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FCC changes DSL classification

Feds put DSL on even footing with cable modem service--providers no longer have to offer network access to competing ISPs.

The Federal Communications Commission on Friday voted to reclassify DSL broadband service, thus freeing phone companies of regulations that require them to share their infrastructure with Internet service providers.

DSL will now be considered an "information service" instead of a "telecommunications service," a distinction that puts DSL in line with the classification of cable modem services. The change in semantics was expected after the U.S. Supreme Court's ruling in the Brand X case just five weeks ago. The court's decision upheld the FCC's classification of cable modem service as an information service.

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What's new:
As expected, the FCC on Friday reclassified DSL, the high-speed Internet service offered by phone companies, as an "information service." The ruling puts phone companies on the same regulatory footing as cable companies, which are exempt from having to offer access on their infrastructure to competing Internet service providers.

Bottom line:
The phone companies say that the ruling will free up more of their resources to improve their broadband services, although at least one FCC commissioner says he will be watching to see if that's really the case. ISPs such as EarthLink, which already have a hard time competing on price, may still negotiate access contracts with the phone companies but are looking for alternative ways to deliver their services.

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Now the phone companies and the cable companies are exempt from "common carrier" rules that require them to share their infrastructure with Internet service providers.

While the new regulatory framework is good news for the Bell phone companies, they are not entirely off the hook. There will be a 1-year transitional period where phone companies will still be required to provide network access to ISPs. DSL providers will also still be required to comply with the 1994 Communications Assistance for Law Enforcement Act, or CALEA, which requires broadband providers offering voice services to allow law enforcement officials access to their networks for wiretapping.

Phone companies offering DSL service will also still be required to contribute to the Universal Service Fund, a federal program that subsidizes phone service in rural areas. During Friday's meeting, commissioners emphasized their commitment to keeping USF funded. As part of this commitment, they have stipulated that phone companies will continue to pay their normal share into the fund for the next nine months. During this period the FCC will review funding alternatives. If an agreement can't be reached, the FCC has the right to extend this period or can also increase the proportion of funding from other sources.

"The Universal Service Fund is one of the pillars of the Telecom Act," said FCC Commissioner Michael J. Copps. "And I wouldn't be party to an agency that would abandon it."

Phone companies will also be required to continue to serve the needs of the disabled community.

"There are certain social policies that we as a country must ensure that won't be delivered by the market," said Commissioner Kathleen Q. Abernathy.

The FCC and the phone companies themselves believe that the new classification will put DSL providers on even footing with the cable companies, allowing them to compete more aggressively. The result, they say, will be lower prices and more choice for consumers as well as higher penetration rates of DSL into communities throughout the United States.

"The benefits of this ruling will ripple across our communities by encouraging greater investment in and a wider rollout of broadband networks," James C. Smith, senior vice president of SBC Communications, said in a statement. "Discarding decades-old requirements and regulatory assumptions that are out of sync with today's competitive broadband marketplace will also spur more innovative products and services for consumers."

But this theory is yet untested. Commissioner Copps, who was initially opposed to the reclassification of DSL and who disagrees with the Supreme Court's ruling on Brand X, said that changing the rules was necessary as a result of Brand X, but that he'd personally watch to make sure that the consequences of this new policy match the intended results.

"I hope next year the commission will put its money where its mouth is to see if the assumptions yield the results," he said. "And if it doesn't, I hope it will admit that and take appropriate action. I'll be keeping tabs."

One thing is certain: The new rules will have the greatest impact on ISPs, such as EarthLink, which rely on other companies' infrastructures to provide Internet services to customers.

Independent ISPs have been struggling for a while and today represent less than 10 percent of all DSL lines in the U.S., according to Dave Burstein, the author of DSL Prime Newsletter. Part of the problem is that it is difficult for independent service providers to compete on pricing.

For example, EarthLink, the largest of the independent ISPs over Verizon's infrastructure. Verizon Communications offers the same service for $29.99 with a one-year contract. And some customers who live within a certain distance of Verizon's central office can get download speeds of 3.0mbps and upload speeds of 1.5mbps for the same price from the Bell.

"Wholesale pricing leaves so little margin even AOL couldn't survive, and MSN gave up on broadband as well," Burstein said in an e-mail. "The ones that remain can't beat Bell prices, and have so little added value they haven't attracted enough customers to have an impact."

The fate of the independent ISP is still unknown, but companies such as EarthLink say there is still room in the market for them. Despite the fact that their services are often more expensive than services from the Bells and cable companies, some 1.5 million DSL and 500,000 cable customers are still choosing EarthLink as their Internet service provider. In fact, customers ranked EarthLink No. 1 in a September 2004 customer-satisfaction survey of broadband users conducted by J.D. Power and Associates.

"The FCC has preserved DSL access for the next year," said Dave Baker, vice president of law and public policy for EarthLink. "And beyond that we are confident we will extend existing commercial relationships with the Bells to offer our service. We already have commercial arrangements with all of them and some of the cable companies."

EarthLink is also exploring alternative broadband transmission technologies too. It has already been involved in several trials using electrical power lines to deliver broadband service. Wireless technologies such as Wi-Fi and WiMax may also provide the necessary connectivity for ISP customers.

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