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Why Surfing the Web Is About to Cost More FCC Ruling Sets Stage for Higher Fees For Web Access, Cheaper Phone Service

A ruling by the Federal Communications Commission last week has altered the playing field for telephone and Internet companies. Experts are still sorting out the ramifications, and it will take months before they are finalized. But it is already clear the decision could have a big impact on your options for phone and high-speed Internet service, as well as the prices you pay.

By SHAWN YOUNG and JANE SPENCER
Staff Reporters of THE WALL STREET JOURNAL

The bottom line: The ruling keeps the door open to new competition in local phone service, which is likely to push down prices. However, high-speed Internet service could see less competition — and higher prices. One company, Covad Communications Group Inc., has said it may consider getting out of the consumer high-speed Internet business altogether if the new rules stick.

The FCC’s decision centered on the question of whether the titans of local-phone service, the Baby Bells (Verizon Communications Inc., SBC Communications Inc., Qwest Communications International Inc., and BellSouth Corp.), should be required to let rivals lease their networks at discount rates.

Here’s what it means for customers:

Will this affect the price of my high-speed Internet service?

In the short term, no — but the ruling could have a long-term impact on pricing in this fast-growing market.

That is true whether you buy your high-speed access from a phone company in the form of a so-called DSL line, or from a cable company by installing a cable modem. (Currently, these are the two ways most people get high-speed connections at home.)

The reason: Under the new FCC rules, the Bell phone companies won’t have to share their newest and fastest fiber-optic networks with rivals that want to piggyback on those lines. In addition, they will be required to share less of their existing systems over time.

That means upstarts like Covad would likely have to pay the Bells much higher prices, since building their own new network is out of the question. Those costs would inevitably get passed on to consumers. Prices could also rise if some companies are driven out of the market, resulting in less competition.

Will some companies stop offering DSL?

Not anytime soon. If you use a major Internet provider, such as America Online or EarthLink, it will still offer you DSL, though the prices they charge may rise over time.

AOL and EarthLink lease most of their high-speed lines directly from the Bells. However, some mom-and-pop Internet providers lease lines from middlemen like Covad. These could potentially run into trouble a few years down the line. That’s because the new rules might force middlemen like Covad out of the business or cause them to raise prices.

No need to panic, though. In the meantime, ISPs big and small will be looking for new ways to keep providing their services. And the FCC rules are likely to be delayed by litigation.

Will my phone bills change?

Local phone prices could fall, but not drastically. The decision adds momentum to the competition that is already taking hold in the local phone market. In recent years, regulators have made it easier for long-distance companies such as AT&T and WorldCom Inc.’s MCI Group to start offering local service in competition with the Baby Bells. In return, the Baby Bells were allowed to break into the long-distance business.

All this has already yielded better prices for consumers, chiefly in the form of package deals that include several services. In Illinois, the long-dominant Bell carrier, SBC, has cut some rates by as much as 10%.

The FCC ruling keeps that status quo. The Bells will have to continue letting rivals lease their lines at discounted prices set by state regulators. That means newcomers can get into the business without having to build their own costly infrastructure.

The Bells say the current system forces them to sell access to their networks below cost and lets rivals offer local service without having to make the investments.

Should I sign up for "bundled" service?

The latest trend is package deals, known as bundles, which combine services like local, long distance, wireless and high-speed Internet onto a single bill. The FCC decision means we are likely to see more of this, as the regional Bells and the big long-distance companies compete to offer the most attractive package.

Bells are promoting bundles heavily and offer a dizzying assortment. Verizon calls its packages Veriations, while BellSouth is promoting a package called "Complete Choice." SBC is hawking "Connections." The companies typically save the best deals for their most profitable customers — the ones who make lots of calls.

Should I change my local phone service?

If you are fed up with the bills you are paying or the service you get, the FCC’s decision provides incentive to check other options.

The extent to which you actually have options depends largely on where you live. Some states have been more aggressive than others in opening the door to competition. In states like New York, Texas, Florida and Illinois, competition has taken off.

Even if you don’t have choice yet, you might get one soon as a result of this ruling. MCI and AT&T are rapidly expanding the states where they offer local service. Some small discount carriers, like Birch Telecom in Illinois, are getting into the market, too.

Does any of this affect cable rates, which keep going up?

No, the FCC’s ruling applied to phone companies, not cable companies.

— Julia Angwin contributed to this article.

Write to Shawn Young at [email protected] and Jane Spencer at [email protected]

HIGH-SPEED WEB ACCESS
New FCC rules could shake up the market for high-speed Internet providers. See a snapshot of some major companies and their broadband offerings.

Who’s Selling High-Speed Access

New FCC rules could shake up the market for high-speed Internet providers. Here are some major companies and a snapshot of their offerings:

DSL PROVIDER PRICING COMMENTS

Non-Bell

Earthlink $49.95 One-year contract required. Available in 41 states. Current Deal: first months are $21.95

Covad $39.95 plus $99 equipment fee No contract required. The recent FCC decision could mean Covad will stop offering service directly to consumers. Available in 35 states.

AOL $54.95 Available nationwide. No contract required.

Bell

Verizon $39.95 One-year contract required. Available in 24 states, mostly on the East Coast.

SBC Yahoo $34.95 One-year contract required. Available in the 13 states SBC serves, which include Texas, California, Illinois and Connecticut.

CABLE PROVIDER PRICING COMMENTS

Road Runner $44.95, plus $100 installation fee No contract required. Available in 26 states.

Comcast 54.95, plus $3/month modem rental and $29.95 self-installation fee Rates are cheaper if you get television cable through the company. Available in 41 states.

RCN $49.95, plus $10 installation fee Cheaper options available when you bundle the service with other RCN options. Available in seven states.

Earthlink $41.95–$49.95, depending on city One-year contract required. Available in 27 states.

AOL $54.95 Available in 39 states. No contract required.

Note: Prices and promotions change regularly.

Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved

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