Broadband Briefings


Published by NetAction Issue No. 18 April 27, 2001
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IN THIS ISSUE:

The Same Old Ploy
About Broadband Briefings

The Same Old Ploy

One of the important lessons that Rep. Billy Tauzin of Louisiana and Rep. John Dingell of Michigan don't seem to have learned is that affordability drives the demand for new telecommunications and technology services. There was very little consumer demand for high-speed Internet access when the Regional Bell Operating Companies (RBOCs) sold ISDN lines that often cost hundreds of dollars per month. Nor were many small businesses eager to subscribe to T-1 lines costing thousands of dollars per month.

In fact the demand for high-speed access didn't really take off until the cable companies started selling broadband service for about $40 per month, prompting the phone companies to compete by rolling out digital subscriber line (DSL) service for the same price. At $40 per month, demand rose so fast the DSL providers couldn't keep up. Vigorous competition is the key to affordable Internet access, and affordability is the key to increasing overall demand as well as to bridging the "digital divide.

But competition would be stifled under H.R. 1542, the Internet Freedom and Broadband Deployment Act of 2001 that Tauzin and Dingell introduced earlier this week.

H.R. 1542 would undermine one of the key consumer protections that Congress included in the 1996 Act: the requirement that the Bells open their local phone markets to competition before they are allowed into the long distance markets. H.R. 1542 would waive this requirement for long distance data markets and relieve the Bells of their obligation to open their networks to competitors. In doing so it would eliminate the only incentive the Bells have to treat their competitors–and their customers–fairly.

Ludicrous as it sounds, Tauzin claims that this will ensure meaningful competition. But it is far more likely that if Congress approves H.R. 1542 it will stifle the competitive deployment of affordable broadband, kill any chance of local phone competition, and leave the four Bell monopolies in control of the nation's telecommunications and technology infrastructure.

Tauzin's claim that allowing the Bells into long distance data markets before local phone markets are truly competitive is necessary to ensure widespread deployment of broadband, particularly in rural communities, is an old ploy. In fact, it's one the Bells have used before.

As some readers may recall, in June 2000 NetAction released a comprehensive report describing how the Bells had broken the promises they made to regulators in the 1990s to deploy high-speed fiber optic networks. In many instances the promises to deploy fiber optic networks were made in exchange for relief from important pro-consumer regulations. In many states where regulators went along with these schemes, traditional rate-of-return regulation–intended to protect consumers from profit-gouging–was replaced with incentive or price cap regulation.

The new regulatory schemes gave the Bells more profits, ostensibly to be used to build the promised fiber optic networks. But instead of building the networks, the companies simply pocketed the higher profits. This is one of the reasons that the four remaining Bell monopolies are among the most profitable companies in the nation. Our report, prepared by Bruce Kushnick of New Networks Institute, revealed that Bell return-on-equity was a whopping 163% above that of the nation's major long distance telecommunications companies, and 130% above that of the industry average.

If the Bells has delivered on their promises, 44 million households–almost half of the households in the United States - and the vast majority of the nation's schools would already be wired with networks capable of delivering data at speeds many times faster than DSL service. But that never happened. If the Bells had made a good faith effort to meet the conditions spelled out in Section 271 of the 1996 Act, we might already have vigorous competition in both broadband and local phone service. But the Bells chose instead to stonewall competition by engaging in protracted legal and regulatory maneuvers, and by lobbying Congress to change the law.

At the time our report was released only about 500,000 households in the entire nation had access to the Internet over fiber. If the Bells had delivered on their promises, these super-fast networks would already be widely deployed in low-income urban neighborhoods and rural communities as well as in schools, libraries and health care facilities, and the "digital divide" might have been avoided. Instead, the Bells abandoned their fiber optic projects and only offered competitively-priced DSL when faced with competition from the cable industry. Now that the demand for DSL is skyrocketing, the Bells are counting on Tauzin, Dingell and their other friends in Congress to game the system to their advantage.

Tauzin has put H.R. 1542 on a fast track for House approval. If it clears the House, there is widespread speculation that it won't be approved by the Senate. Readers can help to ensure this outcome by contacting your state's Senators now and asking them to vote "No" if the bill comes before them. Contact information is at http://www.senate.gov/.


About Broadband Briefings

Broadband Briefings is a free electronic newsletter, published by NetAction to promote policies that encourage rapid and widespread deployment of high-speed Internet access. NetAction is a California-based non-profit organization dedicated to promoting use of the Internet for grassroots citizen action, and to educating the public, policycmakers, and the media about technology policy issues.

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