June 8, 2002
FCC spares cable from open access
One of the most important issues facing the technology industry is how broadband networks should (or should not) be regulated. The two primary camps are those that believe the phone and cable networks should be "open access"—that is forced to allow competitors to use their networks—and those that believe companies ought to be able to own and control their networks. This piece in Salon does an admirable job describing the issue and the various sides, though clearly has a bias for “open access.”
The fear, of course, is that if the phone and cable companies could prohibit competitors from using their networks, they will be entrenched monopolies that will raise prices, stop innovating, and regulate the content that goes over their networks. Currently there is an asymmetry because the RBOCs are forced to open their DSL networks to competitors while cable companies are not. Both sides, and the FCC, want an even playing field, but one side would lift the regulations on DSL and the other would impose them on cable.
Various bills have emerged to address these issues—such as from Fritz Hollings on the side of government intervention and from Tauzin/Dingell on the side of liberalizing government rules—but the real action may instead be at the FCC, where chairman Michael Powell has just ruled that cable companies should not be forced to open their networks and may move to lift the restrictions from DSL. Unfortunately, Powell gets little support from Bush who has been influenced by AT&T and has other priorities on his mind at the moment.
AT&T position is to be expected but telling: they oppose open access on their cable networks but support it for their RBOC competitors. Why? Though they say it is because it will “harm consumers” (a hypocritical argument since they argue the reverse for their own networks) the real reason of course is that lifting the restrictions on DSL would mean tougher competition for AT&T’s broadband service. Yet according to proponents of “open access” they have nothing to worry about—for as long as they aren’t forced to share their networks they will be a monopoly, immune from competition. But what about DSL? They too would be a monopoly, the argument goes, if it weren’t for the grace of the open access restrictions currently in place—whose abolition they stridently oppose. I suppose if satellite, fixed wireless, or any other sort of broadband access method got too successful the “open access” camp would be in favor of forcing them to share their networks as well. One has to ask: how many “monopolies” do you need in an industry before you have competition? I thought it was two, but maybe I’m missing something.
The open access camp argues to “open” cable networks on the grounds that DSL is no match for cable, but this makes their advocacy for holding back the DSL players with forced open access all the more bizarre. True, there are some places with only one option available for broadband services—but this is the minority. In most places where broadband is available there is choice—there is competition. It is also argued that lifting the forced open access restrictions on the RBOCs would kill the CLECs that compete with them over their network. Probably so—but the CLEC business model has been flawed from the beginning and it is serving no broader interest to have them on government-sponsored life support. Let other competition emerge instead.
Another argument for keeping DSL networks pried open is that the government helped the RBOC develop their networks in the first place. But how the networks were developed doesn’t change the wisdom of what is best for industry and consumers going forward and it hasn’t been the government investing in the upgrades for DSL. The open access argument is perverse in this context because it effectively says that because the government helped create a network monopoly it ought to remove incentives for industry to create new networks. Who would invest in a new network when the real possibility exists that you will be forced to share it with your competitors?
The major problem with the forced open access position is that is takes a static view of innovation and treats each network as a separate industry. But of course there really isn’t a DSL industry or a cable access industry—there is only a broadband industry, with competing approaches. Even though DSL and cable broadband access is not very widespread, the emphasis with open access regulation is on creating competition on those existing networks—managed competition—rather than creating a climate that encourages facilities-based innovation. The result will be that these, often inadequate, networks will perpetuate, whimpering along, and the incentive to innovate and develop new kinds of services will be severely hampered.
The regulations on networks have to be evaluated on how they affect incentives and the long-term impact on the growth and dynamism of the industry. The “open access” camp would have the major broadband arteries closely monitored and regulated to ensure that no player would be allowed to become too powerful. But of course this just removes the incentive to become powerful--to innovate, grow, develop new services and products and to be able to reap the rewards. We need to foster an environment that rewards innovation and allows broadband providers, new and old, to profit from (yes, I said profit! It’s not a dirty word) their services. We need to take the long view that looks to the broadband access models of the future and stops hampering the models of the present.