Broadband Internet Access: The Market Solution Vs. Government Intervention.

Broadband Internet Access:

The Market Solution

Vs.

Government Intervention

David Rice, Kennedy School of Government, Harvard University

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“The future of the Internet will be shaped more by policy choices

than technology choices,”

– Steve Case, Chairman and CEO,

America Online


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What is Broadband?

Narrowband: 56K Dial-up modem Email Web Surfing Download text files

Broadband: 100 x Faster Watch movies and listen to music Two-way Audio/Visual communication Large file downloads ‘Always On’


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Broadband Technologies

DSL Cable ATM Satellite Wireless Fixed Wireless Fiber


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Broadband Penetration


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Broadband Distribution by Technology


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The Last Mile

The Last Mile


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Open Access

Telcos vs. Cable Traditional ISPs use regulated phone lines Cablecos use closed, proprietary networks Issue: Competition for high-speed Internet

users and unbundling of delivery and

content providers


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Bundling ITC Services:

The AT&T Strategy

AT&T acquires TCI and MediaOne Access to 30 million US cable subscribers

Goal: provide one-stop-shopping for

voice, Internet, and video.


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Controlling the Pipe and the Content:

The AOL-TimeWarner Merger

AOL: Largest ISP in the world 22 million subscribers in October, 2000

TimeWarner: Second-largest media

conglomerate in the world 500,000 cable Internet subscribers in 1999 22% of the current broadband subscribers


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ILECs: Fighting for Relevance

Incumbent Local Exchange Carriers Marketspace openly competitive as a

result

of the 1996 Telecommunications Act Trying to roll-out DSL technology

Fraught with technical problems and high-costs


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Drivers of Government Intervention in the Market

Consumers’ need for “security.” Business’ desire for stability. Losers seeking relief. Winners wanting to cement their lead. The Internet’s role as official channel.


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‘Losers’ Beg for Government Action

Open Net Coalition Funded by small, regional ISPs Founded by AOL (pre-Time Warner) Seeking Congressional or regulatory action to

force cable companies to allow other ISPs access to their networks

Spin: “The Internet will become a Corporate Intranet”


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‘Winners’ Warn Against Stifling Broadband Investment

Hands Off the Internet Funded by AT&T Represents the cablecos who want to maintain

their

dominant position by keeping networks proprietary Spin: “The Free market—it works!”


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Open Access Fights Around the U.S.


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Political Stakes are High

IT Industry Contributions (in millions)

0

5

10

15

20

25

1990 1992 1994 1996 1998 2000*

TotalContributions

Individual

PAC

Soft Money

* January1st through July 31st only


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Confluence of Regulation

Municipalities have jurisdictional authority over cable television franchises

FCC has jurisdiction of Internet service providers and traditional telecom providers

1996 Telecommunications Act was perfectly vague regarding clear jurisdictional authority

Court decisions and attempts to force open access at the municipal level have further muddied the issue


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Turning Points:

AT&T v. City of Portland

Portland, OR requires AT&T Broadband

to open cable networks to competition Decision is overturned by the 9th Circuit

Court of Appeals Regulation of cable Internet networks is

remanded, defacto, to the FCC

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Turning Points:

AOL-TimeWarner Proposed Merger

AOL, the most outspoken critic of AT&T’s merger with TCI and proponent of ‘open access’ to cable networks, abandons the grassroots effort

Merger requires FTC approval (12/14/00) Expected to be required to open networks to

competition Recently announced a pilot project to

‘voluntarily’ allow access to ISP Juno, MindSpring, and Earthlink (Sprint’s ISP)


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Unanswered Questions

Should cable companies be required to

open networks to competition? Under what conditions?

Price for leasing lines Level of bandwidth Authority to control network traffic Who has jurisdiction How much authority


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Recommendations

Apply anticipated FTC ruling on AOL-

TimeWarner as a model, scaled appropriately, for ‘voluntary’ action by all cable operators

Provide jurisdiction over fees, competition,

consumer, and deployment to state-level PUCs Provide the FCC authority over broad policy

issues, guidelines for PUCs, and technical

assistance


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To comment or criticize, please contact the author:

David Rice

Candidate for Masters in Public Administration, 01’

Kennedy School of Government

Harvard University

[email protected]

Broadband Internet Access: The Market Solution Vs. Government Intervention.

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