Powell makes a play as Tauzin-Dingell moves forward

Mar 8, 2002 12:00 PM

More than a few competitors got their noses out of joint last month when they realized the FCC was really going to look at fixing the gross inequities that exist between telcos and other broadband providers, just as Tauzin-Dingell was making its way out the House. Chairman Powell and company, after much speculation, have wholeheartedly committed the agency to reviewing current regulations governing broadband Internet access services. The FCC will then attempt to adopt new policies that will promote competition, ensure ubiquity of access and create an environment in which investment and innovation can flourish. In Powell's own words, "It is now time for fewer words and more action." Some industry players cheered, others jeered (as was the case when H.R. 1542 passed a House vote). Critics claim that this will crush the CLECs and ensure that monopolies dominate the communications industry for another century. Hogwash, I say!

Before we go running around trying to brand this thing as Tauzin-Dingell reincarnate, let's look at what's driving the notice of proposed rulemaking (NPRM) and how FCC action will differ greatly from anything that might eke its way out of Congress. The Internet Freedom and Broadband Deployment Act, co-sponsored by Chairman W.J. "Billy" Tauzin (R-LA) and Rep. John D. Dingell (D-MI), is narrowly focused on replacing the ill-fitting regulatory framework for long-distance data networks, a legacy of the Telecom Act, with a structure that will accommodate investment by the incumbent local exchange carriers. In effect, Tauzin-Dingell seeks to treat the parties building DSL networks more like cable companies, fixed wireless providers and satellite network operators when it comes to high-speed Internet access. 

The FCC seeks to take a global approach to the issues of broadband deployment to ensure that when new fiber-based technologies displace DSL, we won't have to go back to the drawing board.

The goal of the FCC's proceeding is much wider in scope and will have implications that will long outlive DSL, which most of the industry recognizes as a transitional technology. The FCC seeks to take a global approach to the issues of broadband deployment to ensure that when new fiber-based technologies displace DSL, we won't have to go back to the drawing board. In reviewing the separate comments of the commissioners, it is obvious that they recognize the importance of providing regulatory certainty so that carriers can be assured of making the return on investment (ROI) needed to validate the massive outlays of capital that are necessary for building new networks. 

The cost of building the next generation of "pipes" to the home is extremely high whether the carrier uses a power line, a co-axial cable, a satellite, a wireless tower or a strand of fiber. Today, some companies can confidently tell their investors that they can eventually make a profit on these facilities. The ILECs do not fall into this category. Despite the fact that cable has sewn up almost 70% of the broadband market, the ILECs are still officially treated as "dominant" providers of broadband service and must lease access to their competitors at a fraction of the amount spent on building and maintaining these networks. The FCC recognizes this perverse fact and is now prepared to do something to change it. Unlike Tauzin-Dingell, the FCC could, in effect, create a whole new rulebook for broadband providers of all stripes. The only thing clear now is that the FCC wants to move broadband regulation away from its current "stovepipe" structure to something that is more technology-agnostic.

Under Section 706 of the Telecommunications Act of 1996, the FCC is charged with encouraging and accelerating deployment of broadband by "removing barriers to infrastructure investment." For anyone familiar with the situation, this is no simple task. The FCC must act carefully but decisively to ensure that we don't have a redux of the CLEC fiasco. Regulators have affected more than a few carriers' bottom lines by creating environments of uncertainty and doubt. Broadband must not follow down that same path. Dependable market incentives are key to setting the broadband sector right. To do this, new networks, whether they are fiber, wireless, cable or other, should be governed by new rules. Competitors should have access at fair and reasonable wholesale prices. This environment will benefit the wholesaler because ROI will be guaranteed and the reseller will benefit from access to more advanced networks. Only then can we expect the barriers to investment that exist today to evaporate.

Chairman Powell recently stated that the FCC was not in the business of saving companies in trouble. Although his comments may have appeared callous to some, the hard truth is that the business world is full of risks and the FCC has to act for the greater good. Even under the most radical scenarios predicted by the competitive sector's lobbyists, CLECs would still have full access to the networks; however, pricing would be determined by cost and not the theoretical total element long run incremental pricing (TELRIC) scheme cooked up in the wake of the Act. Much of today's bad blood between the competitors and incumbents is due to the fact that the wholesale/retail relationship is warped because of TELRIC pricing. For a true wholesale/retail relationship to flower, both players have to benefit.  This is the situation today in the broadband cable market.

Congress, the White House, state and local regulators, industry organizations and participants all agree that we must do something about broadband, but getting all these folks to agree is nigh impossible. Fortunately, no entity is better situated than the FCC to act on the facts. I am confident that Commission will do what is necessary to break the broadband logjam and get the communications industry rolling again. Recent studies show that broadband deregulation will create more than 1 million new jobs and generate upwards of $200 billion in capital spending on new networks alone, not to mention applications and services. The message is clear in the wake of the passage of H.R. 1542 in the House--something needs to be done to fix the broadband problem. Good luck, Chairman Powell.

Robert A. Saunders is a senior analyst with The Eastern Management Group, a management consulting firm focused exclusively on the communications industry. He can be reached at rsaunders@easternmanagement.com.

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