Should Telecom Regulations Be Scrapped?

With cable companies around the country rolling out telephone services over coax, it begs the question: are today’s cable operators tomorrow’s Baby Bells?

The Telecommunications Act of 1996 was the first major overhaul of telecom law in almost 62 years. The prime directive of the law remains — foster competition by allowing anyone to enter any communications market. The ’96 Telecom Act granted the Federal Communications Commission sweeping powers of oversight end enforcement guaranteeing that Regional Bell Operating Companies (RBOCs) play fairly with independent telephone companies and Internet service providers (ISPs).

After just five years lawmaker’s efforts must be viewed as a win, since emerging competitive local exchange carriers (CLECs) and ISPs now offer American consumers more communications services over old copper lines than the Baby Bells ever dared to dream. Legislators still believe that as long as the FCC acts as the vanguard of telecom competition in the U.S., consumers can’t lose.

While certainly not perfect, the Telecom Act has opened up the communications industry in a way that fosters vigorous competition, keeps prices relatively low, and allows entrepreneurs to flourish in a new marketplace.

Copper v. coax

Outside of existing local franchising laws, no such framework for encouraging competition among cable carriers exists today. Open access — or forced access, depending on which side of the debate you are on — originated as an AOL-funded lobbying group thinly veiled behind a “grassroots movement” to get cable companies to share their networks with rivals.

For all AOL’s lobbying efforts, the Federal Trade Commission turned this dog on its master when it made open access conditions a tenet AOL’s merger with Time Warner. But other cable companies are not obliged to share their networks with competitors like AOL Time Warner.

Stephen Heins, an independent open access advocate, thinks the government should be doing more to keep the industry competitive, not just for big businesses, but for local and regional voice and data service providers.

He pointed out that while Michael Powell, FCC chairman, thinks the term “common carrier” is a thing of the past, the services provided by cable companies should bear some measure of regulatory scrutiny. But so far, there hasn’t been a convincing argument made by open access advocates to sway Powell’s thinking. Heins said:

“The problem is that the cable model more aptly fits the definition, as far as broadband, of a common carrier, because they have so much margin there they can afford to mark it up so much. Advocates are getting so hung up on all of these artificial limitations, like cable network market caps, instead of the bigger issues and the effect it has on what Powell calls ‘competitive doctrine.’ Until someone advances a more coherent argument, the FCC is going to let the cable companies do what they want.”

So far, the FCC has been collecting comments on the issue of open access since last September. But regulators have not established a timetable for policy review or public presentations.

According to the National Cable & Telecommunications Association (NCTA), a cable industry mouthpiece, roughly 1.5 million homes around the U.S. are using one of two types of cable telephony service, either circuit-switching or voice over Internet protocols (VoIP).

Both technologies, could technically be construed as “common carrier services,” which the Institute for Telecommunications Sciences defines as:

“Any telecommunications company that holds itself out to the public for hire to provide communications transmission services.”

Mike Paxton, a senior analyst with research firm Cahner’s InStat, said while cable telephony won’t see mainstream adoption until late 2002 at the earliest, the service will garner nearly 15 million users worldwide by 2005 with revenues in excess of $6.5 billion.

Telephony, Paxton said, is a very attractive offering for cable operators looking to offset the leavening TV subscriber growth ratesonce they get past the technology issues.

“Issues like billing by the minute, lifeline service, and line powering represent unfamiliar territory for operators accustomed to only providing pay television services,” Paxton said.

Testing talk

All of the major cable operators have services underway or are in their final phase of field testing:

  • Cox Communications has the largest cable telephony presence in the U.S., serving 300,000 residential customers and adding customers at a rate of 4,000 per month, according to NCTA figures. That number makes Cox the 12th largest telephone company in the U.S.
  • According to Mike Luftman, Time Warner Cable spokesperson, it has been conducting field tests of VoIP services in Portland, ME and Rochester, NY since last year. TWC is also awaiting certification from the Florida public utilities commission to certify tests in Orlando and the Tampa Bay area later this year. The offering, dubbed “Line Runner,” provides services like caller ID and voice mail.
  • Charter Communications is in the process of completing field tests of circuit-switching systems in St. Louis and VoIP technologies in central Wisconsin. The company intends to compare the results for further testing in late August.
  • Comcast currently serves 70,000 voice customers in Detroit and Washington, D.C. while AT&T Broadband is serving 850,000 consumers it’s brand of cable telephone service. But it’s uncertain as to where Comcast and AT&T Broadband will fit into the cable telephony picture right now, since the two companies are working on completing their merger.
  • Cable proponents maintain the industry shouldn’t be regulated as a telecommunications operator, especially if the service they offer provides a competitive environment in the U.S.

“Our stance is very deregulatory, we don’t think that our cable modem service should be regulated, we don’t think our cable telephony service should be regulated,” said Marc Smith, a spokesperson with the NCTA. “When you launch a competitive service, the best thing to do is allow the marketplace to do its thing.”

Does this type of thinking pave the way to scrapping the entire telecom regulatory process? While Smith contends that cable systems shouldn’t be regulated, he said that doesn’t necessarily mean the Bells should be let off the hook entirely.

“It’s not our job to represent the local phone companies, it’s not for us to offer an opinion,” Smith said.

Equitable influence
The Bells, in the meantime, have been quietly applauding the consolidation efforts of their cable rivals, and see the mega-mergers of AOL Time Warner and the recent AT&T Broadband-Comcast marriage as a signal that current regulations should be modified and opening the door to regulation that suits them.

“The current regulatory regime for advanced services makes no sense,” said Priscilla Hill-Ardoin, SBC senior vice president of federal regulatory actions. “It subjects one class of broadband providersincumbent local exchange carriers like SBCto burdensome and costly regulations and ongoing uncertainty, while leaving all other broadband providers, including the dominant player in the market, wholly unregulated.”

But cable telephony isn’t going to be a niche product forever. Once cable companies start offering stable, bundled voice and data packages to their customers it’s going to be awful hard to dislodge them, given the non-regulatory advantages of coax-based telephony services.

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