Legislation would affect broadband

Both sides involved in a piece of controversial broadband legislation that passed a
House vote last week disagree on what affect it may have on the industry. The
measure could make broadband services more available in Houston or create a
monopoly that will adversely affect the deployment of high-speed Internet service.

Jennifer Darwin Houston Business Journal

The measure seeks to
remove some regulatory
oversight of the country’s
four Bell regional operating
companies that was
enacted with the
Telecommunications Act of
1996. That legislation
required the Bell companies
— including San
Antonio-based SBC
Communications Inc., the
parent of Southwestern Bell
Telephone — to open its
networks to competitors
before it could offer
high-speed Internet service.

Sponsored by Rep. Billy Tauzin, R-La., and Rep. John Dingell, D-Mich, the bill —
which netted a multimillion-dollar lobbying effort — is on its way to the Senate for
a vote.

The Bell companies say they are at a competitive disadvantage because they
have to sell access to their networks — including digital subscriber lines, or DSL
— to other carriers at a discounted rate of 40 percent off their retail price. In the
meantime, cable companies offer high-speed Internet service over cable modems
with much less regulation, the Bell companies say.

The Tauzin-Dingell bill would remove the discounted rates Bell companies are
required to offer competitors.

Kevin Belgrade, an SBC spokesman in San
Antonio, says the favorable House vote is a
step toward leveling the competitive playing
field for cable companies. In addition, it would
give consumers more choices and lower
prices, he says.

"This doesn’t put us at parity with our cable
competitors, but it helps," Belgrade says.
"Cable companies far and away have a huge
advantage. What we’re asking for is a little
more freedom."

Southwestern Bell’s DSL Internet service is
available to 1.2 million customer locations in Houston, which the company says
equates to 69 percent of the "addressable market." Although more than 1 million
locations have access to the service, Southwestern Bell will not say how many
people subscribe to its DSL service.

Ray Purser, a spokesman with Time Warner Cable, says his company has
670,000 cable subscribers in the Houston area. As of this week, Time Warner hit
the 100,000-subscriber mark locally for its Road Runner high-speed Internet
service.

Time Warner’s $350 million upgrade for high-speed Internet service in the Houston
area began in 1995 and is expected to be finished by year-end. About 80 percent
of Time Warner’s customers now have access to the Road Runner Internet
service, Purser says.

Robert Saunders, senior analyst with The Eastern Management Group in
Bedminster, N.J., says cable companies have more incentive to spend the capital
to provide broadband service than phone companies do. Since Bell companies
have to sell access to competitors at a price that is well below their cost of
build-out, they can’t earn a return on their investment, he says.

"Every time a competitor sells a line, it’s costing them money, not making them
money," Saunders says. "Today, the Bell companies don’t want to go out and
build the new networks."

Saunders speculates that cable companies have about 70 percent of the
high-speed Internet market and phone companies have between 25 percent and
28 percent of the market share. If Congress passes the Tauzin-Dingell bill, which
some say would primarily affect residential customers, phone companies would
likely increase the rate at which they are deploying DSL, he says.

"It will incent the Bell companies to go out and spend money," Saunders says.

OPPOSING PARTIES

The Tauzin-Dingell bill is strongly opposed by Reston, Va.-based XO
Communications, a facilities-based telecommunications company that provides
broadband service, local phone service and long-distance, primarily to business
customers.

Nancy Krabill, XO Communications’ director of regulatory and external affairs in
Dallas, says the recent legislation guts the Telecommunications Act of 1996. The
Texas Public Utility Commission established the discounted rates that carriers
like XO pay for access to Southwestern Bell’s networks, but the phone company
has been fighting those rates since 1998, she says.

"This is not the sort of bill that’s going to advance the competitive landscape,"
Krabill says. "It’s going to have a detrimental effect on competition."

Lisa Lawless, an XO spokeswoman in Columbus, Ohio, says the Bell companies
are simply trying to get out of regulatory requirements.

"They are feigning competition with the cable providers," Lawless says. "The Bell
companies have had the technology to offer DSL for a long time. It wasn’t until the
competitors came onto the map that the Bell companies responded to that."

Consultant Maureen Rhemann says the legislation might be worthwhile if it
stimulates the economy and advances the broadband industry the way
lawmakers say it will.

"In order to have mass deployment of broadband, you have to open a spigot
somewhere," says Rhemann, managing partner of Telecommunications and
Business Strategies Group in Whitefish, Mont. http://www.telecomstrategies.com

Customers in large markets will likely benefit most from the measure if it passes,
she adds.

"Competition may never make it to some (rural) markets," Rhemann says. "I’m
disappointed because I believe it mitigates the effect of the Telecommunications
Act of 1996."

Some opponents of the Tauzin-Dingell bill predict it will be defeated in the
Senate. But SBC says if it passes, customers will have access to broadband
more quickly.

"It would expedite deployment," SBC’s Belgrade says. "Deployment’s already
pretty steady, but it would make it a whole lot faster."

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