Feature: The Broadband Wars

Like it or not, the FCC and other government agencies make decisions every day that affect the way the Internet works. Don Weightman is a Washington, DC attorney who is currently in the middle of the ongoing regulatory dispute over who controls the "last mile" of online access in the USA. Don's strong words make it unlawyerly obvious which side he's on, but the only disclaimer he asked us to add was, "The following opinions are mine and not my clients'."

The Broadband Internet Wars
byDonald Weightman,
attorney-at law,
Washington, DC, USA

The broadband wars, which are being fought right now, will determine whether, when, and on what conditions you will be able to reach broadband applications on the Internet for years to come; things like gaming, large downloads, and streaming media. If you have a multimedia or data-rich Web site, the broadband wars will decide which audiences you can reach, and whether you have to strike deals with intermediaries to reach them. If you are an ISP these battles will likely decide whether you can offer broadband services. If you work in the Internet economy, the battle is about how to break through the "last mile" bandwidth bottleneck, and sustain the Net's growth.

Put it this way: being able to choose your broadband ISP is just as important as being able to choose the operating system for your computer. If you lose that choice, and your ISP is bundled with the cable modem, you lose control over what you can and can't do with the Net, just as having no choice of OS means losing control over what you can and can't do with the box.

The players in the broadband wars are looking for a mix of legislation and regulations which will give them an advantage in the race to control that delivery point.

One camp consists of AOL, some other ISPs, consumer groups, and a few state and local political leaders. Their battle cry is "open access." They claim that just as you can choose your ISP for 28 and 56K dial-up, you should be able to choose your ISP for cable modem or any other high-speed Net access service. AOL has emphasized lobbying and grassroots organizing and spent hundreds of thousands of dollars on campaign contributions during the 1997 - 1998 election. Election records suggest that it has stepped up the flow of money to lawmakers since then.

AOL is the major force behind the Open Net Coalition headed by well- connected lobbyists Greg Simon and Rich Bond. (After a heavy telemarketing campaign directed at ISPs, the coalition announced recently that since the Portland decision against AT&T, its membership has doubled.) AOL wants new legislation requiring ISP choice, no matter who owns the pipe through the last mile, and supports a bill sponsored by home-state Virginia legislators Rich Boucher and Robert Goodlatte that would do just that.

AOL and its allies argue that the Internet has succeeded as an open platform, while cable, including Internet cable, has always been a closed system. They say that innovations like browsers, eBay, and Yahoo would not have been feasible if they had to negotiate entry through a monopoly bottleneck.

AOL and company add that competition, which has served the Net well, should be sustained in broadband. After all, there are now 40 million American Net users in part because AOL saturated the country with floppy discs, and because local ISPs competed with each other to walk new users through the set-up process. The open access camp adds that the additional sales channels like AOL and the independent ISPs may kick-start broadband deployment.

Charles Brewer of MindSpring thinks that Net access is the core telecom service of the future. He claims that access will have three critical features: consumer-friendly price, 'always on' two-way connectivity, and true broadband throughput. Wireless NET will fail to meet at least one of these criteria for foreseeable future; therefore broadband equals wireline. A competitive broadband wireline market requires open access. Brewer concludes that non-discrimination requirements presently imposed on telephone service should apply to two-way cable Net access as "telecommunications service."

You will also see this group says a lot about consumer choice. Sometimes they will add another dig at cable video, where consumers have lacked choices. Cable operators have long been charged with price gouging and anticompetitive conduct. The open access camp concludes that the risk of such problems in broadband should not be ignored with a "wait and see" approach.

The other camp is headed by cable TV industry giant AT&T, which kicked out $3 million in Congressional campaign funding in 1997 - 1998. It has former FCC Commissioner Reed Hundt as part of its lobbying team. It uses lawsuits like the one At&T filed against Portland, Oregon when that city mandated open access, and it is the major force behind Hands Off the Net.

The cable industry claims that investment in system upgrades needed to bring near-universal cable modem access will come only if it can guarantee returns under a business model with assured users and proprietary content. The cable industry argues that with only 600,000 broadband users, it cannot be said to dominate a market with 40 million American Internet users. Sometimes their publicity tries to demonize AOL, pointing out that any company with 17 million customers shouldn't be allowed to say that it is being bullied. After all, they say, if AOL wants broadband access, why doesn't it just buy some?

The cable industry also says that open access regulation is not necessary because competing technologies, including DSL over telephone lines, wireless transmission, and satellite delivery will provide consumer choices. Somewhere in here you will also hear and read a lot of anti-government rhetoric. There is also a technical argument: the cable modem platform envisions a sort of neighborhood area network, where introducing multiple ISPs would create serious coordination and service problems.

The regional phone companies, eager to put a stick into AT&T's spokes and slow down cable's Internet momentum, rely on former Senators Bob Packwood, Larry Pressler, and and Bennett Johnson, and have hired ex-White House spokesman Mike McCurry to lead iAdvance. They claim that deregulating them will give them competitive parity with the cable companies, and that deregulation will allow them to reach under-served farm country and other communities with high-speed access using DSL technologies. (Reaching the under-served communities where there is little Net use, an issue known as the "Digital Divide," is a current political hot button.)

The telcos are pushing legislation proposed by Senate Commerce Committee Chairman (and Presidential candidate) John McCain, and Representatives John Dingell and Billy Tauzin. The telephone industry spent $14.2 million during the last election cycle. Some key lawmakers have received hundreds of thousands of dollars each in campaign money from the telcos over the last five years.

There is another, much smaller player on the scene, one with a slightly different take. Startup broadband ISP Internet Ventures has a cable-down telco-return platform, and wants to use Section 612 of the cable statute to argue that Internet video is "video programming" under that provision, which requires cable companies to lease channels to their competitors.

I represent Internet Ventures, and I have been lobbying for it. It has made no campaign contributions, and rather than seeking new legislation, has filed with the FCC for a ruling under that, under present law, ISPs have the right to lease access from the cable companies.

Internet Ventures' main argument is that this platform can be deployed quickly using today's infrastructure. The balance of its arguments parallel those used by the open access camp, with a different take on the digital divide. Internet Ventures claims that leased access gives consumers more choices, will promote broadband competition, and also help break the last mile bottleneck. The part on the "Digital Divide" is that leased access can be delivered to under-served communities now, at a price comparable to or lower than that charged by other Internet access and cable television service providers.

The cable operators respond that this is stretching the "leased access" provision too far, that they are doing a fine job, and that leased access for ISPs will hurt demand for and investment in upgrading cable systems for high speed interactivity.

The broadband wars started with the Telecommunications Act of 1996, which said that the local telephone companies would be allowed to offer long distance, but only on condition that they open their home markets to competition. None of the local phone monopolies has done so, and many of them have used their lawyers to delay the competitive process by litigating every regulatory issue whenever and wherever possible.

Closed out of local telecom markets, and worried about the long-range viability of stand- alone long-distance service, AT&T has gone on a $120 billion shopping spree, acquiring cable companies TCI and MediaOne. These acquisitions gave it practical control over cable ISP @Home (now Excite@Home), and a minority stake (with media conglomerate TimeWarner and others) in the other major cable ISP, RoadRunner. The business model calls for a closed platform, with preferred space (on viewers' screen and cached on local servers) given to paid advertisers and proprietary content. The closed platform would eventually deliver television, telephone, interactive video as well as broadband Net.

The outcome of the mergers is that AT&T, which claims 80 million customers worldwide, has now added from 20 to 40 million cable customers, depending how you count. Even before gearing up the marketing drive that goes with delivery of Internet interactivity, cable has a base of 67 million broadband (video) customers, which makes this group (cable plus AT&T's long distance customers), with a customer base in nine figures, nearly equal in size to all U.S. local telephone companies combined.

The telcos have about 150 million telephone lines to work from. Pursuing an objective of unifying local, long-distance, wireless, and, belatedly, Internet through a single provider for every customer, the Bell companies did not seriously try to deploy their broadband DSL technology until the threat of cable modems kicked them into action. And DSL has some handicaps. It cannot serve users who are more than three miles or so from the nearest company office, and it cannot be offered over some phone lines at all. As many as a third of American homes may never be able to get DSL.

Cable, too, has its problems. As the number of users on a neighborhood node increases, congestion soon follows. In fact, Excite@Home has had to impose a 128 Kbps limit on uploads because of heavier home-user traffic than expected. Add to this the still-unresolved security problems which make cable Internet unattractive for business, and the picture resolves to technologies which are still developing.

The other thing to keep in mind about the 1996 statute is what it didn't do: address where we are now, when many players from different industries all seek to offer some mix of broadband Net, telephone and television, but on different technological platforms. Aside from some language which has given the lawyers room to maneuver in their arguments, a critical piece left out was the status of Internet delivered over cable. This has meant that the FCC is left to deal with the relevant policy questions without much of a lead from Congress. The resulting vacuum is a major reason for all the lobbying now going on.

Another factor which kept broadband in the background until last year is that, as long-time computer industry observer John Dvorak points out,

"Neither the phone company nor the cable company is used to the pace of the computer industry. Worse, they have no interest in getting used to the pace."

The AT&T merger with TCI, which gave Internet-over-cable's closed business model its prominence, helped bring broadband issues to the front of the stage. AT&T had to pass regulatory muster with the Justice Department and the FCC in Washington. It also had to get permission from the hundreds of cities and other local governments which had granted local franchises to TCI. Last December, the Portland, Oregon City Council required, as a condition of the merger, that AT&T open its broadband network to competitors.

In the meantime, AOL, thwarted in talks with cable operators, formed the OpenNet Coalition and lobbied hard to push open access to the top of the FCC's regulatory agenda, both in the agency's review of the AT&T/TCI deal, and in a separate proceeding on "advanced" (i.e. broadband) services. After fierce resistance from AT&T, the effort failed on both fronts, and the FCC decided, for the time being, to take a hands-off approach to cable access. The FCC tried to justify this refusal to act by finding that AT&T and cable broadband delivery generally were not in a position to dominate the markets for these advanced services. It indicated, however, that it might revisit the issue if it looks like cable is gaining a monopoly position.

One result of the FCC's "hands-off-cable" decision was that AT&T and other cable stock prices spiked on the assumption that they would be able to get turbo-charged returns on their closed systems and captive eyeballs. This spike gave the companies a lot of new market capitalization to play with. Instead of using the inflow to fund the $30 billion needed to upgrade the cable infrastructure for full two-way high-speed connectivity, the industry spent the new money on another wave of mergers, including the recent AT&T acquisition of MediaOne and some other, smaller deals. If the consolidations are approved, AT&T will own access to about 30% of the cable subscriber base, with a partial interest in systems reaching another 30%. This threat to control broadband has prompted the telephone company counterattack.

But the monopolists don't always win. In early June, a federal judge ruled that Portland was within its rights in imposing the open access requirement. AT&T has appealed, but this ruling has encouraged other local governments to reopen similar cases. Last week, Canadian cable regulators issued rules requiring cable companies there to open their networks to independent ISPs. And earlier this week, Broward County, Florida voted to require AT&T to open its system to competing ISPs.

But these are just a few battles. The war continues -- in the courts, in Congress, in State Legislatures, in front of local cable TV regulators, and most importantly, at the FCC.

If you think the open access issue is important, then you should know that the best way to get the FCC off the dime is a show of genuine popular support. And if you want to help, here are some places to start:

www.nogatekeepers.org
www.opennetcoalition.org
www.ivn.net/strat/access.html
www.handsofftheinternet.org
www.iadvance.org

There is no competition

As I see it, there is no competition at all right now. All Bell will tell me is that DSL is not available in my area (I KNEW that!). MediaOne has been saying Real Soon Now (TM Pat. Pend) since 1995. All are drastically exagerating the costs of setting up the infrastructure.

I did some rough calculations the other day for the cost of running my own fiber from home to work vs. the monthly charge for allways on ISDN. At retail cost for the hardware, and doubling that figure to account for labor (perhaps the labor should be higher), I came up with a payback just under 5 years. The catch is, I priced running Gigabit fiber vs. 128Kbit ISDN with no adjustments. If you take into account that a gigabit line can carry 833 ADSL connections with no overcommit (and 8330 with a typical overcommit) The payback would be under a year (allowing for the additional cost of neighborhood switches). Add into that that Bell could get the fiber much cheaper than retail. Finally, add in that many customers (especially the early adopters) would be willing to pay an installation fee up front, and there is no cost excuse to not provide fast access.

The real reason has to be that they are still too busy selling over priced T1 and ISDN services.

MediaOne, seeing that they have no worries from Bell, are in no big hurry to establish broadband in this area (though they are making more visable progress than Bell even though they have to run all new cables while bell can re-use what they have).

As far as open access goes, They are inflating the cost figures as an excuse to get customer lock-in. I don't buy the argument that third party ISPs would confuse things, about half the ISPs out there lease their dial-up banks, bandwidth, and rack space from other providers anyway (all they actually own is a couple of servers co located elsewhere). All of that is available NOW for $1790/month with a 1 year contract. Somehow, the colo providers manage not to be confused, and manage to make a profit without lock-in.

Re: equal access terms

My car is paid for, but I'm not obligated to car-pool, rent it out, time-share it, or even let a friend ride in it.

You were never given an exclusive right to buy a car in your area. You also were never given the right to park on a strip of your neighbor's yard (whether your neighbor liked it or not). The cable companies ALL were given a very valueable exclusive right to provide cable in their area. And the right to dig up anyone's front yard without notice or consent. That considerably reduced their risk (as a captive audience always does).

If you doubt the value of those grants, consider how expensive (and difficult) it would be for you to purchase the right to dig up your neighbor's front yard at any time you needed to and multiply by ONE MILLION.

Being required to lease their cables to others is NOT a very high price to pay for all of that.

Regulation isn't the solution.

When has regulation been the solution to questions of access? Consider radio. The FCC was started under the erroneous principle that radio stations would drown each other out in the absence of regulation, even though that wasn't happening and showed no signs of happening. (In fact, FM technology makes it pretty hard for radio stations to interfere with each other in normal operation -- the capture effect, as someone mentioned in comments to another article recently, prevents that.) And what has the FCC done? It's increased the cost of radio stations doing business so that average people can't start their own commercial radio station -- the licensure costs too much! It's restricted speech on the airwaves (ever heard of the Pacifica case?). And it's granted government more and more power, power it has no business wielding.

The government does not need to take a stance on the Internet business, any more than it needed to take a stance on the radio business. If it does so, it will only proceed to violate people's rights the way it has in radio -- restricting speech, limiting control to those who are rich enough to pay for a license. (Should you have to be licensed to run an ISP? To operate a Web site? How much will that license cost you? What restrictions will come with it? Ham radio operators aren't even allowed to say "shit", or to discuss politics, on the air...)

The government does not need to create competition; it needs to stop endowing monopolies like the monopolies so many cable companies have. (Many people seem to think that government is opposed to monopolies, because of antitrust laws. As it happens, antitrust is the exception; almost always, where there is a monopoly, it was created by the government. Just consider NSI...)

ISPs are an anachronism

My first encounter with the internet was in 1986, when I first went to college. And, the university's ISP was... Well, I suppose it was the university itself, but in reality, we had a "direct connection" to the internet. ISPs didn't exist because at the time 2400 baud modems were the fastest available, and 2400 baud just isn't fast enough for IP.

Fast forward a few years.... Modems get faster, and people start using them to make IP connections across phone lines. Still not incredibly fast, but still somewhat convenient. At this point, most IP addresses were still assigned to specific machines.

With invention of the World Wide Web, interest in the internet started to grow, and a cottage industry erupted around being able to provide IP access to people at home. About the same time, protocols became established to provide temporary IP addresses to a dialed-in machine. Voila! The ISP was born. And, as ISPs grew, they began to offer more services to their customers: e-mail, usenet news, web server space, and so on.

So, ISPs began as a solution to a problem: Nobody had the money for a direct internet connection to their home, but a lot of people wanted internet access. As a result, the primary purpose of an ISP is to provide a place where people can dial their modems and connect to the internet. The other big thing that ISPs do is provide a method for client machines to obtain IP addresses. All the other services ISPs provide: Mail server, news server, web space and so on are not intrinsic to the ISP itself -- it's perfectly possible and reasonable for a person to use one company to dial into the 'net, another company as their mail server, and a third company as a usenet server.

So, let's suppose for a second that it was possible and economically feasible for a person to have a "direct connection" to the internet from their home -- what does the ISP provide?? The only thing that I see that they still do is hand out IP addresses. And, for a short time, that would be useful. But, in the next few years, IPv6 is expected to take off, providing enough IP addresses for every man, woman and child to have several dozen. (I'm not sure of the exact ratio, but it's big.) In that case, there's no reason to borrow IP addresses at all, and the only remaining reason for ISPs to exist goes away.

I would argue that 'always on' internet access, via cable modem and DSL is, in fact, a direct connection to the internet. And, with that, nobody needs an "Internet Service Provider," because they already have internet service.

My opinions. Not my employer's.

Essential Facility

As much as I can see the intuitive logic in the "Lay you own cables" arguement, I think there are several arguements against it.

(1) Price: Laying any sort of network is incredibly expensive. Weather it's gas pipes, electrical cables, or phone/data wiring, it's expensive to access rural areas, and complicated and disruptive in urban areas. This was, of course, the initial logic in giving regulated monopolies in the gas, electrial and telephone markets. The only way to insure that this expensive infrastructure was installed was to make it profitable, and the only way to do that was to give a monopoly to the company that did the installation. Of course, with deregulation, the same barriers remain to people who want to build new networks (without the same degree of rewards), and the already entrentched companies are free to use their (de facto) monopoly base to encroach into other businesses (like ISP's).

(2) Legality: There's a concept called essential facility. Back in the late 1800's, there was one railroad bridge across the Missisipi near St. Louis, and was the only practical river crossing for that region. The company which owned the bridge, a rail company, would allow access (for a fee) to other railroad companies. However, there came a point where the company owning the bridge began preventing some of their competitors from using the bridge. In an antitrust case, it was decided that the bridge was an "essential facility", and as such, had to be made available, at a reasonable fee, to all comers. We've seen the same sort of thing in the telephone industry, where your local phone company MUST give you the long distance service you desire.

The bundling of ISP services with bandwidth services, is totally counter to everything we've seen so far. Bell Atlantic will provide me with an ISDN line, but can't require me to use their ISP. (that would be tying, exactly what Microsoft is accused of doing, might I add). As long as service and bandwidth are connected, we won't be able to turn bandwidth into a commodity, just like rice or paper.

[Note: I am not a lawyer. I learned about essential facility from a variety of sources, and I believe I've gotten the core of essential facility correct.]

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Re:A Ridiculous Post

And here I thought that editorials were supposed to express one specific point of view.

That disclaimer is pure shit.

So, you know for a fact that Mr. Weightman doesn't personally believe what he's saying in this essay, and is really just acting as a mouthpiece for his clients? Is there some rule that says lawyers aren't supposed to take cases in which they agree with their clients? Is it somehow intellectually dishonest?

Many other posters have raised some serious points against mandated open access to the "last mile". We wouldn't be reading these responses and engaging in this discussion right now if Mr. Weightman hadn't been given access to this forum to clearly state his side of the issue.

"Open Access" already getting positioned in DSL

Telco's in DSL-land are already positioning to have an open-access protocol. Its called PPPOE (PPP Over Ethernet). Here's a text drawing:

END USER -----DSL-->TELCO-->AC------> ISP1 -----> RADIUS

(connect this to the AC... ./ doesn't allow for tags) -----> ISP2

(imagine more connections to the AC...)

So the X is the end user. He/She connects to the telco using the DSL line. The DSL connects (some details have been left off) to the Telco (i.e. Ameritech where I'm at). The Telco has something called an AC. The AC is the Access Concentrator. Think of it like a router. Then connected to the AC are a bunch of big ISP's that have provisioned lines, Value added features, etc.

So, how does PPPOE work? You run a PPPOE client on your machine. And lets say for this example that you have selected ISP1 as your ISP. When you login (using name and password), a PPPOE packet is sent down the DSL. The Telco routes the PPPOE packet based upon the ISP you select. The PPPOE packet eventually makes its way to a PPPOE server (not shown) and that server authenticates you through RADIOUS (which all the ISP's have been already using and know how to bill from, etc.)

So, once you are authenticated, you get an IP address from the ISP! Any traffic to that address goes through the PPPOE server, down the DSL line encapsulated within PPPOE packets and eventually your machine. The advantages to this system are that:

• The Telco doesn't have to do any real work. They just wait for the ISP's to provision lines, and then the ISP's pay them to have access to the AC. The end user ends up shelling out money for the DSL line.
• The ISP's know Raidus really well. They have been using it for years and do all of their accounting/billing from it.
• Unfortunately, this also means that they will be able to charge for a "network login", i.e. for each machine you have. Granted you could (and probably will) run a Linux machine and NAT all the rest of your machines.
• Right now DHCP has a drawback that there isn't a really good way to authenticate someone before handing them an IP (without making everyone register their MAC addresses...what a pain.)

-Jeff Ballard ([e-mail])

*sigh*

Civics lesson:
FCC != Justice Dept. != Congress != local government

I hate to burst your bubble, but the government is not one grand conspiracy. It is composed of many parts with competing agendas, both within and between those parts, and in most cases those agendas are set by people not employed by the government.

And the government is multi-tiered. The local government that grants one cable company a local monopoly is not the same as the one that forces another to open it's lines to ISPs.

The whole point of this article was to show that there is a battle going on by very powerful billion dollar industries, and government policy is as much their battleground as the market. There are no clear good guys, there are no clear bad guys, there are simply competing interests, and those interests may or may not jive with the interests of us, the consumers.

(And really, how effective do you think radio would be if people could broadcast on the same frequencies? Who wins in that situation, the independant station or the wealthy congolmerate?)

This Problem is More Complex Than It Looks

The fundamental problem here is similar to that of utilities like water, telephone and electricity: every home must be connected, and it costs a fairly large amount of money to connect. The problem is that a) no-one would ever spend the money to connect a consumer who will jump ship next week and b) no consumer will pay the money to be connected. $10/ft. (or whatever the going rate is) is a lot when you're 2 miles from the nearest station. But once you're connected your neighbor can connect from you, which is maybe 10 yards.

The approach taken with the roads often fails to work, as anyone who lives here in Colo. knows. If cable access were gov't owned we'd still be using ducks to send IP packets. Government programs have their own perverse incentives which mess things up.

The approach taken with utilities often fails as well. Monopolies have little incentive, esp. with a product which is needed (like water) or perceived as needed (such as electricity or net access). The monopolist, no matter how pure his heart may be, will find himself shafting the consumer due to the perverse incentives of his situation.

The free market approach is v. difficult. How do companies compete over a common territory for which they share responsibility? How can they differentiate from the competition? What incentives do they have to upgrade their lines (note how low-quality telephone lines still are; there's no incentive to change them)? The solution is non-obvious.

I am reminded though, of the way roads (a network is more like a road than a water line; it carries traffic from one point to another, not a product from source to recipients) were handled in the middle ages: each parish was responsible for maintaining its own roads, with the sovereign's roads in between cities. Perhaps such a solution would work with networks. Each area of a city would be responsible for funding and maintaining its own network. The area networks of a city would connect together, and the state governments would maintain the intercity lines. States would handle connexions to neighboring states. The terms would change for other countries (e.g. province instead of state), but the process would remain the same.

Such a system would need to be independent of the government, because then it would become one more pawn, like schools and roads are today (Know why we have a drinking age of 21? Because of the national highways), as well as becoming prone to the negative effects of a beauracracy. Of course, it prob. still wouldn't work, but at least it'd have a chance. Nothing involving corporations would benefit everyone. Nothing involving government would benefit everyone. Maybe something involving everyone would benefit most everyone.