Why the free market should decide

Summary:Excite@Home VP David Pine says cable Internet intervention would be a mistake.

The future of broadband has turned into a political hot potato, pitting the cable industry against America Online. Should there be equal access to high-speed Internet access? Cable companies says no; they built the system and the free market should decide the question. But last month, a court in Portland ruled that regulators could require TCI to open up its cable network. This month, San Francisco is expected to vote on a similar measure. ZDNN's senior executive news editor Charles Cooper sat down with David Pine, vice president and general counsel at Excite@Home, the broadband provider that's 26 percent owned by AT&T.

Charles Cooper: There are essentially two main pipes into the home, one is cable, the other is copper wire. Why shouldn't regulators step in to insure that Internet broadband companies have equal access to that infrastucture?

Dave Pine: The fundamental goal is to get broadband services and high-speed Internet data services deployed as quickly as possible. There are actually a multitude of ways of doing that. You mentioned two: One is the cable infrastructure where AT&T actually only owns approximately 25%. In addition, there's the ADSL solution offered by the telephone companies. So, in fact, there's a diversity of companies involved in those two platforms. But, in addition, there's the satellite and wireless also emerging. Fundamentally we're emerging into a very new era in the Internet with fundamentally different services, much faster services. And a lot of companies have emerged to offer alternatives.

Cooper: Clearly those are alternatives, but analysts believe the future is going to become predominately cable-based.

Pine: We have a very different view of how this will evolve. We look at in a way like a horse race where there's a lot of different entrants now emerging into a very new market. This is a brand new market and today cable does have a lead over ADSL, a lead over satellite. And Excite@Home, and Roadrunner and others have really pioneered a fundamentally new service, a very innovative service.

And because of that, other competitors are entering the market. ADSL is a great example. Until @Home offered cable-modem services, ADSL was really a concept. Pricing was north of $100 a month. But now, as the cable industry has over 1 million subscribers in the United States, all of a sudden there's more ADSL emerging. The price has come down to $40 a month. Similarly, people are making enormous investments in satellite technologies. So the market has really borne out the notion that it's an extremely competitive marketplace. And it's a very new industry. And it's very premature to think about regulation of any kind.

Cooper: If ADSL and all these alternatives are so attractive, would you be willing to swap positions?

Pine: Well, @Home and the cable company made some fundamental investments and took some fundamental risks. We've been at this for over three years. When we began in 1995, people really doubted that there really would be this type of service available. So we made the investments, we took the risks, and so it's only appropriate and fair for cable and @Home to benefit from those risks. It's fundamentally what Silicon Valley and high-technology is all about. AOL is late to the game, and frankly they have a dominant position in the narrowband space. Two out of three new Internet subscribers join AOL -- and we pose a competitive threat to them. This is an issue where government does not need to be involved. But for the fact that AOL and the RBOCs and others have injected an enormous amount of money into the political and governmental process. But for that fact, this issue would not be on the table because consumers are benefiting today from our service and from the competitors that have emerged due to our success.

Cooper: Ed Markey told us he plans to submit a proposal to the FCC asking that regulators treat cable the same way as telecommunications. Do you see this issue becoming a political football in the upcoming Congressional or Presidential races?

Pine: Well the issue is clearly gaining more and more prominence, and more and more recognition in Washington and in the municipalities. It's been in the public arena now for almost a year. The FCC and Congress has been extremely supportive of @Home's position and cable's position. The chairman of the FCC has made it very clear that he thinks the marketplace is working and that it is premature and the wrong time to think about regulating a new service, a new competitor. Mr. Markey is introducing a resolution, not a bill to have people support a notion of cable unbundling. But, as a practical matter, it would be a long time before any sort of legislation could be seriously considered.

Cooper: Are you concerned by the upcoming vote by San Francisco's Board of Supervisors on opening access?

Pine: Cities have historically been involved in cable franchising; they have strong opinions about cable companies and feel empowered by this case to go ahead and speak out about the issue. It's been our experience though, that when we go into a city and sit down and talk to council members and to staff that we can get our message across. When you look at all the battles that have gone across the country -- with the exception of Portland -- we have prevailed in every municipality.

Cooper: Are you willing to make a prediction on the vote?

Pine: I'm confident that San Francisco will support us.

Cooper: In the event the board votes against you, what would be the significance and what would be your next step?

Pine: As a legal matter it would really have very little significance. It would be a symbolic more than a legal act. When you think about it, @Home is trying to offer a national service. How can you have a national information superhighway if 10,000 jurisdictions try to set down rules? It is fundamentally not the place for city governments to be involved.

Cooper: What do you think has been the biggest misunderstanding by critics of your position?

Pine: Well I think the issue that's really missed is, "What's best for the consumer?" It's important to think about how are people effected by this debate and by these new services. And when you think about that, where is the real problem? A few years ago there was no high-speed Internet access service available. We've been that together with Roadrunner to over 1 million people in this country. And that's spurred tremendous amount of competition, and brought tremendous choice to consumers --- something that didn't exist before. But for the injection of money into the political process by our opponents, there would be no groundswell of support to unbundle the cable plan because the marketplace is working extremely effectively. It's really quite a historic time in telecommunications development because it is such a vibrant market. And the consumers are benefiting from that market. And it's an artificial infusion of a debate, moving it from the private sector into the public sector, where it just doesn't need to be.

Cooper: If AOL approached you and tried to work out a deal, how would it work? How much of a surcharge would paying AOL customers be required to pay a month in order to access your system?

Pine: That's actually an important question, and a point that many people lose sight of in this debate. On multiple occasions, Excite@Home has had negotiations with AOL. AOL has also negotiated with our cable partners. There's certainly a business deal that could be arrived at that would be to the benefit of all the players. But, unfortunately, AOL wants more than is reasonable. They fundamentally want to control the relationship with the customer. Today our cable companies have relationships with customers they've developed through offering video services. They want to have that relationship. AOL wants that too, which is fundamentally the issue here.

Cooper: What would make for a "fair" deal, in terms of an access fee or a toll-charge between AOL and the provider.

Pine: When you look at AOL you have to first decide are they really providing Internet access, or are they providing content? And, for the most part I think they're essentially a content company, in that they don't own their own network. Unlike most content companies, or virtually all other content companies on the Internet, they choose to charge $9 for that content. On the other hand, they've been very successful in obtaining 18 million subscribers in this country. It's a very powerful brand name. A combination could be put together whereby their content is promoted in some way that works for AOL and brings more subscribers into the service, and the economics would be allocated appropriately. But they can't have it all. Unfortunately that's what they want.

Cooper: What do you think the biggest misunderstanding about your position in the way the issue has been reported. Pine: Well I think the issue that's really missed is, "What's best for the consumer?" It's important to think about how are people affected by this debate and by these new services. And when you think about that, where is the real problem? A few years ago, there was no high-speed Internet access service available. We're now, together with Roadrunner, got over 1 million people in this country. And that's spurred tremendous amount of competition, and brought tremendous choice to consumers, something that didn't exist before. But for the injection of money into the political process by our opponents, there would be no groundswell of support to unbundle the cable plan because the marketplace is working extremely effectively. And it's an artificial infusion of a debate, moving it from the private sector into the public sector, where it just doesn't need to be. Cooper: If your side wins the debate, how would AOL customers be affected? Pine: That's actually an important question, and a point that many people lose sight of in this debate. On multiple occasions, Excite@Home has had negotiations with AOL. AOL has also negotiated with our cable partners. There's certainly a business deal that could be arrived at that would be to the benefit of all the players. But, unfortunately, AOL wants more than is reasonable. They fundamentally want to control the relationship with the customer. Today our cable companies have relationships with customers they've developed through offering video services. They want to have that relationship. AOL wants that too, which is fundamentally the issue here. Cooper: What would make for a "fair" deal, in terms of an access fee or a toll-charge between AOL and the provider. Pine: When you look at AOL, you have to first decide are they really providing Internet access, or are they providing content? And, for the most part, I think, they're essentially a content company, in that they don't own their own network. They're really essentially a content company. Unlike most content companies, or virtually all other content companies on the Internet, they choose to charge $9 for that content. On the other hand, they've been very successful in obtaining 18 million subscribers in this country. It's a very powerful brand name. A combination could be put together whereby their content is promoted in some way that works for AOL and brings more subscribers into the service, and the economics would be allocated appropriately. But they can't have it all. Unfortunately that's what they want.

Topics: Networking

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