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The battle for better bandwidth -- should cable networks be open?
The cable giants are under increased pressure to open up their networks to other Internet service providers. Should government regulators be pulled into the fray ... or is that risky business?
By Matthew Broersma, ZDNN
July 11, 1999 4:48 PM PT
The new year launched with cable proponents boldly predicting the arrival of ultra-speedy on-ramps to the information superhighway. But now, unexpected opposition from municipalities and consumer advocacy groups could derail that rosy, tech-colored vision.
Cable system in legal tangles
Indeed, the battle over the future of cyberspace -- which also pits some of the largest Internet companies against each other -- is breaking out across the nation.
The question at stake: Should cable networks be required to share their lines with rivals who want to sell Internet services to consumers?
The Internet service providers say yes. But cable operators say no.
Government regulators are standing by
And on the sidelines -- though not for long -- the ever-vigilant government regulators are carefully taking notes.
Government regulation: Is it an answer ... or a recipe for anarchy? Add your comments to the bottom of this page.
Currently, cable operators enjoy de facto monopolies in most local markets. Analysts believe that this existing infrastructure will translate into a tangible advantage as providers increasingly use their pipelines to provide high-speed Internet access.
But regulators want to treat the cable system as a communications network -- and that means opening up the network to competitors to ensure consumer choice.
Just this week, the access issue has grabbed the spotlight on several fronts.
New rules could change the game
In Washington, Rep. Ed Markey, D-Mass., the ranking minority member of the House Commerce Committee's communications panel, is introducing an open-network measure in Congress.
And San Francisco's Board of Supervisors, which is divided over the issue, plans to hold what's expected to be a contentious debate in advance of a vote later this month.
Meanwhile, cable operators are appealing a losing verdict in their ongoing dispute with local regulators in Portland, Ore. (See: Cable system in legal tangles)
The outcome of this national debate is anything but a foregone conclusion. But it is likely to have a far-reaching impact -- not only on the cable system but also on how networks are regulated.
"It's a fascinating legal argument: Can you tell somebody that's put in a network that they have to open it up to competition? Should we level the regulatory playing field?" said Craig Mathais, a principal with Farpoint Group, an advisory group specializing in emerging communications technologies.
"The cable industry has never been regulated as a common carrier -- can you apply those rules to them?"
Introducing the combatants
On one side of the political fight are cable Internet service providers such as Excite@Home (Nasdaq:ATHM), which has exclusive agreements with cable providers across the country to provide the service over its infrastructure.
Excite@Home's largest shareholder is Tele-Communications Inc., the country's largest cable operator, which was purchased a year ago by (NYSE:T).
The cable opponents in this debate have been spearheaded by the likes of OpenNET Coalition, a group of large Internet service providers, America Online Inc. (NYSE:AOL), some consumer-rights activists, and regulators and officials at various levels of government.
Their argument boils down to this: Every other type of communications system is subject to federal regulations ensuring competition.
"Why should cable be protected? Why are they different?" says OpenNET spokeswoman Sydney Rubin. "We don't think monopolies are good for the economy, or for consumers.
"All you have to do is compare the telephone system when it was a monopoly, to the plethora of services and lower prices that competition has created."
The danger of 'bundling'
Tom Ammiano, president of the San Francisco Board of Supervisors and a supporter of the city's proposed open-access measure, argues that regulation is necessary to protect consumers.
"It's consumer choice," he said. "People should have the right to choose what Internet service they want without going to @Home first."
Cable may face competition from technologies such as xDSL, a high-speed system that uses telephone lines, but DSL (digital subscriber line) is not as widely available as cable -- and, because of technical restraints, may never be available in some areas, such as rural regions.
Consumer advocate Ralph Nader argues that AT&T's ability to "bundle" packages of telephone, Internet and television services could be used to cripple competition from wireless systems such as Hughes Electronics' DirecPC, which delivers high-speed data over DirecTV satellite TV equipment.
"Cable operators offering cable modems price the service so that consumers are required to buy their standard cable TV product, which basically removes [satellite] as a viable competitor," Nader said, criticizing AT&T's purchase of TCI.
"Given AT&T's history [of] anti-competitive actions, and TCI's enormous reputation for anti-competitive actions in the cable television market, it is prudent to expect bundling strategies to be used in anti-competitive ways against rivals."
Regulation: Headache in waiting?
Not surprisingly, the cable industry sees the issue somewhat differently.
Not only would government regulation be a gigantic headache, say industry advocates, it would also delay the rollout of high-speed services.
What's more, they add, it is also unnecessary -- because competition already exists.
"Until @Home offered cable-modem services, ADSL was really a concept," said David Pine, a vice president and general counsel for Excite@Home. "Pricing was north of $100 a month.
"But now, as the cable industry has over 1 million subscribers in the United States, all of a sudden, there's more ADSL coming and the price has come down to $40 a month.
"Similarly, people are making enormous investments in satellite technologies. So, the market has really borne out the notion that it's an extremely competitive marketplace."
Less (regulation) is more
Moreover, some experts say the answer is not more regulation, but less: They argue, for example, that the regulatory burdens on the telephone system ought to be reduced.
MORE FROM ZDNET:
World Wide Whoosh! How broadband will change the Web
Broadband access battle heats up
Why AT&T can't win the broadband brouhaha
Behind AT&T's $58B bet on broadband
"While we do support open access in principle ... the best thing for the government to be doing is to stop trying to fix each individual pothole along the way," said Dr. Lee McKnight, a visiting scholar at MIT who contributed to the recent book "The Gordian Knot: Political Gridlock on the Information Highway."
"If cable modems have high prices and bad service, how many people are going to use cable modems? It'll just drive people to ADSL and satellite."
Plus, despite increasingly rosy predictions for cable's success, the broadband market is still at an embryonic stage.
According to FCC estimates, only 750,000 of the 40 million Internet households in the United States have subscribed to any kind of broadband service.
The ball's in their courts
For now, the matter rests with regulators and the courts.
But FCC Chairman William Kennard recently warned that the nascent cable Internet market would suffer a heavy blow if as many as 30,000 localities imposed separate requirements.
Whether it would buckle is anyone's guess.
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