Broadband Cable: The Open-Access Debate

2. A Closer Look at the Parties' Positions

The "open" access and forced access positions bear a closer examination, beneath the headlines.

The cable industry's position. Consolidation in the cable industry has resulted in fewer and larger cable operators. By far the largest operator is AT&T, the provider of long-distance and wireless telephone services, which recently acquired the cable properties of TCI (formerly the largest cable operator) and MediaOne. Other large cable operators include Cox Cable, Time-Warner, and Cablevision. All of these cable operators are engaged in substantial efforts to upgrade their cable systems, not only to carry more television channels, but also to accommodate two-way communications and data services. The National Cable Television Association (NCTA)[2], which represents the cable industry's collective interests, openly touts the industry's intention to move into competitive local telephone markets and provide high-speed access to the Internet.

AT&T reportedly purchased TCI in order to gain access to local rights-of-way that would enable it to provide competitive local telephone service. In the process it discovered two things: (1) cable has the potential to become the conduit of choice for most communication services and (2) getting there isn't easy.

AT&T, which must apply for regulatory approval in each of the many municipalities formerly served by TCI, has borne the brunt of the local telephone companies' policy onslaught. It has had to reckon, unexpectedly and simultaneously, with both the arguments raised by its opponents and a legacy of local discontent attributable to the business practices of TCI's former owner. Also, when it purchased TCI, AT&T acquired a major interest in @Home, an ISP and online content provider partly owned by TCI. @Home, which pioneered high-speed cable access to the Internet, has been more successful as a technological innovator than as a provider of service. AT&T faces the additional challenge of improving @Home's service, which has attracted negative attention; and mitigating concern that AT&T will use @Home as its exclusive portal to the Internet, to the exclusion of other content providers.

AT&T's position, which has been seconded to a greater or lesser degree by other cable operators, has been, "Give us time. We will improve." Indeed, many former TCI subscribers (including the author of this white paper) have already noted an improvement in their conventional cable service. Moreover, AT&T has waived monthly fees for @Home subscribers while it labors to improve @Home's quality of service. An innovative new offering from AT&T, just announced, will package long-distance, local, and wireless telephone service with cable service as a one-stop-shopping opportunity for time-scarce consumers.

As an immediate counter to OpenNet and the AOL-sponsored No Gatekeepers coalition, AT&T has organized Hands Off the Internet[3], an eclectic coalition of interest groups, including NetAction. Hands Off the Internet's position is that AT&T and the other cable operators should be allowed to develop business strategies and policies that respond to market demand, thus achieving the goal of rebuilding the nation's cable networks to accommodate two-way communications. AT&T in its own right further argues that the cable network is incapable of supporting service for every ISP and information provider that might apply for carriage. Moreover, it is not required to do so by law or tradition.

AT&T makes a reasonable request: that it be given a chance to catch its corporate breath and enunciate business policies that are proactive and not reactive to its competitors' initiatives. It has been estimated that upgrading AT&T's cable network will cost almost as much as the $120 billion AT&T paid for TCI's and MediaOne's properties; the process will take many years. Quicker deployment of other new technologies, like the telcos' DSL service, may diminish cable's status as the preferred delivery vehicle for high-speed data service.

The local telephone companies. The local telephone industry is also consolidating. The seven regional "Baby Bells" have now condensed into five: SBC Communications, Ameritech, Southern Bell, Atlantic Bell, and U S West (recently acquired by the long-distance carrier, Qwest). Their number will be further reduced if SBC and Ameritech receive regulatory approval to merge, forming a mighty communications conglomerate serving nearly half of the former Bell System's customers. GTE, a continental collection of local telephone companies, is currently discussing a merger with Bell Atlantic.

The 1996 Telecommunications Act was supposed to spur competition in the local telephone market, but its results so far have been disappointing. As an incentive to opening their systems to competition, the Act offered the local telephone companies entry to the long-distance market. Shunning the offer, the local telephone companies have sought other means of entering the long-distance market (as extreme as being acquired by a long-distance provider, in U S West's case). Meanwhile, they have assiduously resisted local competition in every way possible.

The local telephone companies fear that cable systems will compete with them head-to-head in the local telephone market and perhaps even surpass them in the high-speed data communications market, including access to the Internet. Cox Cable has demonstrated that it can provide economical, price-competitive local telephone service. The local telephone companies' initial reluctance to rapidly roll out their own high-speed DSL services betrayed an unwillingness on the part of the local telephone companies to effectively serve their customers.

Now, in addition to rapidly rolling out DSL service wherever it can be provided, the local telephone companies have adopted a complementary strategy: slow down the competition. While waging a war against competition before the FCC, state utility commissions, and the courts, the local telephone companies have emerged as the principal supporters of an initiative to embarrass and forestall AT&T in municipal hearings, where the transfer of cable franchises must be approved. Their advocacy organization, OpenNet, is led by AOL and the larger ISPs. OpenNet argues that AT&T must be required by local municipalities to carry the content for any ISP or information provider seeking access to the cable network. What sort of regulation this will be and its public policy consequences are disturbingly large questions that OpenNet leaves unanswered.[4]

ISPs and information providers. There is no unanimity among the thousands of ISPs and millions of information providers currently serving the Internet population. AOL, which practices its own form of customer ghettoization, and a few large ISPs, have taken the cudgel to AT&T in the press and before city councils. In New York, a venture investor in an ISP has threatened to sponsor an initiative seeking public endorsement of the anti-cable line, and in California there is speculation that the OpenNet interests will sponsor a statewide ballot initiative. Other ISPs, however, have taken a wait and see attitude, content to let AT&T first settle its affairs.

AOL's role in the debate is ironic. Its much-excoriated interface prevents AOL's customers from easily exploring the Internet. Recently, when Microsoft attempted to link its electronic messaging service to AOL's for the mutual convenience of their respective users, AOL repeatedly changed its software code to prevent this connection and keep its customers imprisoned within its own system. Although AOL's "churn rate" -- the number of customers it loses -- is rumored to be high, too many customers find it easier to pay their monthly fees than to go through AOL's arduous and often unreliable unsubscription process.

If local governments succeed in imposing open-access requirements on cable operators, it's likely that AOL and the other large ISPs would use whatever means necessary to obtain a dominant position on the cable: paying high rents, buying multiple channels, etc. Were AOL to obtain dominant access to cable systems, it could extend its repressive regime to AT&T's cable subscribers. But the proliferation of DSL and wireless Internet customers makes it questionable whether the cable operators will achieve a dominant position as an ISP platform. In the competitive market of the future, ISPs, like their customers, will have a bounty of new infrastructural suppliers.

Local municipalities. Still smarting from past experiences with the former TCI, a few municipalities view AT&T's acquisition of TCI as an opportunity to even the score. Among them, Portland/Multnomah County and Broward County have taken decisive action. In the case of Portland, a federal judge upheld the City's right to impose open-access rules on AT&T as a condition of the franchise transfer[5]. This case is currently being appealed by AT&T and will be joined by the FCC. Other cities and counties are taking a wait-and-see attitude. San Francisco, for example, recently voted to approve the unconditional transfer of TCI's franchise to AT&T, with the caveat that the Supervisors will reexamine the access issue later this year.

State legislatures and public utilities commissions. With the exception of scattered bills introduced in various state legislatures, states have so far taken a hands-off approach to the cable issue. This may not always be the case, as discussed below.

Congress and the FCC. Despite the introduction in Congress of various bills to force the open-access issue, the general mood in Congress is to allow current regulatory initiatives to play themselves out before taking additional action. In part, this is because the 1996 Act did not achieve its policy aims. Similar congressional actions might have equally deleterious results.

The FCC's Chairman Kennard advocates against additional regulation of the cable industry. Chairman Kennard's position, which enjoys the support of the Clinton Administration, is that the cable industry is restructuring itself in a more capable and consumer-responsive form. In its Amicus Curiae Brief[6] in AT&T's appeal of the Portland decision, Re: AT&T v. Portland (cable access case), U.S.C.A., Ninth Circuit, Appeal No. 99-35609 (August 16, 1999), the FCC argues that its national policy of forbearance regarding the regulation of broadband services - because such services are developing in a rapid, timely fashion, leading to a competitive market - effectively preempts local regulation of broadband services.[7]

According to Chairman Kennard, cable will bring competition to the local telephone market as well as to the emerging high-speed data communications market. Individual commissioners have voiced cautious support for the Chairman's position, hoping that the cable industry will take the bull by the horns and proclaim an unambiguously proactive policy.

Consumer groups. An unfortunate consequence of the open-access debate is the split it has induced among consumer advocates. Based on their past experiences with cable operators who were recalcitrant (to say the least) regarding transmitting independent channels and public service programming, some public interest groups are espousing alarmist predictions that unregulated deployment of cable broadband threatens the openness and diversity of the Internet. Others, including NetAction, argue that the potential benefits of local phone competition far outweigh such speculative concerns.

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