Citing a historical study of the many benefits independent ISPs have brought to the narrowband market, a national consumer group and a handful of industry insiders challenge the FCC to think outside the platform.

by Patricia Fusco Managing Editor of ISP-Planet [July 4, 2002]

The Consumer Federation of America (CFA), a pair of state-based ISP associations, and EarthLink agree that the Federal Communications Commission's deregulatory broadband proposals threaten to wipe out independent ISPs.

The FCC is preparing for its routine three-year review of the 1999 line sharing and fair competition orders that sparked DSL deployment and service offerings across the country under the previous commissioner Kennard. Current FCC commissioner Michael J. Powell has indicated that broadband competition is robust in the U.S., since many consumers have a choice between facilities-based DSL and cable access vendors.

As if this platform-based competitive mindset were not bad enough for the broadband market segment, earlier this year the FCC set cable companies free from regulations under which telephone companies must operate, when the Commission deemed that cable operators are "information service providers with a telecommunications component," and do not fall under the aegis of telecom regulations.

First shot fired
Dr. Mark Cooper, CFA research director and author of the report The Importance of ISPs in the Growth of the Commercial Internet, said the new study is just the group's opening salvo in challenging the FCC's forthcoming regulatory scrutiny of digital subscriber line (DSL) access in the U.S.

"This report demonstrates that independent ISPs and their customers are being driven from the marketplace, not by competition but by a ruthless and deliberate denial of competition," Cooper said.

The study shows the important role ISPs played in building the open communications networks that propelled the growth of the Internet. The CFA report concludes that the FCC's current approach toward wireline broadband services—DSL and cable modem access—would allow dominant cable and telephone companies to deny rival providers access to advanced telecom networks and, in turn, harm consumers.

States rights
Prepared in conjunction with the Office of Public Utility Counsel (OPUC) of the state of Texas, Cooper warns that excluding ISPs from broadband facilities would stifle widespread experimentation and future innovations.

Joined by representatives from the Texas ISP Association (TISPA) and the California ISP Association (CISPA), along with EarthLink's vice president of law and public policy David Baker, speaking on behalf of the largest independent ISP in the U.S., the CFA intends to make a case for smaller ISP operators in an appeal to federal regulators.

David Robertson, Vice President of TISPA and President of the San Antonio, Texas-based ISP, STIC.NET, noted that independent ISPs brought the Internet to the public and have played a key role in the successful commercialization of the Internet.

"Prevailing thoughts from Capitol Hill say 'why do we need independent ISPs, anyway?' It can be argued that ISPs were the first killer application for the PC," Robertson said.

Robertson is in a unique position to comment on broadband competition in the U.S., since STIC.NET recently picked up the customer base of a failed DSL provider and is also a cable access reseller through an agreement with Time Warner Cable.

Robertson explained that while STIC.NET cannot sell cable access to businesses, it still has to share half of its revenue from value-added services with AOL Time Warner. Essentially, AOL Time Warner has come to market at a price point that is about half what ISPs would need to charge in order to turn a profit. If STIC.NET were to profit from offering cable modem services, it would have to double its fees for the same service AOL Time Warner offers. No consumer will pay double the price for the same service, so the idea of offering cable modem access is a bust in San Antonio, as well as other shared markets in the U.S.

"In our first month with Time Warner Cable we received a check for $116," Robertson said. "I accepted it, after having invested $24,000 in marketing and distribution costs."

This is just one example of how cable companies have dealt a losing hand to other ISPs attempting to offer consumers a choice of broadband service providers—as sanctioned by the FCC while remaining in compliance with the Federal Trade Commission's open access mandate upon approving the AOL, Time Warner merger.

Wide open architecture
The report also documents a host of anticompetitive network design decisions and business practices of both cable and telephone companies that undermine the ability of consumers to use independent ISPs for broadband Internet access.

For example, the network owner places restrictions on how non-affiliated service providers may use the network. The rules prevent independent ISPs from delivering services to consumers by restricting speed, duration of transmission, and other operational characteristics. Additional key findings include:

• Historically, there have been more than 15 different ISPs for every 100,000 narrowband user in the U.S. In the broadband area, there are two providers per 100,000 subscribers.
• Cable and telephone companies serve about 5 percent of the narrowband market in the U.S., but the same companies have captured about 95 percent of the broadband market.
• In spite of declining costs, prices for DSL and cable modem access have increased in recent months, which is a sure sign of monopoly power.

Dane Jasper, CISPA president, who also is president of the Santa Rosa, Calif-based based ISP Sonic.net, said this type of monopolistic market activity would never be allowed in other venues impacting interstate commerce.

"We would never consider allowing private companies to determine who gets access to highways because those infrastructures are clearly essential to the public's well being," Jasper said. "Yet this Administration seems content to let telephone and cable monopolies decide who gets high-speed Internet access, and thus full participation in government, society and the economy,"

Earthlink's Baker warned that if the FCC goes through with its plans and deregulates the high-speed Internet access market, cable companies and the Bells will quickly establish a monopoly on broadband service over their own networks.

"Consumers accustomed to hundreds of competing ISPs to choose from for dial-up service will be left with just a handful of options for broadband service," Baker said.

— End