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No safety net for troubled networks

While the U.S. won't bail out the failing telecom companies providing Net-access infrastructure, the FCC is taking steps so people's Net connections don't just vanish.

Federal regulators saved Victor Zaveduk's high-speed Net connection--at least temporarily.

Zaveduk, a Chicago computer consultant who uses the connection for his business, was slated to see his DSL line disappear last Monday night as his ISP's wholesaler, bankrupt Rhythms NetConnections, closed up shop. But in an act unusual in the Net's short history, the Federal Communications Commission stepped in, ordering Rhythms to keep its network serving about 83,000 customers for at least a few more weeks.

Like many in the digital economy, Zaveduk has been skeptical of government intervention in the Net economy. This time he's a believer. "I'm not a big fan of regulation," he says. "But when you have a small number of companies providing what amounts to an essential service, there has to be some kind of rules."

As Rhythms and other companies come to the end of their financial rope, regulators and policy-makers are hearing more frequent calls to do something about it, to mitigate the damage caused by unstable connections and a collapsing sector. The fact that they are responding at all is a sign that Net access has come close to the status of a utility in people's lives, and like gas or water must have safeguards against its sudden disappearance.

But if they are willing to help ease consumers' transition away from bankrupt Internet access providers, policy-makers do not appear ready to intervene in any substantial way in the telecommunications sector. Unlike the case of the suddenly weakened airline industry, telecommunications companies spent themselves into their own corner.

"The U.S. for the most part (holds) the view that the government...should not excuse people from the consequences of their actions," said Reed Hundt, the former chairman of the FCC. "It doesn't look like there is any American...communications company that the government is willing to help to any extraordinary degree."

How big is government's role?
Calls to rescue failing industries aren't unusual in times of extreme economic stress, when those industries are deemed too important to the national economy to let collapse. The airline industry, for example, is widely expected to receive some kind of bailout package in the aftermath of last week's terrorist attacks.

No such plan appears probable for the telecommunications industry, however, in the face of its largely self-inflicted meltdown. The leading telecommunications legislation proposed would reduce regulations on the big local phone companies, the sector least affected by the economic slump. One See related story: Tough times for high-speed ISPs senior congressional staffer said that far from hearing calls to prop up companies, Capitol Hill offices continue to hear "hands off the Internet" warnings.

What is in place are telecommunications regulations originally intended to ensure that nobody loses phone service overnight, and which are now being applied to some Internet providers. It's a low-level form of intervention, to be sure--but the FCC has stepped up its enforcement efforts to make sure companies like Rhythms don't disappear without allowing customers time to make other arrangements.

Under these regulations, telecommunications companies are required to apply to the FCC for permission to shut down and are not allowed to pull their own plug until 30 days after the application is public. Regulators were worried enough about the spate of bankruptcies in the sector to issue a pair of warnings earlier this year to companies that this law would be enforced.

Shutting down, for these companies, requires the FCC to issue a certificate stating that "neither the present nor future public convenience and necessity will be adversely affected," the agency noted.

In Rhythms' case, the company announced that it would be closing its network Sept. 10, or several weeks before the end of the time period prescribed by law. Although other companies had slipped by this regulation, the FCC denied Rhythms' request for an emergency closure after appeals from more than 30 sources, including Cisco Systems, MCI WorldCom, and DirecTV Broadband.

Some Rhythms customers have been turned off, but most have been given at least until Sept. 24. The FCC is still reviewing comments from companies asking that the network be kept open longer in order to give customers time to find a new provider.

From bad to worse
But what happens if the downturn gets worse? Already, at least one backbone provider, the companies that form the core of the Internet by carrying huge amounts of data traffic across the country, has entered bankruptcy. It is these companies that are deemed "critical infrastructure" by American policy-makers, important to protect against enemy attack just as are power plants or highways.

That struggling provider, Virginia-based PSINet, has already seen its customers cut off from at least one See related story: PSINet loses its connection large swath of the Net, when peer Cable & Wireless temporarily severed communications between the two networks earlier this year. That incident, which made large sectors of the Net blind to each other for a few days, provided a taste of what could happen in a worst-case scenario should large networks begin to fail.

Nevertheless, experts say the structure of the Net, and the competitive nature of the business, still argues against any more substantial government intervention. The Net has always been built to withstand roadblocks; if one route goes down, traffic can automatically try another way around until it finally gets to its destination.

"In the Internet, as with long-distance, (the market) has been deemed competitive enough" so that safeguards for individual companies are unnecessary, said Mark Jannison, director of telecommunications studies at the University of Florida's Public Utilities Research Center. "Even if (one company) did have problems, there is another route that traffic could take."

Nor does it appear that the largest of these data traffic providers are in dire straits. AT&T, Sprint and WorldCom's UUNet, have had their own financial difficulties, and AT&T has gone so far as to plan a radical corporate breakup. But the problems haven't yet threatened the operation of the networks themselves.

Even if they did, experts say, the political climate is such that intervention on behalf of the phone giants in order to preserve parts of the Net would be difficult to pull off. While they are powerful lobbyists in Washington, the local and long-distance companies each have a different set of friends and enemies in Congress, which have served to stall bills helping one side or the other. Anything resembling a bailout that stems from the companies' own unfortunate business decisions is far more unlikely.

"I don't think we're inclined that way," Hundt said.