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Will customers lose in the struggle to control tomorrows's super- speed Internet service?

Posted on: Thursday, 25 September 2003, 06:00 CDT

In the past 100 years the trusty little copper wire has delivered telephone calls, faxes and, most recently, Internet service to American homes and businesses.

But as technology progresses, yesterday's copper lines face replacement by fiber-optic networks that promise to bring next- generation telecommunications services to those same doorsteps.

Already being rolled out in Europe, Asia and Canada, fiber- based, super-high-speed Internet connections can deliver data at gigabit speed -- a gigabit being one billion bits per second -- that is exponentially greater than today's broadband speeds of around one million bits per second.

Such speed would make possible futuristic Internet-based services, such as high-definition video with surround sound; home networks that allow electronics and appliances to be wired together; and distance learning that much more closely resembles face-to-face interaction.

Telecommunications competitors are battling for access to that fiber before it's even laid in the ground, much as they've been fighting over existing copper connections since phone and data services were deregulated by the 1996 Telecom Act.

Consumer groups and Internet service providers say a recent federal order allowing BellSouth and other Baby Bell companies to withhold future fiber expansion from competitors means the technologies of the future will be subject to the monopoly of the past, curbing innovation and raising the cost of these future services for consumers.

Details of the decision, issued earlier this year, were released late last month by the Federal Communications Commission as part of its Triennial Review of the Telecom Act.

"What the FCC is in the process of doing for the first time in the history of this country is to allow the major means of communication in this country to be private, closed networks," said Mark Cooper with the Consumer Federation of America. "Essentially (the FCC) will strangle competition for the 21st century technologies."

The Bells strongly dispute that notion.

"That is absolutely absurd," said Larry Sarjeant, vice president for law at the United States Telecom Association, to which the Baby Bells belong.

With cable television and wireless providers getting into the high-speed Internet business and even power utilities exploring the possibility of broadband, he said, there's plenty of competition to go around.

UNE-P -- A four-letter word?

The original Telecom Act required the Bells to open their networks to competitors through a system called unbundled network element pricing, or UNE-P.

With UNE-P, competitors pick and choose specific products and services they want to lease from the Bells to repackage and sell to customers.

Before the order was announced this spring, competitive carriers, known as CLECs, worried the FCC might abolish UNE-P, which CLECs contend provides the primary means for competition in the residential and small-business market.

Bells oppose UNE-P, saying the system does not allow them to recover the cost of building and maintaining their networks and keeps competitors from building their own.

As part of its opposition to UNE-P, the Bells also urged the FCC to exempt new fiber-optic build-outs from leasing requirements. Fiber optics are replacing the old copper lines that still run the so-called "last mile" to most homes and businesses. The Bells argued they could not afford to install the new technology if they're required to lease the lines to competitors at wholesale prices.

The FCC ruling represents an attempt at compromise. The commission largely retained the UNE-P structure for the Bells' present networks, pleasing the CLECs and angering the Bells, which have filed a number of lawsuits against the FCC. (The ruling did give states authority to review UNE-P and retain it or discard it under certain guidelines.)

On the issue of broadband, however, the order abolished current requirements that the Bells share a home or business voice line with DSL competitors. DSL technology allows a traditional copper phone line to transmit high-speed Internet access while relaying voice calls using the same connection.

Secondly, the FCC made the Bells' expansion of fiber-optic networksoff limits to leasing by competitors. In other words, unlike the current regulations requiring the Bells to lease copper connections to homes and businesses under UNE-P, competitors won't have access to future fiber connections installed by the Bells.

CLECs and broadband Internet service providers oppose the broadband portion of the bill.

Sarjeant of the United States Telecom Association said it's time for the FCC to evaluate competition based on the growing number of choices for voice and data services.

"There are very few people who don't have access to alternative means to make (phone) calls," Sarjeant said. Those alternatives include cell phones and voice-over-Internetprotocol, in which customers make phone calls using their Internet connections. Even cable companies are getting into the phone business, he said.

The same is true of Internet service, Sarjeant said, including broadband.

"One of the major deficits (of the FCC ruling) is it fails to take into consideration the totality of the competitive marketplace," he said.

For that reason, the FCC's decision to free the Bells from the requirement of leasing new fiber lines "begins to move us in the right direction on broadband," Sarjeant said.

Fight over fiber

Internet service providers and consumer advocates disagree.

Kenneth Russell, co-owner of Nashville-based Internet service provider ISDN-Net, which also has offices in Knoxville and Memphis, said the FCC's hands-off ruling on new fiber installations will prevent companies like his from selling next-generation broadband Internet services without running their own lines to customers.

Russell said the ruling may not have a short-term effect on competition, but as the country moves toward super-fast, fiber- reliant Internet connections, the Bells will have the market all to themselves.

The FCC's recent order is just the latest in a cycle of decision- making that has adversely affected broadband competition, he said.

"The series of decisions has had a tremendously negative impact on small telecoms and (Internet service providers). Many of those ISPs are those who brought you the Internet revolution in the first place," Russell said.

Canada, Europe and Asia already are deploying next-generation Internet access, he said, at prices comparable to U.S. DSL and cable modem rates.

"Most of these people (residents as well as CLECs) haven't really had much exposure to what's going on in Canada and Europe and Asia, where it's clear that DSL is pretty much the equivalent of a 2400- baud modem," Russell said, referring to the earliest version of the dial-up modem. "Those of us who were involved in the build-out of the first wave of Internet services are beginning to understand that this is an idea whose time has come."

Russell said the Internet of the future will transform online entertainment, learning and other Web-based activities with high- definition video, surround sound and extensive interactive possibilities. He said if these new technologies are left to the Bells to roll out, without benefit of competition, the United States will be left behind in the race to better broadband.

Cooper of the Consumer Federation of America= is even more blunt about the impact of the FCC's decision on high-speed broadband services.

"What we're doomed to is a crummy duopoly at best," he said.

Bell won't be the only provider of future broadband services, Cooper said. Cable television companies, through recent fiber network build-outs, will also be able to supply high-speed service. But he said competition between phone and cable companies, which operate as monopolies in many markets, doesn't translate into a vibrant marketplace.

While the Bells say lifting regulation will allow them to invest in new technologies, Cooper believes a lack of competition on both the Bell and cable networks will suppress new technologies because competitors won't be around to drive innovation as they seek to lure customers away from the incumbents.

"The difference is that when you open the platform up, you get ISPs who are scrambling for people's eyeballs," he said. "They have to win their customers. That drives innovation much more quickly."

Future at stake

Sarjeant said he believes that while broadband services may be introduced by the duopoly of phone and cable companies, other concerns, barred from leasing Bell lines, will extend their own fiber networks to business and residential customers.

New networks would provide redundancy and better protection at a time when terrorism threatens those assets, he said.

"In the long term, this will promote competitors going out and putting facilities in the ground to serve customers independent of using other competitors," he said. "You don't want everybody riding on the incumbent's facilities."

He said new technologies continue to emerge that could bring more serious players into the marketplace. Sarjeant cited a boom in wireless broadband and the exploration of power lines as potential conduits for high-speed Internet connections.

Cooper said the Consumer Federation of America intends to sue the FCC over the broadband ruling, based on grounds that the agency cannot confine the nation's primary means of communication to just one provider. The organization has filed a similar suit over noncompetitive issues in the cable television market.

All agree the FCC decision faces scrutiny in court. A number of lawsuits have been filed in numerous district courts across the country, both by the Bells and the CLECs.

It will take years to fight the decision, and regulatory uncertainty will keep CLECs from adopting new technologies and investing in new networks, Russell said.

"It's going to cost a lot of money for independent companies and CLECs to make it obvious to the FCC and legislators and the public that it was the wrong decision," he said. "It's going to be two years and a lot of costly business on the CLEC side to finally bring the balance back."

Business writer Larisa Brass may be reached at 865-342-6318.

NEW VS. OLD

FIBER OPTICS: Tiny hollow glass straws through which lasers send out digital bits of information. Modern fiber-optic cables, at top left, can carry a signal 60 miles before it has to be retransmitted. They make up much of the telecommunications network except for the "last mile" to individual customers.

Speed: Billions of bits per second.

Slender dozen: One fiber cable contains 12 glass fibers.

COPPER: Copper wires, at left below, are a medium through which analog and digital signals are transmitted by an electrical impulse. Most lines servicing individual customers are still copper.

Speed: Millions of bits per second.

Fine twine: A copper cable containing 1,800 pairs of wire, a total of 3,600 wires.

COMPARISON:

A fiber-optic cable and associated electronics will transmit more conversations than three copper cables when the fiber cable is operating at its lowest speed.

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