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TechnologyDaily Mobile
Ten Years Of Telecom Transition
by Drew Clark
Wednesday marks the 10th anniversary of the 1996 Telecommunications Act -- a milestone that comes as both the Senate and House ponder a wholesale rewrite of the law.
Commentators across the telecom spectrum believe that technological changes since 1996 provide an important impetus for revisiting the law. Its major items were telephone competition, digital television, cable deregulation and codification of the universal service fund, which subsidizes telephones for rural and low-income households, among other things.
But two aspects of the statute have received less sustained attention in the current debate, and they could prove pivotal to the next telecom act. Those aspects are the ability of telephone companies to obtain video franchises under certain conditions and of set-top boxes for cable television to work together, a concept known as interoperability.
In 2004 and last year, there was much momentum to revisit the law because telephone calls have migrated to the Internet. Many want to change telecom law to address the convergence of networks and the migration to digital technologies. As the complexity of the task has become apparent, the impetus for wide-ranging change has dimmed somewhat. Now video franchising and interoperability are the chief bones of contention.
Moore's Law And Digital Convergence
The big idea behind the 1996 law was injecting competition into a once-monopolistic telecom market. The goal was to move the regional Bell firms into long-distance phone markets, and AT&T and other long distance companies into local markets. Cable companies also could pursue phone customers, and telecom companies could offer video services.
That convergence was not written into the law, but it clearly informed the thinking at the time. What was missing was the insight that it would take the Internet, and digital technology made possible by the progressive and exponential increase in computing power predicted in Moore's Law, to successfully drive convergence.
Of the 1996 law's 11 references to the "Internet," 10 applied to indecency and one to the e-rate for wiring classrooms to the Web. The law made only one "digital" reference -- to broadcast TV.
"I have spent exactly the past 10 years trying to inject competition into the marketplace," said Jonathan Askin, whose title is general counsel and wartime consigliore to Pulver.com, the Internet telephone company. Previously, he worked for an association that represented Bell competitors. "Finally, because of Moore's Law, we now have a competition model that can actually work, without being overly intrusive on any one player in the industry."
"Ten years ago, the only real way to provide voice communication comparable to the Bell [companies] would have been delivering the service in combination with the [network] facility," Askin continued. And that meant the need for the FCC to order the dominant Bells to "unbundle" their networks and allow competitors to offer services on portions of those networks.
Bell companies chafed under those rules for many years. Many commentators saw unbundling as an expensive and failed quest to manage competition. "The FCC's major fault was interpreting the unbundling obligations in a way that was too excessive," said Randolph May, director of communications studies at the Progress and Freedom Foundation.
"The paradigm has changed because of Internet-protocol services and Moore's Law -- as long as every consumer is allowed to control their communications experience," Askin said.
The Communications Ties Unbound
Askin argued that high-speed Internet providers should be allowed to compete free of regulation, so long as they do not require consumers to purchase one service contingent upon another, and do not discriminate in the Internet sites that consumers may visit. Examples of the former would be cable companies that sell Internet service only to video customers or Bells that sell broadband over digital subscriber lines only to phone customers.
Those tied services still exist in the telecom marketplace, but their salience may be eroding as competition between the Bells and cable firms increases.
Verizon Communications has deployed high-capacity fiber-optic wires and now offers voice, television and data services in Massachusetts, New York, Texas and Virginia. The firm wants customers to purchase all three pieces of that "triple play." But Verizon no longer requires them to purchase more than one service.
Fiber efforts by the Bells -- Verizon is leading the pack, but all the others are following -- prompts today's biggest fight. The question is whether the Bells must obtain permission in each municipality to sell video to their voice and data customers.
Bells want the ability to obtain a nationwide franchise, but cable companies call that unfair. They had to win contracts city by city decades ago. And the cable industry said the 1996 Telecom Act lets phone companies sell cable television. The law gives telecom companies four choices: become broadcasters, get local franchises, offer "open video," or become "common carriers" that allow anyone to put video traffic on their networks, much as anyone can talk by phone.
Neither common carriage nor open video, a rarely used model for pay-television services, has proved practical in the marketplace, Bell officials said. Ameritech and Bell Atlantic, predecessors of AT&T and Verizon, ultimately withdrew from those markets. BellSouth, Qwest Communications International and rural telephone companies have entered the traditional cable market, and BellSouth holds 14 cable franchises and Qwest has 17.
The Battle Over Equipment Standards
Another dilemma has marked the consumer electronics space. Telephones long were standardized by virtue of AT&T's historic monopoly. After the company was split in 1984, its Western Electric telephone manufacturing subsidiary was divested, and competition in the equipment market has reigned since then.
The 1996 Telecom Act created a new section, "the competitive availability of navigation devices," that attempted to create an interoperable standard for cable devices such as set-top boxes. "Without it, we wouldn't be where we are today," said Veronica O'Connell of the Consumer Electronics Association, which strongly supports the section.
Within the past several months, CEA has butted heads with the National Cable and Telecommunications Association over whether that section of the law should be preserved. NCTA argues that the market for set-top boxes is thriving, with competition from Cisco Systems (which purchased Scientific Atlanta), Motorola and new entrants like Panasonic. In December, NCTA sued the FCC to challenge the agency's unimplemented order on that section of the law.
CEA has urged Congress to preserve the ability of manufacturers to design products that offer consumers innovative features for receiving pay-television services. "If this freedom is not preserved in the [Internet]-enabled world, network service providers will have the ability to dictate [electronics] product design and functionality," the association said.
That could boost cable operators, which then could limit manufacturers' ability to create products that will display both cable television and broadband video. For CEA, that will not do in world where computers are combining with televisions.
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