For supporters of competition in broadband Internet service, the hammer finally fell on August 5. Led by Chairman Kevin Martin, the Federal Communications Commission (FCC) unanimously decreed that phone companies will have the power to exclude independent providers of digital subscriber line (DSL) Internet service from using their networks. This decision bestows complete control over DSL access to a handful of telecommunications giants. It comes in an industry already struggling to maintain a competitive atmosphere, as these companies (BellSouth, SBC, Verizon, and Qwest) dominate more than 83 percent of the market. Not coincidentally, each company is also a client of telecom lobbying firm Wiley Rein & Fielding, where Chairman Martin was a lobbyist prior to stints working for Kenneth Starr and then the Bush administration.
DSL service allows users to access the Internet over traditional phone lines at rates up to 30 times faster than dial-up service. It takes advantage of the fact that trusty old telephone wire -- the standard medium in telecommunications for more than a century -- can transfer far more information than is ever needed to provide garden-variety phone service. DSL service uses data-packaging techniques to unleash the information transfer potential of these wires, thus converting our nation's telephone system into one giant broadband network -- and all with no interference to phone companies' abilities to provide basic phone service. Right now, more than 13 million American households and businesses use DSL service for their Internet access. These users have heretofore been able to choose among the telephone companies' own providers and a bunch of independent companies, including successful upstarts like EarthLink and Speakeasy, as well as numerous smaller local providers. All of these independent providers rely on “common carrier” rules, which require telephone companies to open their spare bandwidth to outside competition.
But in August of 2007, that's all going to change. The FCC decision lifts common-carrier rules for DSL service, giving the companies that own the lines complete authority over who uses them. Supporters of the FCC's decision claim that giving phone companies full control will increase their incentives to maintain and expand their networks, ultimately improving national broadband access. Yet this argument ignores substantial contrary evidence, including that gleaned from other countries that still maintain common-carrier rules. One such country is Japan, which for several years has outstripped the United States in both per-capita broadband usage and the rate at which it is expanding broadband availability, all while promoting a common-carrier regime.
Rather than spur any great expansion in broadband penetration, the likely consequence of the FCC decision will be to lock many independent DSL providers out of the market. This is because few independent providers own telephone lines themselves. And why should they? The technical problem of providing Internet service has essentially nothing to do with the physical medium over which the service is carried; all that a provider needs is a minimal right of access to telephone lines and the rest is up to his or her own entrepreneurship.
But now, because of the commissioners' ruling, telephone companies alone will be able to determine who provides DSL service, and to whom. This is a substantial departure from past FCC policy, which upheld the rights of independent service providers to use existing networks to provide dial-up service -- recognizing that the promise of the Internet lies in its capacity to allow many decentralized parties to provide a diverse array of services to users without regard to the ownership of the communications assets used to convey them.
But the FCC has determined that what has long applied to dial-up should not be the case for DSL. Rather than foster a dynamic market, the FCC envisions the creation of a DSL oligopoly dominated by the phone companies' own providers. Under such an arrangement, the only competition that would exist would be offered by the smattering of firms willing to pay arbitrary carrier fees to the phone companies merely for the privilege of existing. They would be less competitors than vassals, toiling on the estate of Big Telecom. That's the Republican free market for you.
Hearing all this, the intrepid broadband consumer might resolve to switch his or her Internet service to cable, DSL's primary technological competitor. Like DSL service, cable broadband takes advantage of the spare bandwidth of an existing network -- in this case, the cable television system. But there the situation is no better: The FCC's giveaway to the phone companies came just two months after the Supreme Court ruled in favor of an FCC policy giving the cable companies exactly the same deal.
What all this means for the American consumer is clear: The FCC is doing everything it can to give control of our nation's information infrastructure to a small group of corporations. It is a situation rife with opportunities for collusion, and undoubtedly it will be small businesses and households that will suffer the worst. A recent report prepared by the Consumers Union, the Consumer Federation of America, and Free Press (a telecom watchdog organization) provides a sobering view of both the present state of the U.S. broadband system and of the likely fallout from the FCC's decisions. Particularly distressing are the report's statistics on how far behind the United States is falling in developing its broadband services internationally. (We are currently ranked 16th worldwide in broadband availability, dropping from fourth just a few years ago.)
Those expecting the phone companies to act as good stewards with their new power should read the quotations from Rick Lindner, SBC's chief financial officer. At an investors' meeting in New York, Lindner clarified that SBC's recent cuts in the monthly price of DSL service are really just a temporary grab for market share that “suddenly takes you from ... being a $15 product to being a $65 or a $70 customer.” He summed up his company's objective as being “to pillage and plunder the industry.”
Such rhetoric is to be expected in the conference rooms of Wall Street. The FCC, on the other hand, is supposed to be the protector of the common good -- not an enabler for corporate interests.
Toshiro Sugihara is an intern with the American Prospect. He will be a senior at Harvard University this fall.
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