The double-edge of the FCC's DSL ruling

The double-edge of the FCC's DSL ruling

Summary: One thing we know for sure is that technology mono/duo/polies (aka: technopolies) are really bad for end users.   But, in an FCC ruling that could stifle competition in the business of internet service provision, I have mixed feelings.

TOPICS: Broadband

One thing we know for sure is that technology mono/duo/polies (aka: technopolies) are really bad for end users.   But, in an FCC ruling that could stifle competition in the business of internet service provision, I have mixed feelings.  In case you missed it, the FCC ruled to reclassify Digital Subscriber Line service (DSL) as an information service rather than a telecommunications service.  Setting aside the argument that distinguishing between the two is as ludicrous as attempting to distinguish between bloggers and journalists, the most important ramification of the decision is that ISPs such as Earthlink and AOL -- companies that were once  guaranteed a level playing field by way of regulation -- have been placed at a distinct disadvantage that could draw into question their long term viability as ISPs altogether. 

Without going into details, the cost of providing that same service to you, over the wire you're used to getting it, goes up to a negotiated retail price, while the providers of the wire (the Baby Bells) get to resell you the same wire, only at their cost.  As a result, independent ISPs with no ownership of last mile infrastructure will be faced with some difficult choices.  For example, they could choose to eat the cost.   But a dollar here or there for millions of subscribers can do awful things to your bottom line.  According to the aforelinked report, Dave Burstein, author of DSL Prime Newsletter, said via e-mail that "Wholesale pricing leaves so little margin even AOL couldn't survive, and MSN gave up on broadband as well......The ones that remain can't beat Bell prices, and have so little added value they haven't attracted enough customers to have an impact." 

Speaking of added value, the independent ISPs could pass the additional cost on to their customers and come up with ways to make those customers feel as though the additional cost is worth it.  They could do this by way of arbitrage -- hedging the provision of additional value-added services (ie: storage, anti-virus protection, and spam filtering) that in total  cost less to provide than the added cost that must be passed on to customers.  But despite what Earthlink is saying, sooner or later, the Baby Bells could easily match that added value and drive the cost-disadvantaged "indies" out.   Also according to that report, Dave Baker, vice president of law and public policy for EarthLink, is confident that his company can manage. "The FCC has preserved DSL access for the next year," said Baker. "And beyond that, we are confident we will extend existing commercial relationships with the Bells to offer our service. We already have commercial arrangements with all of them and some of the cable companies."

The situation isn't pretty and our first instincts might be to lash out at the FCC for officially sanctioning a cable/DSL duopoly.  But, on the other hand, regulation -- regulation with vestiges of the AT&T breakup in it -- is partly to blame for getting us into this mess in the first place. I actually agree that it's probably better to cut our losses now and let nature take its course instead of digging ourselves deeper into a hole by artificially propping up competition.  Recent history is beginning to prove that that technopolies aren't very sustainable and that innovation somehow has a way of breaking them down (although maybe not as rapidly as we'd like).  In some ways, trying to keep technopolies at bay through regulation turns out to be a crutch that slows that can only innovation down.  The innovators are much better off with a less complex labyrinth to deconstruct.

If the indie ISPs end up strategically deconstructed by way of the FCC's ruling, it's their own fault.  If I was one of those ISPs, I would have been at the head of the line when it came to figuring out new "last miles." For example, we hear about how all you need is one big fat digital backhaul to your neighborhood and a wireless mesh can take over from there providing voice (VoIP voice) and data, completely disintermediating the cable/DSL guys in the process.  Yet, when we hear about disruptive wireless technologies like mesh and WiMax, these ISPs are never mentioned as the innovators.  They've been protected by what Bob Frankston calls "the Regulatorium" for so long that you'd think they'd be leading the charge just in case this day of reckoning came.  Where is that pilot neighborhood that's putting up a hotspot like the 600 square mile one (see When Pigs Wi-Fi) in eastern Oregon? Or why hasn't AOL backed a truck up to my neighborhood to say that it would like to light up the next 10 city blocks with a wireless mesh and ask if I'd mind having a refrigerator sized piece of customer premises equipment (C.P.E.)  in my basement to get everyone on the backhaul?

That's not to say that they're not interested.  In the final paragraph on page 2 of the report, Marguerite Reardon wrote "EarthLink is also exploring alternative broadband transmission technologies too. It has already been involved in several trials using electrical power lines to deliver broadband service."  What I don't get is the sense that they're treating this as critical -- looking for ways to lead both the technology and the social change that's needed to extract us from the walled gardens we're stuck in.

Topic: Broadband

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  • Do the math, guys

    If I want to cover just my neighborhood with a local mesh, I'm going to get killed on pricing. A T1 line costs almost $200 a month and has less bandwidth than a DSL connection. If I divide that up among enough neighbors to bring it down to $20/month [1], I need ten of us for each T1. That leaves about 150 kilobits per user average, although the bursty nature of traffic will allow higher instantaneous loads.

    That doesn't cover the capital costs to install the repeaters, of course.

    150 kilobits isn't that much better than a good dialup. Bottom line is that the cable/telco duopoly have a lock on the only systems with enough cumulative bandwidth to serve the public: wires.

    [1] Figure 50% surcharge for administration of the system.
    Yagotta B. Kidding
    • Wow..

      Where do you find a T1 for that little? We could not get one for less that $1200/month. However, we got a fiber line for $1000/month at my work. That is a full 100M line. Divide that up among a neighborhood of 50 houses and that is just $20/month. And if 150 employees can't even touch 1/5th of that speed, you will never be without :)
      Patrick Jones
      • Who's providing the link?

        Considering an OC-3 comes in at 155Mbps it sounds like you're on a small metro network (something that isn't available to many of us suburban dwellers) so the question who providing the speeds to your metro network?

        In most cases I've seen on metro ethernet networks the Telecoms are the ones providing the fat pipe to the group anyway.
        • Cogent

          They have a fiber "ring" around the country. Luckily they have a point in Atlanta. And you are right, it is unfortunate that this isn't available to the suburbs.

          The telco is the reason our T1 cost so much. Our provider was actually just down the street, about 2 blocks, yet we still had to get on BellSouths system so that jacked the price way up. The funny thing is, they were actually cheaper than BellSouth.
          Patrick Jones
          • Cogent Co

            Cogent oversubscribes their bandwidth and are running on dark fiber all over the place. Their host to host speeds on their network would be dramatic; however, their interconnections to other ISPs (e.g. the rest of the 'Net) is always rated as poor at best. People hate Cogent for a reason, especially hosting companies b/c it typically adds 3-5 hops to every connection and tons of variable latency.

            Their carrier service to service other customers is $3k/month, not 1k, with a Gig-E connection running cheaper and volume discounts are available. I'm sure that you could run WiMAX from one of their 20 or so lit buildings in every metro area they touch.

            On the subject of T1 pricing I know SBC's pricing pretty well and it's probably comparable to the other baby Bells. It's all priced in route miles from the nearest central office (CO). Typical distances of 3-5 miles would cost about $300-400 monthly on a wholesale, 3 Yr. contract. That's just for the link to the CO without a link to the 'net or anything else to provide services on as an ISP that you'd have to add as cost. You can look all of this info up online if you know where to look, the pricing is always separate for local loop vs. data (e.g. the line to the CO vs. the service).

            The best solution for spreading broadband is something like Wimax to go to the locations where broadband is cheap and readily available on fiber in downtown areas and then spread it to the 'burbs and rural areas where there's little to no competition. Bundle this with a high quality of service and you'd see rural people moving in droves to broadband just as a phone replacement. Trust me, from growing up in the country the promise of wimax-delivered broadband in the $20/month range plus VoIP service like Vonage for $15/month beats the socks off of the expensive phone service and paying long-distance for every call to the city (in excess of $70 a month) plus you get broadband to boot!
    • Why wouyld you want a T-1

      When WiMAX (microwave) is so much cheaper for the backhaul?
    • Try a true rural area!!!

      I have been trying to get a T1 here in my home town for the last three years the price--650.00 for the T1 650.00 for the local loop!!!ohh did I mention that adds up to 1100.00 a month for a T1!!!! zip = 84734
      I have 25 customers that would be willing to pay 50.00 a month for the service.
      No one else will even provide dial up service here not even the local telco. T1 as a provider will handle 50 users with out significant degradation of service unless you have bandwidth hogs on service.
      at current time we are seeking grant funds and a local utility for tha ability to bring this service to us.
      30-40.00 a month for broadband is only a dream for us here -- you think it is bad cause you can do it for 20.00 a month there???
      The Don
    • serve the public
      Apple ipod
  • cable and telephone, telephone and cable

    what's the difference? the only one I can think of is the delivery method, and that will be becoming fiber on the telecom side very soon in major cities, and perhaps with some economic incentive (like no competition)to the outlying areas as well, 4gbs anyone?
  • More forks

    The telcos are FINISHED! I have reserved a fork to put in them - all of them. The existing landline POTS infrastructure is just too expensive to compete with cable. The ONLY reason they are still in the game is cable's refusal to cut prices. If Comcast cut their internet service from 50 bucks to 25 bucks - DSL would evaporate! Not only that, but Comcast could cut their VoIP price and bundle it with internet for say, 40 bucks. I can hear loud THUDs from telco execs hitting the floor . . .
    Roger Ramjet
    • PUH-LEEEZE! Cable lower their rates?

      What have you been smoking? Cable only goes up. As big as AOL is, they should launch their own satellite and go for 'DirectPC' type of service. If that was reasonable and faster, that would be a serious contender. No wires, no dealing with the cable company. BPL may be a contender, but there are a lot of variables still not filled in.
      • It could happen

        Cable companies could lower their rates for a year or two - so they can crush the competition and raise prices EVEN HIGHER. Its called "buying the market".
        Roger Ramjet
    • Except...

      [b]If Comcast cut their internet service from 50 bucks to 25 bucks - DSL would evaporate![/b]

      ...Comcast is NOT the only cable provider. Yes, they might squeeze DSL out of the areas they service, but there ARE other cable providers - i.e. Time Warner, Cox and (for the moment) Adelphia. There would have to be a major conspiracy between the lot of them to kill off DSL service. Of course, they would have to drop their prices WELL below $25 a month. SBC currently has a deal where you can get DSL for $24.95 a month. The nickel more a month wouldn't be THAT much of an incentive to change ISPs. They'd have to offer more of an incentive than what they've got now to change over.

      SBC's prices have been down as far as $19.95 a month with a year long commitment. Of course, you had to get other SBC services to qualify for that rate.

      Adelphia (the cable provider in this area) likewise demands that you be a digital cable subscriber before they hook you up with a cable modem.

      So... For what it's worth, the cable companies will need to do some serious price dropping in order to kill off DSL. Just keep in mind that the telcos will fight back. In which case, only the consumer will come out ahead with cheaper broadband prices...
  • We agree!

    I am complete agreement with you in that the indies have done NOTHING to insure their long term viability. As you suggest it was much simpler to "let" the telco's spend all the infastructure money and suckle the hind teat. Looks like the free meal is endding and they will be forced to compete and invest their own dollars.

    Believe it or not, I think this is one of the smartest moves the FCC has made in some time. More than any thing it has done so far, this will create an environment where competition will push the various technologies again.
  • Three wires into the house.

    Telephone, cable, electric. The most ubiquitous is electric, given the way that cellphones are becoming a real alternative to landlines.

    If the electric cable can be used for internet service, that allows in companies without an infrastructure of their own. Electric companies have not been in the communications business, so there would be no vested interest to displace.

    Wireless? Requires infrastructure and that requires an upfront investment. If that investment is to be made, local governments will have to provide it.

    Think about it from the point of view of non-cable and non-telephone companies.
    They're a third competitor. The other two have a big head start and a loyal customer base.

    Ever seen the generally accepted criteria for investing in the stock of a company that sells to the public? Number one in the category, with a bullet. Meaning, no competition with the likelihood of getting close. The existence of cable holds down telephone company stock.

    So, if the 3rd competitor in internet access is looking for major money from investors, they probably should find somewhere else to look.

    Let's be realistic here.
    Anton Philidor
    • Not quite

      If you get away from heavy metro areas you'll see that WISP (Wireless ISPs) are doing quite well.

      The truth is though the electric companies are the ones really in a position to change everything. I work closely with my local electric co-op and the idea of a new revenue stream is VERY appealing to them. Yes there is infastruture to install but as you say, the biggie (the last mile wire) is already in place. In the grand scheme of it, the hardware required is a reasonably cheap investment and the installtion work fits in nicely with normal line maintenace.

      Again, I think this was a move the FCC needed to make to force some competition and use of new technologies.
      • Ending competition.

        The FCC only ended the anomaly of forcing telephone companies to create competitors for their markets.

        Now the competitors are two, cable and telephone, and there is usually only one provider of each in any given area. The cable and telephone prices can be aligned well enough to assure customer loyalty and acceptable profits.

        The companies displaced can go out of business, change their business plan, or use electric lines. They are not going to make major investments, because they are unlikely to obtain the money needed on easy terms.

        Wireless, by the way, will be installed when and where it's profitable by one of the existing providers. Unless governments do it over the objections of the utilities.

        So, a decrease in competition using existing means. The only way to retain/obtain a third competitor is through good deals with electric companies. If that works, then many areas will have as much competition as they did before.

        Can't expect too much in this situation.
        Anton Philidor
        • Funny but I see it 180 degrees from you.

          In all honesty I really do see the traditional POTS and cable connections coming to an end in the coming years. You pointed out how silly it is to have and maitain three "wires" into every building in the country. As electrical power can't really be transmited without a wire, I would say it is the likely candidate for the long term, well, when combined with wireless.
          • Not so many degrees, I think.

            If you agree that the existing cable and telephone companies are the only ones able to make the investment in wireless, aside from governments, then our only difference is in whether or not they will want to do so.

            My feeling is, they will not want to make huge, disruptive investments. Not when they can make a good profit keeping the existing system going.

            Don't forget who owns the major cellphone companies.
            The telephone and cable companies can come to a tacit, comfortable agreement, and not have to worry about competition.
            They may need cash to buy out other emerging technologies, but they'll have enough to handle start-ups.

            If electric lines can be used, there'll be a third partner, at least in some places. In other places the telephone and cable companies will flip a coin to see who has to buy up the rights. And in still other places, no one will be interested.

            Oftentimes, gaining control is a lot harder than maintaining it.
            Anton Philidor
          • Where we disagree,,,

            ---"If you agree that the existing cable and telephone companies are the only ones able to make the investment in wireless..."---

            But that is where we disagree. Take a look at how many WISPs already exist. I see that and BPL growing now that the indies (Earthlink, AOL, etc) can't piggyback on others infastructure.