FCC Kills Rule on Internet Access
Federal telecommunication regulators Friday scrapped rules that phone companies say have limited their ability to compete with cable TV operators in selling high-speed Internet service.
But what’s good for the companies may be bad for customers, according to advocacy groups, which predicted higher prices, fewer choices and slower innovation as a result of the ruling by the Federal Communications Commission.
The panel, in a 4-0 vote, ruled that Verizon Communications Inc. and other so-called Baby Bells no longer had to provide discounted access to their high-speed lines for independent Internet service providers such as EarthLink Inc.
Phone lines carrying data were reclassified as an information service, not a telecommunication service, meaning they don’t need to be shared.
The decision had been expected since June, when the U.S. Supreme Court upheld an FCC ruling that cable companies did not have to share their Internet lines with rivals.
“The order we adopt today is a momentous one,” FCC Chairman Kevin J. Martin said. “It ends the regulatory inequities that currently exist between the phone and cable providers.”
Verizon and SBC Communications Inc. hailed the decision, saying that the elimination of the mandate to provide access would spur greater investment in broadband and new services for customers.
Consumer groups decried the ruling, saying it would allow the phone companies to kick independent Internet providers off their networks or dramatically raise the cost for access, leaving the broadband market controlled by the dominant cable and phone companies.
“This is a bad day for the Internet,” said Andrew Jay Schwartzman, president of the Media Access Project in Washington. “It is, however, an inevitable outcome of the Supreme Court decision. I think it means higher prices and less competition and threatens the growth of the Internet.”
EarthLink, for its part, noted that the FCC order required phone companies to honor existing contracts with providers for one year. The Atlanta-based firm said it expected to strike reasonable deals with the Baby Bells for continued access to their lines because the companies benefit from the traffic and resulting revenue from EarthLink’s 1.5 million broadband subscribers.
“We have every confidence we’ll be able to extend existing commercial arrangements,” said David Baker, vice president of law and public policy for EarthLink. Investor reaction was muted, as EarthLink’s stock fell 3 cents to $9.04.
Some analysts, in any case, say independent providers are already out of the game.
Companies that sell dial-up Internet access have struggled to make the transition to a broadband world. They are trying to offset dwindling dial-up subscriber revenue by selling high-speed packages with services including security software, digital music and Internet calling.
EarthLink also is experimenting with alternative ways of providing access, such as by satellite and over power lines.
The effect of Friday’s ruling on Internet providers may not be great “because they’re not that strong right now anyway,” said Patrick Mahoney, senior analyst with Yankee Group.
Executives with SBC and Verizon said the ruling would, in fact, push them to compete even more aggressively with cable companies. Of the 37.9 million broadband customers in 2004, 56% used cable and 37% used phone companies’ digital subscriber lines.
SBC spokesman Michael Balmoris cited the wireless marketplace as an example of how access providers have struck deals with independent companies to offer services such as streaming video to cellphones.
“There’s this assumption that we will just jack up prices or kick people off,” he said. “The critics, they hold tightly to assumptions that no longer exist today.”
Consumers Union wasn’t buying it.
The FCC, said Gene Kimmelman, the group’s director of public policy, “continues down the wrong path on deregulation, allowing giant phone companies to tighten their stranglehold on competition, stifle innovation and reach even deeper into the pockets of consumers.”
