New FCC Broadband Rules Imminent

The nation's big phone companies have grumbled for years that they'd be happy to provide that next-generation broadband--as soon as the government stops requiring them to let rivals lease access to their networks at artificially low prices.

Why should they invest in costly new fiber-optic networks, the argument goes, if someone else can come along and share the benefits?

Now, with the Federal Communications Commission rethinking reams of rules governing the industry, the phone companies are close to getting what they've asked for--the ability to keep new fiber-optic networks for themselves and sell access to them at market prices, according to people familiar with the process.

The FCC is expected to approve the new broadband rules this week. Several telecom industry sources said they expect the five commissioners to haggle down to the last minute over the details, such as how Bell competitors could use networks that combine new fiber-optic lines with older copper wires.

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Broadband boosters say the decision could stimulate the economy by creating thousands of jobs and shaking the telecommunications industry out of its funk.

But consumer groups and Bell rivals counter that phone companies have often claimed to be just one rule change away from finally having the incentive or ability to provide next-generation services.

These opposition forces, which are expected to sue the FCC to block the new rules, say the Bells' real goal is not to pollinate America with fiber-optic broadband but rather to eliminate competition and boost profits.

"The problem with the whole concept is that I don't know that the FCC is thinking like a monopolist thinks," said Sue Ashdown, executive director of the American Internet Service Providers Association. "The long-term result is that it is death for the entire competitive industry, unless the FCC can figure out and be strict about where they want to see new investment."

The broadband question is just one piece of a broader brain-twister the FCC is trying to solve as it reconsiders its enforcement of the 1996 Telecommunications Act.

The Bells also want the FCC to stop forcing them to share voice lines at set prices, the very rule that makes it possible for long-distance carriers like AT&T and WorldCom to offer local phone service.

Several industry sources monitoring the process believe the FCC might let state regulators determine much of these local phone rules.

But with cell phones and e-mail making the local business decline -- the total number of access lines in the United States fell last year for the first time since the Great Depression -- the broadband riddle could be more crucial for the industry's future.

The phone companies say they are more heavily regulated than cable companies, their main broadband rival, hindering their financial ability to bring digital phone lines, known as DSL, to more places, or to lay new fiber lines in residential areas for even faster speeds. (DSL now is carried by copper phone lines designed for voice traffic, a limited broadband technique.)

A recent report by the Progress & Freedom Foundation, a policy organization backed by the technology industry, said broadband deregulation could stimulate investment in new fiber lines for residential areas by $1.95 billion to $2.57 billion a year.

Supporters of the so-called "new rules for new wires" policy say it would be manna for struggling telecom equipment makers, encourage cable and rival phone companies to increase their own network upgrades, and bring consumers such New Age benefits as "telemedicine" and "distance learning."

But don't expect to pull back your curtains and see ditch-diggers laying fiber to your home anytime soon.

Most of the 18 million U.S. homes and businesses with broadband are in cities and relatively dense suburban zones, largely because it costs companies more to serve sparsely populated areas.

Michael Goodman, senior analyst at The Yankee Group, expects phone companies to be equally selective about where they lay new fiber, opting first for new subdivisions and some places where old copper lines need upgrading.

"It's going to be a very long, drawn-out process,: Goodman said. "You're not looking at five years down the road and everybody's going to have access to fiber."

Similarly, Covad Communications, which leases access to phone lines to provide DSL service, claims not to be worried about the new broadband rules because it expects fiber installation to take a long time. In the meantime, the expectation that more people will be getting faster Internet access could encourage the development of better audio and video content, which helps all broadband providers, said Jason Oxman, Covad's assistant general counsel.

But Len Cali, AT&T's director of government affairs, makes a more dire prediction: If rival companies can't get enough access to Bell lines to offer a competitive product, the phone giants will have even less incentive than they do now to upgrade their services.

"Depending on the relief that's given, it can slow broadband rollout," he said. "There's no secret as to what happens when you deregulate a Bell. Quality declines, and rates of return and service complaints go through the roof."

That argument probably discounts the competitive threat posed by cable, which holds roughly 60 percent of the broadband market, according to analysts' estimates.

But even a fiercer race between cable and phone companies worries consumer advocates.

"In our experience, two is not enough for real competition," said Mark Cooper, the Consumer Federation of America's research director. "Remember in the auto industry, the Big Three? Well, this is really one and a half, because this won't be available in all neighborhoods."