Broadband and the Beast

By Sager, Ryan H. | Reason, January 2000 | Go to article overview

Broadband and the Beast


Sager, Ryan H., Reason


"Open access" regulations may delay faster Internet connections.

In the last few years AT&T has spent more than $100 billion building a broadband cable network capable of providing high-speed Internet access and local telephone services along with TV programming. Given such a bundle of services and the Internet's stunningly steep adoption curve, AT&T is hoping that consumers will sign up in droves. It figures that by getting out in the field first, it should be able to snag the lion's share of the nation's cable modem users.

The trade publication Cable Datacom News estimates that there are currently about 1.5 million such customers in the U.S. and Canada, a figure it estimates will be 15.9 million by 2003. It's hard to overstate the growing frenzy over broadband, since the technology allows users to access the Internet at speeds unimaginable with even the best 56K modem connection and is seen as crucial to the future of Web-based business.

But even if broadband is the next big thing, it's not clear yet if and when AT&T's bet will pay off in full. The company s Excite@Home service, which offers a cable modem and full Internet access for about $45 a month, has about 600,000 subscribers. But The Wall Street Journal and others have cast a cold eye on AT&T's cable and Internet operations, accusing them of underperforming and blaming them for the telecom giant's recent earnings woes.

If the vagaries of the marketplace aren't enough to deal with, AT&T has also picked up a few hitchhikers on its own information superhighway. Internet service providers (ISPs) such as America Online, Mindspring, and Erols are trying to catch a ride on AT&T's "fat pipe." These ISPs, which present themselves as "open access" advocates, are lobbying the Federal Communications Commission to force AT&T and other cable companies to lease them space on their super fast systems at cut-rate, regulated prices.

Pricing, not access per se, is the critical issue. Currently, most cable-based broadband providers have exclusive contracts with their own ISPs, such as Excite@Home and Time Warner's RoadRunner. When those deals expire--AT&T's runs out in 2002, for example--it's generally accepted that broadband providers will start leasing space at market rates to competing ISPs. The only question is how much it's going to cost.

Abetting the ISPs in the battle for open access are self-styled consumer advocates. The advocates claim that AT&T and other cable companies offering similar services possess an illegal monopoly and should be forced to open their systems to competitors at below-market rates. This is not a stupid argument on its face. After all, the cable companies are themselves creatures of government, built on municipally granted exclusive franchises. But the investment in broadband, like the development of the technology itself, has been market-driven, and any policy that substantially reduces the potential return is likely to slow implementation and stifle innovation. After all, why take the risks if you can't get the rewards?

Most people would agree that the preferred regulatory regime is the one most likely to provide customers with the broadest range of services and options--a criterion that undercuts the open-access position. Nothing, however, is settled, and how this battle plays out over the next few years will have a serious impact on how quickly the average American can expect to get high-speed access to the Internet. It's also an object lesson in how consumer advocates are often a consumer's worst friends.

So far, the open access crowd has found little sympathy in the nation's capital. The FCC has prudently refused to step in and regulate an industry that has barely taken shape. But a series of orchestrated local battles has already yielded some results for AOL and its allies, as they have been able to convince a handful of municipalities to implement a policy that the feds have rejected. …

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