Local Baby Bells blamed for broadband blues

By Mark Leon
December 19, 2001 12:44 pm PT

A REPORT FROM New Networks Institute, a telecommunications research firm in New York, predicts a new wave of ISP failures and a general stagnation in the rollout of broadband services.

The report, based on a survey of 80 national ISPs and CLECs (competitive local exchange carriers), lays most of the blame for this dismal state of affairs at the feet of ILECs (incumbent local exchange carriers), charging them with freezing out competition from CLECs and ISPs.

Eighty percent of the companies surveyed said the service they get from the local phone companies is “not OK” or “terrible.” Forty-three percent said service was so bad they cannot offer DSL service.

Seventy-seven percent of the ISPs interviewed also gave state and federal regulators failing grades, saying they are not enforcing existing laws designed to open local phone networks to competitors and service providers. Eighty-four percent of the companies surveyed said they believed local phone company networks are essentially closed.

If these issues are not addressed soon, the Dec. 14 report alleges, there will be further job losses in the telecom and technology sectors, lack of new investments there, and a broadband future that will not be able to support high-speed, two-way applications.

The report concludes that Congress should not pass any new telecommunication legislation, including the stalled Tauzin-Dingell bill, until there has been an investigation of, and a solution to, the ILECs’ alleged harmful treatment of ISPs and CLECs.

“ISPs and CLECs are under siege and will go out of business if the FCC doesn’t take action soon,” said Bruce Kushnick, an analyst at New Networks, in New York.

Kushnick also said that monopolistic practices of ILECs, such as SBC Communications in San Antonio, Texas, have damaged the long-term health of the economy. “As we go forward we are in a total mess,” said Kushnick. “The Bells have blocked the rollout of broadband, and they are blaming everyone else for the resulting problems.”

Selim Bingol, a spokesman for SBC, strongly disagreed that ILECs are freezing out competition. “Deregulation of the voice network has worked,” Bingol said. “We have lost millions of customers to competitors.”

Bingol also said it is unfair to blame local phone companies for the slow pace of broadband deployment.

“The broadband market right now is dominated by the cable companies. They own 70 percent of the market, and they are not subject to the same regulations that we are. The result is that there isn’t a big incentive for companies like SBC to invest in broadband,” Bingol said.

Bill Seifert, general partner at Prism Venture Partners, in Westwood, Mass., said the ILECs have abused their advantages as local monopolies. But he said it is time to look beyond the current situation. “It is true that the telecom act of 1996 was a failure.” Seifert said. “The ILECs have won — their monopolies are secure for the time being.”

Amid all the finger pointing, there is widespread agreement that something needs to be done. Scott Cleland, CEO of the Precursor Group, an independent research firm in Washington, said the debate over the Tauzin-Dingell bill is significant because it indicates Congress recognizes all is not well with the 1996 telecommunications reform act.

Action on the Tauzin-Dingell bill in the U.S. House of Representatives has been postponed until 2002.

The bill is largely seen as a boon to ILECs since it would ease regulatory restrictions implemented in the 1996 act. Opponents of the bill argue that ILECs need more, not less, regulation.

Although debate over regulatory issues continues, there are still unsolved technical problems that could provide stimulation for future growth in the industry, Seifert said. “Today it is impossible to do real-time applications over the Internet, but that doesn’t mean it can’t be done.”

This will require more broadband, and Seifert thinks there is a way to get it without the participation of the ILECs.

“I think wireless technology could give us a way around the ILECs,” Seifert said. “We could take advantage of 802.11b which exists now. Most people think of 802.11b as only an office, enterprise play, but it doesn’t take a lot to move those radios outside to a telephone pole.”

This, he explained, would be an end run around the ILEC controlled copper lines, the bottleneck commonly referred to as “the last mile.” “Why not just use telephone poles as antenna poles?” Seifert asked.

This would connect the customer from the office or home to a wired infrastructure such as cable or the PSTN (public switched telephone network).

“We would still be a long way from a real-time, Internet experience,” said Seifert. “But this is one way that technology could start to break down the barriers that are stifling progress today.”