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FCC Reclassifies DSL, Spurring ISP Ire Over Verizon/MCI Merger

The California ISP Association claims that the merger of Verizon Communications and MCI threatens their business models.

The CISPA, which represents more than 180 California-based ISPs, has said the multibillion-dollar merger, which was announced in February, will either run many ISPs out of business or force them to diversify their offerings into more value-added models that could compete against VARs, said Mike Jackman, executive director of the CISPA, Sacramento, Calif.

Spurring the CISPA complaint is an Aug. 5 decision by the Federal Communications Commission that reclassifies DSL as an information service instead of a telecommunication service, said Jackman. The move deregulates DSL for the Baby Bells, frees them from having to share bandwidth with ISPs, and will open the door for carriers such as Verizon/MCI to stifle competition by charging so much for DSL that ISPs will have no resale margin, said Jackman. The FCC has placed a one-year grace period on enforcement of the change.

“The big carriers want to own the customer. This merger will reduce the number of [pure-play] ISPs dramatically,” said Jackman. “You&ll still be able to buy DSL, but you&ll have to add more services to compensate for little or no margin.”

Some DSL resellers have already begun to look for creative ways to diversify their offerings. Pac-West Telecom, a large ISP and CLEC in Stockton, Calif., is partnering with cable providers to assist them with their voice offerings, said John Sumpter, Pac-West&s vice president of regulatory. In doing so, Pac-West goes head-to-head with the Bells by working from the corner of the cable providers, a group competing to offer what Sumpter called “the triple play: TV, Internet and voice service.”

“Our new line of business is to be the backroom support for a cable TV company,” he said.

Verizon and MCI said DSL changes will benefit customers. MCI issued a statement saying, “As Verizon and MCI have explained in filings with the state of California and the FCC, the Verizon/MCI transaction will benefit customers and the economy while allowing the new combination to compete effectively in a changing marketplace.” MCI also said the combined company would have a 16 percent to 22 percent share of the enterprise market.

Jackman disagreed. “They will be the baseline [telecom] provider of 80 percent of the customers,” he said.

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