The double-edge of the FCC's DSL ruling

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.

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.