resellers are numbered, as are the days of stand alone competitive telephone companies (CLECs) and, I suppose, stand alone long distance companies. So much for competition, unless you think telco v. cable (with a possible licensed wireless play) is competition.

To review the recent history: The Telecom Act of 1996 required local telephone companies to open their networks to potential competitors. In exchange, once they got declared open and competitive, the local telcos (or “ILEC” for incumbent local exchang carrier) got to do long distance. Even before that, the FCC had ruled that they had to open their networks to competing “enhanced service” providers or, as the act called them “information service” providers. This included standard dial up ISPs. When the Telcos started to roll out DSL, the FCC decided that DSL lines counted as part of the network the ILECs had to “unbundle” to competitors.

For years, the FCC tried to implement this scheme. The ILECs fought tooth and nail, dragging their heels on implementation and fighting every FCC rule in the courts (although, to hear the ILECs tell it, the foul-ups were all on the new entrant (called “CLEC” for Competing Local Exchange Carrier) side. you can read my little comedy of errors on this from my second TotSF post). At the same time, the ILECs got approval to do long distance in their territories under the openess enforced by the regulatory scheme they were challenging in court.

Meanwhile, cable started to roll out broadband. Cable never had the same regulations as telcos, so they never opened their networks. Many of us began screaming as early as 1998 that we were headed for big trouble if we didn’t impose the same rules on cable as existed on DSL. But even the Democrats at the FCC did not want to hear it. Nor did the tech sector. This was back in the high-flying libertarian 1990s, when techno-deteriminism guarranteed that everything would work out fine, information wanted to be free, telcos and cable cos were irrelevant dinosaurs, and government regulation was the worst of all possible evils. (Me bitter? You betcha!)

In 2001 President Bush appointed Michael Powell Chairman of the FCC. Powell was a devout libertarian techno-determinist. He just didn’t think it was right or fair or necessary to impose rules on privately owned networks, and thought the cable cos and the telcos would do a much better job if government just got out of the way. He was everything the liberetarian 90s ISPs wished for.

So he busily set about deregulating broadband and getting rid of the unbundling requirements. In 2002, the FCC declared cable modem service an information service and not subject to any regulation. At the same time, the FCC also started a number of proceedings to deregulate telco broadband. Two important ones were redoing the unbundling rules (so telcos wouldn’t have to unbundle any new fiber facilities or DSL lines) and reclassifying DSL as an “information service.”

But the telco dereg got stalled. On unbundling, Martin didn’t want to completely deregulate, so the unbundling Order had a weird compromise in which telcos would unbundle copper DSL but not have to unbundle any new fiber. Meanwhile, the telcos went to court, and persuaded the DC Circuit that any regulation was just gosh darn unfair and contrary to law. The DC Circuit happily obliged, relying on a freakin’ dissent in a Supreme Court case that had upheld the FCC’s previous unbundling and pricing rules. But Powell declined to appeal up to the Supreme Court, so the FCC created new unbundling rules that will phase out opening the telco copper under Section 251 of the Communications Act.

This still left the interconnection and unbundling rules applied to DSL as a “telecom service.” The rulemaking to get DSL reclassified as an “information service” got stalled while we fought about cable broadband status. As I’ve previously reported, we won in the Ninth Circuit, but two months ago we lost at the Supreme Court.

So Martin, wasting no time, has put the DSL redefinition on the fast track. Rumor has it that it will come out tomorrow (thrs 8/4) at the Commission open meeting. DSL will henceforth be an “information service” and therefore unregulatred (although there is a last minute push to try to get a commitment to “network neutrality” — the principle that DSL (and presumably cable) can’t mess with content).

Assuming this comes down 8/4, what happens Friday 8/5?

I’m gonna start with “the ILECs ain’t stupid.” They know that if they suddenly disconnected the millions of Americans using DSL resellers and CLECs (especially small businesses, who have enjoyed the competitive prices and customized services of resellers and CLECs) there’d be Hell to pay politically. Besides, in many cases, the providers have commercial contracts dictating the terms of interconnection.

No, I expect the “death of a thousand cuts.” First, we won’t see any new resellers or CLECs, because there is no requirement to deal with these folks. Then, as renewal contracts come up, we’ll see the terms get more harsh. Interconnection becomes more expensive and harder to negotiate. Service problems for resellers get addressed slowly, while service problems for the Telco DSL get fixed promptly. Bandwidth gets tighter for resellers, broader for Telco DSL. Over time, the smaller providers and resellers die and get absorbed by the telcos.

This consolidation gets helped by the mergers already in the works. MCI and AT&T are the biggest competitors to the ILECs. When SBC absorbs AT&T, and Verizon absorbs MCI, all that competition goes away (as does the wieght of AT&T’s and MCI’s lobbying muscle on competition issues). Sprint, having merged with NExtel today, will now spin off its independent wireline business to a private company. so the biggest competitors are gone or nearly so.

Yes, AOL will survive, as will some of the other bigger companies. Or they will get bought out. A few, like Earthlink, may try to use unlicensed spectrum and municipal networks as an alternative pathway. But if you want wireline, you’ll have two choices, telco or cable. And if you ask, the telcos will tell you that the ISP business model just wasn’t susatinable and gosh wasn’t the 1990s fun?

Expect small businesses to take the biggest hit. They are desirable customers and they have not bothered to show up and defend themselves.

If we don’t get network neutrality, its much much worse. I don’t give long odds for voice over IP (VOIP) to survive as a competitor if network neutrality doesn’t happen. Oh, it won’t get blocked Friday, or even next week. It doesn’t have enough market share, and the FCC will watch closely before declaring victory for deregulation.

But how much do I have to degrade the transport of VOIP packets to make it “unreliable” for most folks? Not much. And how do you prove the fault lies with telco rather than with Vonage or Skype? Hard to prove without access to the network, or any legal means to file a complaint. And the telco will graciously offer you a “triple play” of video, data and voice. If you want a competing product for any one fo those three, its your choice, but you pay a lot more for the unbundled service. After all, Comcast does this now, why shouldn’t Verizon or SBC? If I want cable broadband from Comcast without getting cable TV, they don’t have to give it to me, or they can charge me as much for stand alone broadband as for video and broadband combined. And if you don’t like it, you can switch to ….

Hey, where’d all the competition go? Oh well, guess it wasn’t meant to be.

Well, what about long distance? The biggest long distance resellers are leaving the market (AT&T and MCI). Look at the Ensign Bill. The natural extension of the “it’s my network and I’ll do what I want with it” philosophy is to eliminate long-distance resale as well.

Someday, I’ll tell my grandkids about the great revolution that got away. How if they’d only listened to me and my friends we’d have had cheap broadband that gave us the power to speak our minds and we could invent any new services or content we wished. And they’ll say “Grandpa, this isn’t South Korea! We don’t do things that way in the United States. But at least we don’t impose evil government regulation. That would be bad, although we’re not sure why. But the cable tells us regulation would be bad, so it must be true, and every website I can reach says the same thing.”

Stay tuned . . . .

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2 Comments

  1. George says:

    Here’s a question for you. What about the independents raising the issue that these FCC moves constitute a “slow-motion ‘taking’ by proxy” of their properties, to wit, their entire businesses?

    And what’s the chance of slowing the whole thing down in court until after the ’06 or ’08 elections?

  2. Harold says:

    There’s no taking because there is no expectation that the regulatory regime will continue. Regulation is always subject to change and you invest subject to that understanding.

    I don’t see a way to slow it down. After Brand X, it would be very difficult to mount a convincing court challenge (although we’ll see what happens when the Order comes out). OTOH, Congress can address the situation by legislation. If things get appreciably worse in a year (and people draw a connection between the dots, and people vote their pocket book instead of Roe v. Wade), it could become an issue.

    Again, if people turn out and tell their elected officials, Republican or Democrat, “this sucks and I hate it — do something,” it is amazing what can happen.

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