The Future of the Regional Bells


Part I:

The Last Mile

The connection between the telecommunications network and nearly all homes and businesses is referred to as the local loop, or the last mile. Typically, the wires run from a home or business to a neighborhood telephone box called a Central Office, or CO. This last mile is capital intensive, and has historically been constructed with copper phone lines controlled by the ILECs. Once installed, the ILECs have little incentive to allow competitors access to the facilities.

Most competitors in phone service (local and long distance) must use Bell access lines to reach their customers, and the ILECs' control of who can connect is a powerful means of promoting their own agenda. Their incumbent position and market power is a handicap to competitors. Complaints of the ILEC's excessive fees, slow deployment, and unnecessary access barriers have been consistent over time. They still have the monopoly death grip on the local loop and therefore control access to the customers.

Despite Congress's intention that the 1996 Act would make the marketplace for telecommunications services more competitive, it remains largely under monopoly control. This has been a costly lesson for CLECs and telephone customers alike.

Holding Back the Future

Currently, there are four basic technologies for connecting homes and businesses to the larger communications network:

Twisted pair is the most widely deployed and controlled. Wireless is less dependable and more expensive, though it has managed to take a 2% share of the local telephone business. A viable alternative as a telephone service provider, most cable TV operators have not entered the local telephone business because of fears of increased regulation and the cost of upgrading the cable infrastructure, without which local phone services and broadband Internet aren't available through cable. Fiber optic lines (called Fiber to the Home), largely impractical now due to business and right-of-way issues, are in 80% of neighborhood phone boxes (COs) but mostly have not been extended the "last mile" to residential settings.

Alternative access is possible in some municipalities as local utility districts and publicly owned power companies take on the task of wiring and providing services to their own residents. Nine states have created barriers or have outlawed publicly owned telecommunications networks2:

Overall, the picture looks pretty bleak for competition in local, residential and business telephone service as CLECs go under and other alternative providers are being legislated away. The legislative left hand wants to promote competition, while the restrictive right hand says no, no, no. Despite the ILECs lack of cooperation, the FCC is slowly approving their applications to enter the long distance market.

Also, many bills are being introduced in the House and Senate4 with ILEC-influenced lobbying support.5 This does not bode well for a competitive market in telephone and telecommunications services. But as the Ferengi say on the television show Star Trek: Deep Space Nine, "Let others keep their reputation. You keep their money."6 Apparently some telephone executives have been watching TV.

The Many Networks

Meanwhile in the background, the Internet was slowly being developed by the US research community. Designed as an open-architecture communications network, the Internet was capable of operating on many different technologies, including but not limited to circuit switched telephone lines. From the early 1980's, the Internet grew from its infancy in research into today's global user network, carrying broad social and commercial communications and activities.

"The Internet has now become almost a "commodity" service, and much of the latest attention has been on the use of this global information infrastructure for support of other commercial services. This has been tremendously accelerated by the widespread and rapid adoption of browsers and the World Wide Web technology, allowing users easy access to information linked throughout the globe. Products are available to facilitate the provisioning of that information and many of the latest developments in technology have been aimed at providing increasingly sophisticated information services on top of the basic Internet data communications."7

The Internet continues to run on a wide range of interconnected networks, including telephone and cable lines, fiber optic cable, Ethernet cables, radio waves, wireless modems and routers, satellites, and more. The Internet is considered "dumb"8 or "stupid" in that the network is merely a transport mechanism that is not necessarily customized for a specific kind of content.9 In fact, an email sent from a person's home may very well travel over several kinds of networks in route to its destination. The tools used to communicate over the Internet: email, web browsing, instant messaging, streaming media, and more, were developed for use on such a stupid network.

The phone network is in stark contrast to the nature of the Internet. The telephone network is a significant part of public communications and access to the Internet. However, the controls or "intelligence" that is inherent in the telephone network are a hindrance rather than a help. The needs of an increasing and mobile Internet user base are not entirely compatible, and sometimes incompatible, with the fixed ILEC voice network. More significantly, the tools of the Internet are cutting into the need for voice lines, including additional telephone lines for faxes and other voice-based services. The Internet represents the first really significant threat to the laissez faire future of the ILECs.

The Marketplace

Two significant forces have effected development of the Internet: the degree of monopoly or competitiveness in the telecommunications market that provides access to the Internet, and the proprietary or open nature of the access. The ILECs have a strong influence on the direction of each vector.

For example, the ILEC's core business is heavily invested in proprietary "intelligent" switches that have been maximized for voice quality. As we have seen above, their business methods tend toward ensuring their monopoly status. This world is asymmetric in terms of two-way communications: it is more about broadcast and controlled access than the Internet currently is. More like a public address system than a ham radio network.

The 1996 Act was supposed to encourage an alternative to monopoly. Highly competitive local access was to provide the ground on top of which a society is free to use and develop a wide range of new tools. This environment has a two-way symmetry that supports the development of a "commons" where anyone can be a producer or consumer. Here, information tends to be decentralized and, central to values served by the First Amendment, secures "the widest possible dissemination of information from diverse and agnostic sources."10

"The free and open exchange of information and creative expression is a fundamental value in American democracy, science and culture. Yet even as the Internet democratizes access to information and creativity, new technological locks, licensing regimes and unprecedented expansions of intellectual property law are converting materials that were once freely available to everyone into closed, proprietary "product." If the public is going to enjoy broad public access to scientific research and cultural and civic information, pro-active efforts must be undertaken now to describe how the "enclosure of the information commons" is threatening core democratic values."11

The ILEC forces that shape the direction of primary network and access development, and therefore the nature of the Internet, do not necessarily yield the best future for the public.

Next: Part II: The Cost of Doing Business | End Notes