Oversight needed?: Mishaps fuel regulation debate

Oversight needed? Mishaps fuel regulation debate

By Rachel Konrad
December 26, 2001, 8:00 a.m. PT

For Mike Ribble, an unconnected existence is not a happy one.

The Olympia, Wash., resident and his wife--both software developers with penchants for telecommuting--learned the perils of life without high-speed Internet access earlier this month, when Excite@Home terminated service to 850,000 cable-modem subscribers. During their weeklong outage, the couple couldn't attend electronic meetings or exchange e-mail with co-workers, and they found it nearly impossible to monitor stock portfolios, pay bills and transfer funds.

"We think of network access as a utility like the telephone or power, and in fact network access is just as important to our livelihood and household operation as those other utilities," said Ribble, who works for chipmaker Intel. The outage, he said, "virtually ground our work lives to a stop."

He isn't alone. A growing number of Internet users--including telecommuters, computer programmers, small-business owners and self-described Web junkies--say Internet access is as important as telephones and even electricity or heat. The government should monitor Internet service providers like utility companies, they say, requiring ISPs to abide by regulations so customers stay connected--regardless of a provider's financial straits, strategy shifts, mergers or acquisitions.

So far, their concerns have fallen on deaf ears in Washington, where politicians and regulators say they have little desire to add a layer of bureaucracy to the relatively young sector of high-speed ISPs. But some telecommunications experts say the Bush administration's hands-off, anti-regulatory stance is already shifting as a result of the increasing dominance of a few major players, including the newly formed AT&T Comcast; a spate of ISP bankruptcies; and especially the Excite@Home fiasco.

Redwood City, Calif.-based Excite@Home filed for Chapter 11 bankruptcy protection in September and planned to sell its assets to major stakeholder and cable partner AT&T. But the deal fell apart, and Excite@Home cut off service to customers like the Ribbles. These people found themselves swept up in a hastily arranged transition to AT&T Broadband's network that hit many rough spots and has left some customers still stranded without service.

Excite@Home is in the process of laying off its work force and distributing its assets; it plans to cease operations Feb. 28. The company's death means that Cox Communications, Adelphia Communications and other Excite@Home cable partners must transfer more than 3 million shared subscribers to independent networks in less than three months.

It's unclear whether those subscribers will suffer the same service disruptions and customer service horror stories that afflicted the AT&T Broadband customers, but some say the mere prospect of another broadband fiasco should spark government intervention.

"Now it's time for Congress to hold some oversight hearings as a result of these serious failures. They need to say, 'We've seen what happens, and now it's time to figure out how to protect broadband because it's been determined to be a lifeline,'" said Fritz J. Messere, chairman of communications studies at State University of New York at Oswego and co-author of "Broadcasting, Cable, the Internet and Beyond."

"We need some safety guards in place for consumers to have more of a transparent look into their ISPs."

Baby regulation steps
The federal government has already taken some cautious, relatively unobtrusive steps into the nascent industry.

In September, thousands of high-speed DSL (digital subscriber line) connections were slated to be unplugged when bankrupt Rhythms NetConnections closed shop.

But the Federal Communications Commission ordered Rhythms to keep its network serving about 83,000 customers for at least a few more weeks. The order came even after Rhythms requested an emergency closure and FCC regulators heard appeals from more than 30 sources, including Cisco Systems, WorldCom and DirecTV Broadband.

Under the Telecommunications Act of 1996, the first major overhaul of telecommunications law in almost 62 years, telecom companies must apply to the FCC for permission to shut down. They also are not allowed to pull their own plug until 30 days after the application is public.

Shutting down now 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. Regulators are so worried about the rash of bankruptcies in the sector that they issued a pair of warnings earlier this year emphasizing this law would be enforced.

But other than receiving advance notice about shutdowns, consumers have had little protection against ISP fallout. Subscribers have jockeyed from provider to provider this year as the bankruptcies--including those of Flashcom, PSINet, Covad Communications, NorthPoint Communications and Rhythms--severed some connections, killed e-mail addresses, and slowed networks.

Even more troubling is that service providers operating without government oversight have few incentives to provide outstanding customer service when they go out of business.

For example, thousands of e-mails originally destined for Excite@Home users who were switched to the AT&T Broadband Internet are still missing. The companies blame each other for the slip, and it's unclear what will happen to those e-mails after the AT&T Comcast merger goes through. Some people upset about their lost e-mail say the government should require companies to route e-mail or other electronic property--including photos or documents stored on third-party servers--directly to customers if the company holding the property is in danger of collapse.

Protecting consumers--or stifling innovators?
But many regulatory foes say asking the government to make a few small rules governing electronic property recovery or service provisions during bankruptcy is akin to pruning roses with a chainsaw. They fear that regulatory overkill would quickly envelop the telecom sector and stave off innovation.

"There's no such thing as a light-touch government action," said Jaime Bianchi, a cable lawyer who has fought government regulation of broadband for the Miami office of White & Case.

To determine whether to regulate any industry, the government generally requires that the service it provides be both essential and widely available--known in regulatory jargon as "essentiality and scale." Many experts say that broadband Internet access meets neither qualification--at least for now.

Anti-regulation advocates say broadband can't be compared to the need to regulate, say, the airline industry--which received federal aid in the wake of the Sept. 11 attacks--because broadband service is not as widely available as airline flights. Nor, they say, is it as critical as electricity, which if cut off could be life threatening to customers. In the recent California energy crisis, Southern California Edison and Pacific Gas & Electric received $400 million in emergency funds.

About 21 million people used cable-modem and DSL Internet services in November 2001, or roughly one in five people with home Internet access, according to a recent study from research firm Nielsen/NetRatings.

Although that is a 90 percent jump from November 2000, it's only 7.3 percent of the total U.S. population, according to the rolling population estimate on the home page of the U.S. Census Bureau. By contrast, more than 90 percent of Americans have televisions and telephones.

The number of households with a high-speed connection is even smaller, largely because DSL is still unavailable outside major metropolitan areas. That means that broadband scale--the number of potential customers it reaches--is still relatively low.

Reed Hundt, FCC chairman from 1993 to 1997 and now senior adviser at consulting firm MacKenzie, speculated that the government would regulate broadband if it hit roughly 75 percent penetration. At that point, he said, consumers and regulators would clamor for a universal system--be it DSL, cable modems or wireless connections--to streamline the industry.

"Only about one-third of homes are a natural broadband market with enough money and interest. The next one-third isn't going to switch from narrowband. The last one-third isn't interested in either at today's prices," Hundt said. "If we really want a universal medium, like television, we have to create a universal service system."

Blair Levin, telecom and media analyst for Legg Mason and the former chief of staff of the FCC, said he realizes that many people rely on broadband connections to telecommute or run small businesses. But the medium is not in the same category as conventional utilities, he added.

"Let's be honest: Excite@Home is less essential than electricity," Blair said. "If, however, we get to a point in time when a broadband provider starts to hit that line of both essentiality and scale, you'll absolutely have the government assure that, even in bankruptcy, service is not cut off. But this just ain't on the agenda now. There are so many better issues that the government needs to investigate."

Others say the Excite@Home fiasco, though disruptive, wasn't so catastrophic that it could spark a government inquiry, especially in a Republican, anti-regulatory administration. They point out that AT&T Broadband's migration of 850,000 customers was relatively swift--and much less damaging than it could have been had all of Excite@Home's 4.1 million users been unplugged at once.

"There was a concern in the cable industry that the @Home bankruptcy would lead consumers, and maybe government officials, to regulate cable broadband," said Bianchi, the cable lawyer. "But if you look at how it worked out, other than for some subscribers, at the end of the day they did OK. The industry came forward and transferred everyone over to their proprietary networks with minimal disruption. They basically paid $355 million to make sure their consumers are protected."

In fact, the Excite@Home outage may not have been the most crucial failure of an ISP. Shortly after Ashburn, Va.-based PSINet filed for Chapter 11 bankruptcy in June, customers were cut off from a large swath of the Web.

The blockage, which stopped traffic flowing between two of the top 10 networks in the United States for more than four days, stemmed from a relationship called "peering," in which two networks agree to swap traffic back and forth without charge. In that case, Cable & Wireless stopped peering with PSINet, saying the struggling company no longer had enough traffic to make the relationship worthwhile.

The incident made large sectors of the Internet blind to each other and provided a taste of what could happen in a worst-case scenario should large networks begin to fail. But the failure didn't capture the attention of Washington bureaucrats.

Regulatory foes say the government was right to stay out of the PSINet debacle, as well as the ongoing Excite@Home downfall. They say government intervention would be an immediate red flag to venture capitalists and entrepreneurs looking to enter the increasingly competitive niche.

"The operative goal is more deployment. If you're signaling more regulation, people aren't willing to invest," said Scott Cleland, CEO of the Washington-based independent research firm Precursor Group, which focuses on telecommunications technology. Ultimately, Cleland said, consumers who push for regulation are shooting themselves in the foot by stymieing the industry and imposing on it an ugly layer of government bureaucracy.

"Pick your poison," Cleland said. "The poison the ISPs have chosen is that they prefer deployment over perfection. If you want regulatory perfection, you're not going to get deployment." 

AT&T's role: Throwing good money after bad