FCC CLOSES REGULATORY GAP BETWEEN CABLE MODEMS, DSL

Bell companies hope for removal of DSL restrictions

Cable companies scored a major victory when the FCC recently ruled that cable modem services are information services with a telecommunications component, rather than cable or telecommunications services.

Oddly enough, the Bell companies think the ruling also could give them an important win.

That's because the FCC's ruling brings cable and DSL closer to regulatory parity, at least in the eyes of the Bells. The commission earlier this month issued a wireline broadband notice of proposed rulemaking (NPRM) that defined DSL services in the same manner. The Bell companies long have bemoaned that they are more regulated than cable companies, which provide similar services and dominate the broadband market with a 70% share.

“This is an enormous step, albeit a first step, toward regulatory parity,” said Priscilla Hill-Ardoin, senior vice president of the FCC for SBC Communications.

Hill-Ardoin classified the ruling as a first step because the FCC's decision will treat cable modem services somewhat different than DSL services, at least for a while. The commission determined cable modem services “do not contain a separate telecommunications service offering” and are not subject to common carrier regulation.

The upshot of this determination is that cable companies won't be forced to unbundle facilities, something that currently affects only facilities-based telephony providers that are common carriers. The FCC believes that forcing such actions would cause cable operators to think twice about providing cable telephony service if it would trigger sharing their facilities with competitors. It's the primary reason the telcos have resisted widespread deployment of DSL services.

In comparison, the recent wireline broadband NPRM proposed that telcos providing DSL services still be required to make their data facilities available to competitors. But they can do so at “commercially reasonable” rates set by the FCC rather than at the total element long range incremental cost, or TELRIC, rates Bell companies believe are unfairly low.

In the meantime, the FCC will observe how the cable companies react to their good fortune.

“By establishing that cable operators may enter into access arrangements with independent ISPs on a private carriage basis, our ruling makes clear that cable operators can provide choice without necessarily subjecting themselves to common carrier regulation,” said FCC Commissioner Kathleen Abernathy in a statement.

However, Abernathy recognized the apparent inequity in forcing DSL providers to succumb to “a series of unbundling and nondiscrimination requirements” and said it would be “inappropriate” for the FCC to “not even consider imposing access obligations on cable operators.” As a result, the commission attached an NPRM to the declaratory ruling to address this question and other forward-looking issues (see table).

MORE QUESTIONS THAN ANSWERS

Though it rewrote the definition for cable modem services, the FCC still needs to resolve a number of issues. An accompanying notice of proposed rulemaking was issued to examine the following:

Whether there are legal or policy reasons for treating wireline broadband and cable modem services differently from a regulatory perspective

The scope of the FCC's jurisdiction to regulate cable modem service

Whether it is necessary to require cable operators to provide access to multiple ISPs

The role of state and local franchising authorities in regulating cable modem service

Source: FCC

For now, the Bell companies seem satisfied that the FCC has tossed cable modem service into the same basket as DSL service.

“The FCC is saying, ‘These are substitutable and competitive technologies serving the same market, and it doesn't make sense to regulate one and not the other,’” said Bob Blau, vice president of executive and federal regulatory affairs for BellSouth.

Danny Briere, CEO of TeleChoice, agreed: “The FCC is tickled pink with the progress of broadband Internet deployments and wants to see the cable companies, telcos, satellite providers and wireless carriers compete against each other. It's not about BellSouth competing against New Edge Networks. It's about BellSouth competing against AOL Time Warner.”

If the commission really wants the Bell companies to compete effectively against cable companies, it would remove all restrictive regulations that apply only to the telcos, said Don Evans, vice president of federal regulatory affairs for Verizon Communications.

“In order for consumers to have an option, you have to change the investment incentive,” he said. “The way the rules are right now, common carriers don't have the necessary incentive to invest.”

But the FCC may have to reconsider its current hands-off position as more cable operators deploy IP telephony services, said Mike Smith, co-founder and managing director of the telecom strategy practice x for Stratecast Partners. Because voice is a basic service with well-established regulations, it would make sense to apply those regulations evenly across both platforms — an issue that could force the FCC into a precarious position, he said.

“If they decide those regulations don't apply to cable, the RBOCs might see that as a reason not to invest in voice over DSL because their return on investment would be compromised,” Smith said. “But should they decide they should be applied to cable, then the cable companies would dramatically halt any and all residential deployments.”