Client Alert

Broadband Initiatives

2/1/2000

Some of the most vexing technical and business problems of the Information Age involve the so-called "last mile" connection between the Internet service provider ("ISP") and the business or residential Internet user.  For most customers, the last mile is occupied by two facilities:  a twisted pair of copper wires connected to the central office of the local telephone company; and a coaxial cable connected to the local cable television operator.  The twisted pair wire accesses a two-way telephone service that is adaptable to Internet communications but offers only a slow, narrowband rate of data transfer.  The cable company's coaxial cable is a fast, broadband facility, but those facilities still have not been universally converted to a bi-directional mode suitable for Internet services.

Both the telephone companies and the cable companies understand the market potential of high-speed, broadband Internet access and have upgraded their technology and services accordingly.  For the telephone companies, this has meant development of services, such as ISDN and DSL, that increase the throughput of the existing, twisted pair wire that connects the telephone company's subscribers to the serving central office.  For the cable operators, it means deployment of cable modems and efforts to make their services efficiently bi-directional. 

In addition to these technical and business questions, the need to use and upgrade last mile facilities has raised two kinds of legal, regulatory and legislative questions.  First, the telephone companies consistently have argued that they require incentives -- in the form of relief from regulatory constraints -- so that they can make the needed investment in upgrading of their subscriber facilities.  Second, ISPs have argued that they should obtain access to the facilities of cable operators on the same terms as the cable operators' own Internet access services.  A number of pending bills address one or both of these issues.

One such bill is H.R. 1685, introduced by Rep. Rick Boucher, which would permit the Bell operating companies to provide non-voice data services on an interexchange basis.  H.R. 1685 also defines a process by which local exchange carriers must submit plans to their state public utilities commissions for the accelerated deployment of broadband services.  When such a plan has been approved by a state commission, the local exchange carrier may provide broadband services in that state on an unregulated basis and may - upon the satisfaction of certain competitive conditions - offer those services without observing the competitive access and resale requirements of the Telecommunications Act of 1996.  The bill also creates a presumption that an incumbent local exchange carrier's refusal to provide "conditioned unbundled loops" to competitors on reasonable terms, when it is technically feasible to provide those loops, violates the Sherman Act.

H.R. 1686, introduced by Rep. Bob Goodlate of Virginia, also defines a process by which local exchange carriers may offer interexchange data services and build out broadband facilities free of the regulatory constraints that apply to their narrowband telephone services.  This bill goes beyond H.R. 1685, however, to require "broadband access transport providers" that have market power to permit other "service providers" to access their networks on nondiscriminatory terms and conditions.  By these provisions, H.R. 1686 creates a general obligation of cable television companies with local monopolies to open their networks to competing ISPs.

Finally, S. 1043, introduced by Senator McCain of Arizona, amends the Communications Act to deprive the Federal Communications Commission of any authority to regulate Internet services.  The effect of Senator McCain's bill, if it becomes law, will be to permit Bell operating companies and other local exchange carriers to offer Internet services without making those services, or the facilities used to provide them, available to competitors as required by the Telecommunications Act of 1996.  The bill also is fairly read as permitting those carriers to provide Internet services on an interexchange basis.

The fate of these so-called "broadband" bills involves some of the highest stakes in the telecommunications and Internet industries.   If incumbent telephone companies can provide interexchange data services without jumping the regulatory hurdles imposed on those services by the Telecommunications Act of 1996, their competitive position as providers of data services will be dramatically and instantly strengthened.  Similarly, if cable television companies are forced to share their broadband, "cable modem" Internet access platforms with competitors, their position in the marketplace may be drastically weakened.  The importance of this contest, as a potential shaper of the broadband Internet marketplace, cannot be overstated.   

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