Forum: Ken Auletta on the Effect of New Telecommunications Act on the Internet

One major change is that long distance companies are now able to get into the local access business. This means providers like AT&T can offer local gateways to the Net, which were previously prohibited.

In February, AT&T announced an eye-catching deal for its telephone service customers who want to connect to the Internet. MCI soon matched AT&T’s offer, and Sprint, which is already helping companies create private Internet areas, will enter the consumer market within months.

Meanwhile, in the never-ending race to stay ahead of the curve, AT&T is negotiating with several major online services, America Online, CompuServe and Prodigy, about including their services on its WorldNet Internet access service. Online services are also in the hunt, making deals to augment their World Wide Web access. AOL has announced deals with both Netscape and Microsoft which will allow customers to use either browser.

Such agreements and partnerships will alter the way the industry prices and distributes products and services.

Now that the walls are finally coming down, will the industry be better able to meet consumer needs, or will mega-deals stifle smaller companies from entering the market and hinder competition? Are we headed in the right direction?

A question from Will Kreth of NYC, NY:

What do you think is going to happen to the online services? Can they become content studios? Do they have an advantage over other content machines (television, film, print publishing, radio, etc.?). Is AOL unstoppable? And what might be the chink in Microsoft’s armor?

Ken Auletta responds:

A few months ago I thought online services like AOL were classic middlemen, about to get squeezed out. Now I’m less certain of that, particularly after witnessing the deft moves AOL has made to provide content and ally with bigger players like Microsoft. Clearly, online providers like Microsoft and AOL are racing to develop content, thus performing the studio function you mention. But studios are expensive, and take decades to build (particularly libraries). Instead of starting from scratch, online providers and software and cable and telephone and direct satellite companies will seek to accelerate what they’ve already begun: find partners. Thus we see four Baby Bells partnered with Disney, and Microsoft partnered with Dreamworks, etc.

I don’t know whether AOL is unstoppable. A decade ago people said IBM — Big Blue — was unstoppable. A few years ago it was commonly believed IBM was dead. Today it seems to have come back from the dead.

The chink in Microsoft’s armor? Clearly they believe it is two things: a) the Internet, which could render superfluous their software for individual computers; 
b) the need to own content, since the growth of computer sales has slowed and Microsoft has escalated its investment in such content as games, magazines, news, art, etc.

A question from Lynn Brielmaier of Houston, TX:

It seems the devil will once again be in the details. Exactly how will alternative service providers be connected to the local loop? The major Baby Bells still control the local loop almost exclusively.

On a charge-per-minute basis, I pay more for a “short-distance” call than a long distance call. It seems the Baby Bells are in a fine position to charge high fees to “allow” alternative carriers into their local loops, effectively pricing out the competitors.

What is being done to regulate this access fee structure?

Ken Auletta responds:

The presumption behind the tele-communications reform legislation passed by the Congress and signed by President Clinton is that de-regulation will create more competition, not less, for local phone service. That is the bet we have made. But, like all bets, it is a gamble. If it succeeds, local phone rates will go down. If it doesn’t, pressure will build for government to step back into the fray. In any case, under the new law government retains the power to assure what they call “inter-operability.” Translated: the Baby Bells are supposed to allow local competitors access to their local loop, as are cable companies. The rub is that one company wants to charge for that access, and the other often thinks the charge excessive. Which is why the government referee can’t go on vacation.

A question from Larry Cary of Socorro, NM:

There are several small entrants into the telecom, entertainment and Internet industry to replace the swallowed-up players that leave the scene. Government always has the prerogative to re-regulate if a predator prevails in controlling access to communication. A neat idea is to use excise taxes (a.k.a user taxes) as seed money for small business entrants into those parts of the economy where monopolies are protected (e.g. utilities).

Please comment.

Ken Auletta responds:

The problem with using the tax system to subsidize competition against communication giants is threefold: 1) the public wants a simpler, not a more complex, tax system; 2) at a time when there is public support to narrow the federal deficit, if we grant tax breaks to one industry there will be a clamor from other industries, and we can’t afford it; 3) the larger problem is that communications is probably the foremost example of an industry that doesn’t need tax breaks to assure competition. The information/entertainment business is now our fastest growing, our number one export. Because it thrives, new entrants are eager to jump in. And while it’s true that giant co. will try to crowd them out, three things work against this: a) anti-trust laws; 
b) technology, which is no friend to monopolies (ask the TV networks); 
c) size, which is often a threat to creativity — meaning that producers and writers will seek a more congenial, nurturing home.

A question from Kevin Taglang of Takoma Park, MD:

AT&T’s venture into Internet service provision is an interesting development, but I doubt that all the revenues of all the country’s Internet Service Providers comes anywhere close to the revenues of one of the “Baby Bells.”

A more interesting development since the signing of the Telecommunications Act is the possible mergers of four of the seven baby bells. Since when does “merger” — and the resulting oligopoly — equate to “competition?”

Ken Auletta responds:

On the surface, the merger of the Baby Bells seems to be creating less competition. And it might, particularly if a more powerful telephone company consortium has the muscle to warn, say, the cable company to keep out of the local telephone business. But if the recently passed tele-communications de-regulation legislation works as intended — the jury is still out — then the Baby Bells will feel the heat of competition those industries once excluded from offering local telephone service, including cable and long distance companies.

A two part question from Susan Baxter of St. Paul, MN:

1) Will the information on the Net become more privatized? For example, will Bill Gates charge for each viewing of his new collection of Ansel Adams photos? Will all newspaper and magazine Web sites charge a fee? Conversely, how can businesses continue to offer free “copies” of their products on the Web?

2) How will libraries and schools gather resources “information” becomes more and more expensive? What will it mean to be an information “have-not” in 1999? I’m working on a Ph.D. in information access and information literacy and find these questions fascinating. I would be interested in your opinions on these questions and on how the Telecommunications Bill will impact our access and literacy. Thanks.

Ken Auletta responds:

Yes, I believe that it is the hope of those who provide content on the Internet to one day charge for much of it. They will try, as they have already aggressively begun doing, to charge advertisers, thus relying on ads to subsidize their service (as the “free” TV networks do). But unlike the networks, Internet content providers have the option of a second stream of revenue — subscriptions or fees — and like cable companies they covet these.

Right now consumers can access the Web sites of newspapers and magazines free. The corporate philosophy is: Build it, and they will come. Once they build it, and develop a brand identity and maybe loyalty, the hope of many is that they can then slap on a charge.

And what about schools and libraries and other information have-nots? Good question. They will need some form of subsidy, which can come from one of two sources: a) taxpayers; b) corporations. Or both. At a minimum, this issue deserves more ventilation than it has received.

A question from Carrie MacLean of Rahway, New Jersey:

It has been said that the war between television and computers will be settled with a division of function. With the emergence of cable modems, cable TV will take over the passive entertainment communications and computers will return to complex research, e-mail and other substantive interaction. What bothers me is that cable television plays an important role by providing public access channels to local communities. Cable companies with hundreds of access channels may take the easy route and allow individuals to put up home pages, thus fulfilling their quota. Will community access channels become lost in a sea of junk mail? Is there a way to prevent this?

Ken Auletta responds:

I don’t believe cable companies plan to devote their high-speed modems to passive TV watching. There is no reason for them to sacrifice the online market. On the contrary, with online services wanting to send full motion video to our computer screens (that, in part, is what the alliance between NBC News and Microsoft portends, for example), they need high speed modems. Today the telephone companies don’t have them. Cable companies, it appears, will. As for community access channels, those individuals who are online in effect have them. Those who are not, will continue to rely on cable. Or maybe the phone company. If they try to abandon these, government can — as they have in the past — step in and insist.

A question from Gregg Fisher of Ann Arbor, MI:

One of the least publicized consequences of the Telecom bill is that public utilities companies such as water and gas can get into the cable business. My sister in Arlington, VA says the gas company has laid so called “dark cables” — fiber optics– and it is just waiting to get into the game. If they become gateways to the Internet, whatever it ends up looking like, are they still responsible for the content of the signals under the Communications Decency Act? Are they likely to do anything about that? (like give money to the ACLU fight against the CDA?). Thank you for your response.

Ken Auletta responds:

Yes, under the tele-communications legislation the water and gas companies are free to enter the fray. Many, as you observe, have the desirable, fiber optic wire. I assume that if they choose to do so, government can hold them to the same decency standards as other carriers.

Additional Comments:

Art Solomon of Skokie, IL:

I am a developer using only Microsoft products (mainly because there’s almost no competition). I have watched MS “take” good ideas from smaller companies and incorporate them into their products. I’m gratified that, at least on the Internet, they have some competition. I’m not sure if this is good or bad, however.

One good thing that MS has been able to do, mainly because of its size, is set coding standards. This benefits everybody by making programmer’s work more understandable by other programmers, thereby easing maintenance; i.e. making code more understandable to the person who has to come in, look at the code, figure out what it’s doing and how it does it, and then extend or fix it.

What’s interesting about what’s going on with the Internet is that standards are in the process of forming. MS for once has some competition. From companies that put out a better product (i.e. Netscape, Spyglass, et al). For once, MS had to back down (i.e. adopt, or at least accommodate) some one else’s standards.

Stan Thiemann of Greenville, SC:

The Communications Decency Act

Doesn’t it send a mixed message to open markets and restrict free speech? Is the congress completely full of posturing, pandering, pea-brains, or what?

A few representatives should know better – Newt, and those who represent hi-tech districts like Silicon Valley and the Seattle area. How does 1st Amendment desecration like the Communications Decency Act even make it out of committee?

Isn’t it terrifying that 500+ people can legislate matters that they know next to nothing about? Anyone with a server on the net can move it out of the U.S. and effectively dodge the CDA. So we get witch hunts, selective enforcement, and mindless court battles over an unconstitutional law.

Much that was good about the TRA has been obfuscated by the CDA. Know your rights. Defend them.

Nick Boris of Brooklyn, NY:

One of the features that lead to the meteortic rise of the World Wide Web, and to more widespread knowledge of the Internet, was how the Web allowed individuals with little more than curiosity and a desire to produce something of their own, to produce and publish on their own.

This was helped along by Universities allowing students to have personal pages and then by local ISP’s allowing their users to publish their own Web pages.

AT&T, MCI, and the others that are looking towards the goal of a national provider are gearing towards providing universal access at rates that few local ISP’s can match and still stay in business. However none of these are, evidently, planning on providing publishing services. As these national ISP’s might push the local ISP’s out of business we loose part of what brought this medium to the forefront of a certain conciousness.

Without the possiblity of self-publication what will happen to the most visable and visual segment of this industry? Will it loose the driving force that has brought it here or can we really expect the large commercial sites to provide the momentum that will help the medium to continue to evolve rather than falling to the lowest common denominator to ensure that the broadest demographic is reached?