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Friday, October 22, 2004

A Bracing Wind in Boston
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Some of us attending this week's Voice on the Net Conference shuddered, not because of Boston's damp cold, but because of what we thought we witnessed: an expanding effort by competitive local exchange carriers (CLECs) to co-opt voice over IP (VoIP) providers by playing on fears that large broadband providers would begin to degrade VoIP providers' use of those "last mile" networks. (See October 19, 2004 issue of TR Daily (subscription required). This strategy appears to build on the "regulate the biggest pipes and leave the rest of the Internet alone" rationale underlying the so-called "layered model" of regulation.) Never mind that CLECs' revival of a familiar justification for government to impose "net neutrality" mandates fails (as always) to provide any persuasive evidence that cable modem and DSL providers want to and, in fact, do single out certain packets for poor treatment. The appeal of this would-be alliance is less factual or economic than it is political.

Many CLECs are, unfortunately, fighting for their regulatory survival in the face of repeated slaps by the courts. These stern rebukes - which focus mostly on past FCC efforts to promote competition by companies with few of their own facilities - had the effect of exacerbating uncertainty even for those CLECs who hoped to or did rely primarily on their own facilities. Simply put, the courts balked whenever the FCC attempted to stretch the 1996 Telecommunications Act to erase the advantage the latter, facilities-based entrants would otherwise enjoy relative to entrants relying exclusively on the facilities of the incumbent LEC. CLECs may thus see opportunity in joining forces with the political darlings that VoIP providers (with good reason) have become in the minds of policymakers seeking to promote broadband and innovation.

Beyond politics, the substantive rationales for such an alliance are difficult to fathom. Certainly, VoIP providers have little to gain. In the reality that stubbornly refuses to fade, broadband providers continue to offer consumers generally unfettered access to and use of the content, applications and network devices of their choice, notwithstanding long-standing assertions that such freedom is imperiled. Unless and until broadband providers' long-anticipated incentive and ability to "discriminate" materializes, VoIP providers will flourish whether or not CLECs survive in sufficient numbers to augment broadband alternatives that are expanding in the form of cable, DSL, wireless and emerging technologies such as broadband over power lines. And there is no inkling that companies investing in broadband networks will decide to jeopardize those substantial sums by denying premium-paying consumers the freedom they want, just so the broadband provider can fight a doomed battle to wield power in the unconcentrated national market for obtaining broadband content.

CLECs, ironically, also bear some risk in this gambit, particularly those who have invested in their own facilities. For it would be unwise to forget that calls for "net neutrality" mandates performed an effective "end run" around earlier calls by Internet service providers (ISPs) for regulators to guarantee them "open access," i.e., use of other companies' broadband networks to provide Internet access to their customers. Facilities-based CLECs and ISPs in the broadband context are in many cases rough analogs, in the sense that both may serve as physical middlemen between end users and a wider global network beyond. Thus, these CLECs should be concerned about championing mandated access to content, as they may find themselves shortchanged if the political powers that be figure out that CLEC facilities are not technically or economically necessary for beloved consumers to enjoy the freedoms they have come to expect in surfing the Internet. How concerned are politicians likely to get about protecting wholesale competition that relies on the legacy telephone network when neat, new broadband networks are deploying and consumers can use the Internet as they please?

Yet "net neutrality" promises to be a live issue among policymakers for some time, as shown by FCC Chairman Powell's stirring re-endorsement of the importance of broadband and other Internet companies promoting consumers' Internet freedom without regulation. Thus, the rhetorical appeal of linking "the fate of telecommunications competition" with consumers' freedom to use the Internet will remain undeniable, reminiscent of the "anti-big company" groundswell that so complicated the FCC's efforts last year to address repeated court remands in the charged media ownership context. This regulatory strategy also seems well-suited to the business plans of those entrants that once sought to dominate, with few facilities, in the local telephony market, but that now may be betting (perhaps the farm) on VoIP. The political sway held by those companies, of course, was at least in part responsible for the FCC's finally-aborted collision course in promoting certain types of local telephone competition under the 1996 Act.

So broadband providers would do well to monitor the issue of "net neutrality" closely and be prepared, not just to shudder, but to reiterate their support of the status quo, which has brought consumers both increasing investment in broadband networks and unfettered use of and access to content, applications and devices without the need for government intervention.

As for VoIP providers and facilities-based CLECs, they should think carefully about whom they partner with as they push (hopefully with much success) for sustainable and economically rational reforms that will allow them to bring more of the benefits of competition to American consumers. In politics, bedfellows may prove more harmful than strange.

posted by Kyle Dixon @ 11:53 AM | Communications

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