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Fcc Cuts Rules on Dsl ; Phone Companies Get Freedom; Consumer Advocates Concerned

Posted on: Sunday, 7 August 2005, 03:00 CDT

Beginning in about a year, phone companies won't have to lease their high-speed lines to competing Internet service providers at government-set rates, the Federal Communications Commission decided yesterday.

The 4-0 vote lets Verizon and SBC Communications Inc. compete more effectively with cable companies that dominate the $15.6 billion market for broadband Internet service.

Without guaranteed access at government-mandated rates, providers of digital subscriber line service, or DSL, over lines now leased from the big regional Bells or smaller phone companies will have to negotiate rates and access.

Consumer advocates criticized the deregulation -- it will take effect after a one-year transition. They say it will lead to fewer choices and higher prices for consumers by forcing independent broadband providers out of the market.

"What it means is you've got two players, two big market players - - cable and telephone companies -- controlling right now the primary two types of broadband service into the home," said Jeannine Kenney, senior policy analyst for Consumers Union, the publisher of Consumer Reports magazine.

She said consumers may soon be forced into longer-term contracts and arrangements where they have to buy additional services to get high-speed Internet.

But Tom Tauke, Verizon's executive vice president, said the deregulation "will be very smooth and consumers will not notice, except that over time they will have more services and better value."

Martin Clift, vice president of regulatory affairs at Richmond- based Cavalier Telephone, said he believes that nothing in the FCC order would impede the company from continuing to provide services, which uses Verizon lines to finish the phone wire's "last mile" to the home.

Cavalier offers a bundled package that includes telephone and DSL for Internet service.

Earthlink Inc., which provides service on leased lines, said it hopes to extend its network-sharing agreements with phone companies and does not expect to get bumped or priced off the lines.

"We drive subscribers to their network, so they have a vested interest in keeping reasonable market prices," said Dave Baker, Earthlink Inc.'s vice president for law and public policy.

The ruling's early impact on the market may be somewhat negligible to all but some smaller DSL service providers.

The vast majority of the nation's nearly 16 million DSL users buy that service directly from the four Bells: Verizon Communications Inc., SBC, BellSouth Corp. and Qwest Communications International Inc.

The biggest non-Bell provider of DSL service, Covad Communications Group Inc., already agreed to commercial leasing contracts with three of the four Bells. Earthlink, for example, buys much of its network access through Covad.

The ruling puts phone companies on an equal footing with the cable industry, which won a Supreme Court ruling in June that allowed providers to avoid similar network-sharing rules. Cable companies added almost 5 million Internet customers last year, compared with 4.3 million for phone companies, and lead the industry with a 56 percent market share.

The telephone industry argued that the court's decision put it at a competitive disadvantage and that it should be treated the same as the cable companies.

Two Democrats on the commission fought for other points in the ruling, including continued help for rural Internet access, a homeland security provision to help law enforcement and a protections for the disabled.

The commission's fifth seat is vacant, and observers noted that this gave the Democrats an incentive to negotiate the terms of the deregulation now, before President Bush was able to restore a Republican majority.

The FCC ruling reclassified DSL as an information service rather than the more regulated telecommunications service. For the time being, phone companies will have to continue making contributions to the Universal Service Fund, which subsidizes phone and Internet services in rural areas. The FCC said that could change in nine months, but the fund will be maintained.

More consumers are turning to high-speed Web access, shunning slower dial-up service. The number of broadband connections will outstrip regular phone-line links for the first time this year, according to eMarketer Inc., a New York-based Web researcher.

Cable companies had 21.4 million of the 37.9 million high-speed- access customers in the U.S. in 2004, according to an FCC report last month. Phone companies had 13.8 million, or 36 percent. The number of high-speed connections in the U.S. is set to rise to 44.4 million this year, researcher In-State estimates.

Source: Richmond Times - Dispatch

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