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Weekly Column

The Gloves Come Off: Thanks to the Supreme Court and the FCC, U.S. Telcos Are About to Reinvent Their DSL Businesses

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

Last week, the U.S. Federal Communications Commission again bowed to the interests of the big telephone companies, and ruled that those telcos have no obligation to provide other Internet Service Providers wholesale access to their DSL networks. While this might look like a death knell for Earthlink DSL, for example, and vindication for AOL's and MSN's decisions to drop their own DSL businesses, that isn't necessarily the case. What IS the case, however, is that the decision has as much to do with telephone service as broadband, and the telcos are positively gleeful. Whether we consumers should be gleeful, too, isn't yet clear, but the answer right now is, "Probably not."

Let's first look at the decision. The short version is that the FCC, seeing enough incumbent and emerging broadband alternatives to DSL (cable modems, power line, WiMax, and 3G cellular data) no longer felt that alternate ISPs had to be guaranteed access to the local phone company's DSL plant. The ruling didn't look at the DSL infrastructure, itself, other than to place it in this broader network and legal context and say there seems to be plenty of competition now.

Not in my town there isn't. Here in Charleston, SC, my choices are BellSouth DSL which, as my 81 year-old mother put it, "sucks" (the first time I ever heard her use that term), or a Comcast cable modem, which is faster but brainless in that Comcast hasn't done a very good job of provisioning Domain Name Service. Power line, WiMax, and 3G cellular are nowhere to be seen in my neighborhood, and so far aren't even on the drawing board, either (I checked).

But through the Beltway glasses of the FCC, the nation apparently looks awash in broadband alternatives, so they gave the poor telephone companies this sorely-needed relief.

Here's where I get really confused.

It seems to me that the telcos got their relief a year ago when the FCC -- in an earlier decision -- concluded that the companies didn't have to share their next-generation networks with third-party ISPs. Fiber-to-the-home, fiber-to-the-curb, fiber-to-the-neighborhood, and even certain copper services like ADSL2 and 2+ were exempt from required sharing, leaving plain old original ADSL the only network they were required to share. The idea last year was that telcos wouldn't invest in these new networks at all if they had to share them, so the FCC said they didn't have to, with the goal that we'd all then get faster service. This, of course, completely ignored the existence of the same cable, power line, WiMax and 3G cellular infrastructures that today -- only months later -- are justifying the current decision.

So the telcos were first exempted from having to share their faster services in order to encourage them to build those services, which we sorely needed. And now they are exempted from having to share their slower service specifically because there are so many broadband alternatives.

Huh?

Remember, "share" means "sell" or "rent" to the third-party ISPs for rates that are higher than I expected, and a lot higher than the telcos suggested. For all the talk of having to sell "at cost," those agreements are profitable for the telcos, and we'll see that proved next year when the agreements are generally renewed. You see, this new FCC decision didn't prohibit telcos from reselling DSL, it just made doing so optional.

One thing that's very true is the phone companies WILL shortly begin a frenzy of broadband improvements, but my belief is that this isn't based on the logic stated to be at the basis of either of the two enabling FCC decisions. It's based, instead, on the implicit result of these two decisions, which is a fundamental change in the way telcos are regulated.

The basis of utility regulation is that for the privilege of being allowed to have a monopoly, utilities have to accept obligations in the form of reasonable profits and additional public services. These privileges and obligations are supposed to balance each other. But what happens if you take away the obligations, as the FCC appears to be consistently doing? Then all that's left is privilege.

What's happening here is the telephone companies are getting parity with the cable TV companies. Last year, the FCC reclassified cable modems from being common carrier services -- that is, COMMUNICATION services -- to being INFORMATION services. The distinction here is critical, because a communication service is regulated while an information service is not. A communication service is like a phone company or a cable TV company, while an information service is like a Yahoo or a Google -- except, of course, Yahoo and Google don't own any wires. The cable decision was tested recently in the U.S. Supreme Court and upheld, with the ultimate result being this DSL decision.

And here are the two most important bits of both decisions: 1) the cable and telephone companies now have an effective broadband oligarchy that is pretty much without regulation, and 2) any additional services that are encapsulated within the now deregulated ISPs will be, themselves, deregulated. Initially, this will mean phone service, but eventually it will mean EVERYTHING.

So here's the new landscape of DSL as it is about to be rolled-out by my local phone company, BellSouth. I am sure similar initiatives are happening at your phone company, too.

At BellSouth, I'm told, DSL will shortly become the core service. The company will begin rolling-out 6 megabit-per-second service, followed later by 24 megabit-per-second service. The former is possible under the current ADSL spec, though only within a short distance from the telephone company DSLAM where DSL signals begin their journey. My friend Stephen in San Francisco lived perhaps 100 meters from the DSLAM and consistently saw 8 megabit-per-second speeds even though he was only paying for 1.5 megabits. But given the poor quality of phone lines here in Charleston, I'm guessing even the six megabit service will be ADSL2.

ADSL2, which the ITU calls G.992.3, uses the existing copper infrastructure in a smarter way. It offers slightly faster speeds -- up to 8 megabits-per-second -- but more importantly it has greater range, supports true ATM Quality of Service, uses less power, and has significant self-diagnostic and bandwidth optimization capabilities. Remember, this is one of the technologies the telephone companies said they couldn't afford to install if the FCC didn't get the third-party ISP's off their backs. Yet the bottom line for ADSL2 is simple: It costs no more to build and costs less to run, leading to significant overall cost savings for the telco. ADSL2 will run over lines that wouldn't work for original ADSL, it will run further over lines of any type, and the diagnostics mean fewer truck rolls, which cost real money.

This is a service the phone companies had to essentially be bribed to provide, yet it is clear they would have built it anyway. And that bribe came not just in the form of eliminating mandatory wholesaling, but ADSL2 and everything carried by it is pretty much unregulated.

So BellSouth, for example, will roll out ADSL2 and throw its own VoIP phone service on top. But instead of fighting with the state utility commissions about rates and taxes, this new VoIP service will be as unfettered as a Vonage or a Skype. As a result, BellSouth will be able to offer very competitive VoIP rates and still make more money than a Vonage, and in fact, more money than they made with the previous regulated phone service, which will quickly die.

There's a push and a pull here. Buy ADSL2 and get cheap phone service. Want cheap phone service? Buy ADSL2.

Then comes ADSL2+ (G.992.5), a four-wire service running at up to 24 megabits-per-second, most of which will be used for (again unregulated) video. Those who think Internet cable TV is too expensive are caught up in the idea of the phone company having to use their Internet backbone connections for any of this, which they won't. They'll get TV signals the same way the cable companies do -- by satellite. But the available LOCAL bandwidth of a DSL plant is so much larger than any digital cable system (up to 1,000 lines per seven-foot rack, all running at up to 24 megabits-per-second) that the phone companies will right from the beginning be selling value-added services like Digital Video Recording, except the DVR will be at the phone company, not at your house.

This is why the cable TV companies are all ramping-up their Internet bandwidth. For the moment, they still have an advantage, but in another year or two that will be lost, so they are trying to bulk-up now, hoping customers will later be too lazy to switch.

The ultimate result of all this FCC rule-making is that the big get bigger, and the small learn to adapt or they die. There is a quid pro quo of sorts, and that's the conversion of regulation from governing rates to mainly governing emergency services. It looks like beyond e911 and supporting digital wire taps, the feds don't really care what the cable TV and telephone companies do or what they charge. And many of the telephony services currently subsidized by carrier fees will probably die or be pushed off on the states as a result of this effective telco tax cut.

And maybe that's good. Maybe a thousand flowers will bloom.

Or not.

But for sure, the logic used to support all these decisions is, itself, bogus.

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