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FCC rules: Grounds for complaint

The long-awaited release of new rules governing broadband and high-speed Internet services throws federal regulators headlong into controversy.

Tech Industry
With the long-awaited release on Thursday of new rules governing broadband and high-speed Internet services, federal regulators have thrown themselves headlong into controversy.

Bitter criticism of the Federal Communications Commission's nearly 600-page document has come from all sides. Though some companies, trade groups and analysts have complimented elements of the order, virtually every comment has included near-apocalyptic warnings of market chaos and the collapse of competition.

Much of this is standard practice for influential telecommunications changes. No important ruling goes without critical comment, and many are tested in court before they settle down into stable operation. But this week's Triennial Review order contains many of the most important changes to the telecommunications and broadband markets in years. The level of concern is subsequently high.

Here's a rundown of some of the most controversial issues involved, who's affected, and why the issues are so important to the future of the market:

No competition on future broadband networks
Aiming to spur investment in broadband technologies faster than today's digital subscriber lines and cable, the FCC will allow the former Baby Bell companies exclusive rights to offer service over new kinds of advanced networks they build, such as those including fiber-optic connections.

That's very different from today, where the big local-phone companies are required to allow other companies--be they telecommunications rivals such as AT&T or Internet service providers such as EarthLink--to offer Internet and voice services over their telephone lines in various different ways.

The former Bell companies love this idea, saying the exclusivity is the only thing that will make it financially feasible to invest the billions of dollars needed to create these advanced new networks. Cable companies already have this kind of power over their own high-speed cable data networks, the phone companies say.

ISPs and rival phone companies are deeply concerned, however. They're worried that they'll be shut out of the future of broadband and that the historical competition between service providers will largely be reduced to competition between cable and phone network companies.

That doesn't mean an independent ISP such as EarthLink wouldn't ultimately be able to offer its service over these advanced high-speed networks the way it does over DSL lines. It just means that ISPs will have to contract directly with the phone company, instead of having to work with competitive wholesale providers such as Covad--an eventuality that critics say will likely keep prices higher.

High-tech companies that have pushed for faster broadband implementation have been less concerned with who provides the service, as long as it gets provided. One umbrella group that includes the Business Software Alliance, the Consumer Electronics Association and the Semiconductor Industry Association welcomed the news.

"The decision should promote both broadband deployment and competition," the High Tech Broadband Coalition said in a statement. "The regulatory demarcation between legacy copper (networks) and (future networks) will restore necessary incentives for last mile broadband investment and make true broadband more widespread and affordable."

Consumer groups and trade associations for rival local-telephone companies have said they would try to stop this provision from going into place, probably with lawsuits challenging the order.

Competition on today's networks
Much of the decision focused on an arcane set of rules known in the industry as UNE-P, or unbundled network elements-"platform." What this roughly refers to is the ability of rival phone companies such as AT&T, Sprint or smaller competitors to lease local-phone lines and the services or "elements" associated with them at low cost, in order to provide their own service to consumers.

The major local-phone companies have long said they've been forced to subsidize their competitors, and they have lobbied for an end to these policies. But under the new rules, the decision will mostly be left up to states. Some participants, including bitterly critical FCC Chairman Michael Powell, who was overruled on this part of the order, say this state-rule decision is essentially code for keeping existing rules in place.

Big local-phone companies say that this is a terrible outcome and that they'll fight at the local levels to get the "subsidies" overturned. They'll probably sue at the federal level too.

"We remain disappointed with the majority's decision to allow other companies--notably AT&T and MCI--to continue to use our network at below-cost rates rather than invest in facilities of their own," said Steve Davis, Qwest Communications International's senior vice president of public policy. "It's unfair to Qwest customers that they continue to be forced to subsidize these giant corporations."

AT&T and smaller local-phone companies predictably welcomed this part of the decision. But smaller broadband services such as Covad Communications are also winners here, because it allows them to piggyback on these alternative phone providers for digital subscriber line (DSL) services they might be losing elsewhere.

Line sharing and DSL pricing A smaller, but potentially influential portion of the decision will phase out a policy called "line sharing," which has been a key factor in falling DSL prices over the last few years.

Line sharing enables a company such as Covad to offer DSL over the same single, home-phone line that the phone company uses to provide voice service. Before the policy was enforced by the FCC several years ago, most of the big local-phone companies required rivals to lease an entire second phone line to offer DSL service, substantially raising the overall cost of the high-speed Net service.

After hard-fought battles at the federal and state levels, line sharing has been implemented in most markets around the United States and has been responsible for dramatically improving the economics for companies such as Covad and the independent ISPs that rely on their DSL service. Naturally, many of those companies are worried about the disappearance of line sharing.

"(The) FCC order on line sharing is an unconstitutional disaster for independent Internet service providers and their residential and business customers," said Mike Jackman, executive director of the California ISP Association. "Internet consumers are being penalized for wanting to get their DSL from an independent ISP."

Line sharing won't be going away completely, at least right away, however. In the new details of the order released Thursday, the FCC said that any customers already taking advantage of shared lines can keep the system indefinitely. Companies such as Covad can sign up new line-sharing customers for another year, and then the price will go up in annual increments of 25 percent, until it reaches the price of a full second line.

Covad itself has already switched tacks to focusing on deals with the same alternative local-phone companies that were winners in network elements portion of the order. Executives have said that they have long been aiming at diversifying their network suppliers and that this order simply accelerated the switch.

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