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In a pair of decisions on Friday, the commissioners voted to veer in two radically different directions: deregulating DSL lines while simultaneously imposing onerous wiretapping requirements on broadband providers.
Let's first look at the FCC's more justifiable action, which says that companies providing high-speed Internet access over telephone wires no longer must share their lines with rivals.
Until now, companies like Verizon and SBC have been forced to offer competitors like EarthLink access to their networks at government-mandated rates. Friday's 4-0 vote, spurred along by a recent Supreme Court ruling, starts a one-year process of weaning the independent DSL providers and requiring them to negotiate new contracts.
As a result, liberal groups are yowling. Andrew Jay Schwartzman of the Media Access Project warned: "It means higher prices, less competition and disincentives for those entrepreneurs who have used the Internet as a platform for innovation and economic growth." Public Knowledge said it was "disappointed" that DSL is being deregulated.
Those arguments in favor of a Soviet-style regulatory regime might make sense if the Bells enjoyed a monopoly on better-than-dial-up Net access, but that's not the case. The bulk of fast connections are cable modems, not DSL, and satellite and long-distance wireless links are increasingly attractive alternatives.
Immutable laws of economics
Economists have long realized that the best way to ensure a healthy marketplace is not by adding more government regulations but by relaxing them--thus permitting Verizon, SBC and so on to reap the benefits of upgrading copper networks.
Russell Roberts, who teaches economics at George Mason University, offers this analogy: "Let's say I'm Southwest Airlines and I'm going to commission an airplane from Boeing that lets passengers stack more carry-ons in the overhead compartments. I want to order 100 of these planes. But I'm told that if I'm not using them at all times, United can borrow them. That affects my willingness to invest in an uncertain future."
The same economic principles apply to telecommunications companies: If they have secure property rights over their wires, they'll be more likely to invest.
This is what happened after the FCC voted in February 2003 to immunize fiber links from rules mandating sharing with rivals. It ushered in Verizon's Fios fiber service--and a broadband speed war between Verizon and cable operators that's great for consumers.
The benefits of DSL deregulation also promise to be huge. Jerry Ellig, a research fellow at an academic think tank called the Mercatus Center, says: "At a minimum that would create consumer benefits worth about $4.5 billion a year. That refers both to price reductions and the value received for new customers who only get broadband because of the decision."
FCC Chairman Kevin Martin seems to agree. He said on Friday: "Perpetuating the application of outdated regulations on only one set of Internet access providers inhibits infrastructure investment, innovation and competition generally."
Chairman Martin's double standard
So why doesn't Martin extend that logic to outdated eavesdropping regulations? In a second vote on Friday, the FCC extended onerous wiretapping rules designed for copper-wire telephone networks to the Internet. (The rules come from the 1994 Communications Assistance for Law Enforcement Act, or CALEA.)
The text of the FCC's CALEA order is not yet public, but early signs are worrisome. The FCC's two-page summary says that voice over Internet Protocol (VoIP) providers like Vonage that mimic traditional phone service must rewire their networks to be easily wiretappable.
It also proposes--and this is the worrisome part--to levy the same requirement on "facilities-based broadband Internet access service providers," which seems to cover any company or school offering any type of cable modem, DSL, satellite or wireless service. They'll have 18 months to comply or be fined.
"I am committed to ensuring that these providers take all necessary actions to incorporate surveillance capabilities into their networks in a timely fashion," Martin warned, bluntly. The FCC will work "closely with industry representatives, equipment manufacturers and law enforcement officials to address and overcome any challenges that stand in the way of effective lawful electronic surveillance."
What Martin didn't mention is that CALEA was never designed to apply to the Internet. In a column last year, I described how Congress never intended the law to cover online services or Internet service providers. (In fact, the FCC's schizophrenia required it to rule that DSL providers were an "information" service while also being a "telecommunications" service at the same time.)
The dictionary defines schizophrenia as "inappropriate actions" and "mental fragmentation." Unless the final CALEA rules differ from the summary, that seems to be a workable description of the unfortunate malady that's infected the FCC.
Biography
Declan McCullagh is CNET News.com's chief political correspondent. He spent more than a decade in Washington, D.C., chronicling the busy intersection between technology and politics. Previously, he was the Washington bureau chief for Wired News, and a reporter for Time.com, Time magazine and HotWired. McCullagh has taught journalism at American University and been an adjunct professor at Case Western University.
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Let's face it: the FCC is is stocked with losers.
-Remo
Go ahead and chop down a phone pole on your land, I can asure you'll be fined and maybe even put in jail . Fact is that small peace of land, the pole, and wire are all property of the phone company.
I'm sure no one of his readers complains about the fact that they have a choice of land-line phone long distance providers, regardless of the fact that Verizon or whatever Bell toiled so hard to put those lines up in the first place. Verizon gets a cut of the action regardless, and the cheaper long distance carriers pay access fees.
If it was a "Soviet-era" scheme to open up the path to cheaper DSL with alternative carriers just like the long distance phone lines, let's dig up Lenin and make him president.
But my words were chosen carefully: government telling you what you can and can't do with your property and setting prices (rather than letting buyers and sellers do that independently) is a Soviet-style approach.
Perhaps that would be justified if cable wasn't the king of the hill in broadband connections. But it is, so there's less justification for Soviet-style regulation of DSL.
"Friday's 4-0 vote, spurred along by a recent Supreme Court ruling, starts a one-year process of weaning..."
this seems to imply that the supreme court endorses de-regulating these services, which is not the case at all. the court only ruled that the fcc was empowered to regulate these industries by congress, and did not take a regulatory position either way.
"Those arguments in favor of a Soviet-style regulatory regime might make sense if the Bells enjoyed a monopoly on better-than-dial-up Net access, but that's not the case."
in fact that is the case. where dsl is provided the bells control almost the entire market.
"The bulk of fast connections are cable modems, not DSL".
true, another government sanctioned monopoly does have a sizeable portion of the market.
"and satellite and long-distance wireless links are increasingly attractive alternatives."
"increasingly attractive"? wouldn't it be easier to give real facts instead of misleading innuendo? the number of people with these sorts of services is effectively zero, which sounds much less impressive, i guess, otherwise the author would have indicated as much.
"Economists have long realized that the best way to ensure a healthy marketplace is not by adding more government regulations but by relaxing them"
this is true when applied to a free market. how do government sanctioned monopolies fit into this model? they don't.
"thus permitting Verizon, SBC and so on to reap the benefits of upgrading copper networks."
these are already monopolies, by default they do not need to invest much in their technologies in order to make money. they were granted these monopolies by the government to avoid instability caused by competition. how else would you explain that they are still using technology that was invented more than a hundred years ago? because the government felt it was better to have a stable infrastructure instead of a more expensive and potentially unstable free market.
"The same economic principles apply to telecommunications companies: If they have secure property rights over their wires, they'll be more likely to invest."
this is absurd. companies invest if they can make money doing so. the bells already have secure property rights. having to license their lines at a wholesale rate that ensures them a profit does not in any way harm their investment. it does however minimize the biggest virtue of being a monopoly: the freedom to set prices without fear of being undercut by competitors. which leads to the real subtext of their argument: we cannot compete on technology and service, so we need to be protected by the government from such competition so that we can continue to make easy money.
"It ushered in Verizon's Fios fiber service--and a broadband speed war between Verizon and cable operators that's great for consumers."
fios is not a currently available consumer product. a speed war does not in any way equal a pricing war. which leads to the following tally: in the united states (remember not soviet russia) almost every brodband connection is currently being provided by one of two government sanctioned monopolies.
"The benefits of DSL deregulation also promise to be huge."
"promises"? wouldn't wise de-regulation be based on actual empirical facts? aren't ideological type of regulations and de-regulations the domain of soviet russia?
"Jerry Ellig, a research fellow at an academic think tank called the Mercatus Center, says: "At a minimum that would create consumer benefits worth about $4.5 billion a year. That refers both to price reductions and the value received for new customers who only get broadband because of the decision."
isn't the ability to invent statistics available to everyone? wouldn't actual hisotorical data be more useful?
"FCC Chairman Kevin Martin seems to agree. He said on Friday: "Perpetuating the application of outdated regulations on only one set of Internet access providers inhibits infrastructure investment, innovation and competition generally."
"seems" to agree? can't the author find a more enthusiastic proponent? why isn't the chairman more confident? why isn't the author more honest is his arguments?
Nevertheless, I'll make a few points in response:
* Contrary to your claim, the Bells do not "control almost the entire market" -- I linked to the stats on cable modems vs. DSL
* You claim that Verizon and SBC are "monopolies" - well, they were at one point but not now when it comes to broadband
* When you're forced to share your network, contrary to your claim, you do not enjoy "secure property rights."
* Your claim that FIOS is "not a currently available consumer product" is incorrect.
* Ellig's $4.5 billion figure came from a careful study performed by economists, not made up.
The wires to the home/business should be seperated from the service provider. Wires are a commodity, serive is not. For the next 100 years, we will have one choice, how is that competition?
Just ask anyone from ENRON.
This entire no wholesale DSL "information service" decision was bought and paid for by the telco's very effective deep pockets lobbying and well placed campaign contributions. This was done with the cable co's explicit support and lobbying assistance, they want to keep broadband rates up by restricting competition as well.
The pro-wiretapping CALEA decision is meant to protect incumbent monopoly local dial tome providers by driving up the low cost competitiors like Vonage and Skype. Again, this supports both cable co and telco interests at the expense of innovative competitors. Plus it plays well to the law enforcement and anti-terrorism interests in Congress and at home.
This entire no wholesale DSL "information service" decision was bought and paid for by the telco's very effective deep pockets lobbying and well placed campaign contributions. This was done with the cable co's explicit support and lobbying assistance, they want to keep broadband rates up by restricting competition as well.
The pro-wiretapping CALEA decision is meant to protect incumbent monopoly local dial tome providers by driving up the low cost competitiors like Vonage and Skype. Again, this supports both cable co and telco interests at the expense of innovative competitors. Plus it plays well to the law enforcement and anti-terrorism interests in Congress and at home.
The theory, of course, is supply side, so now that the incumbents are protected from competition, they'll have the incentive to invest more in their networks to deploy services. But do you think we'll see 100mb/s broadband for $30/mo as in Japan now?
yah! fix the patent system!! fix social security!! keep going.. keep going... you will finally have the moral structure you have been searching for.. all the priviledge and power you have had will finally be justified my fierce leader... you will be at one with your surroundings...
I am tired of being the fool.. ignorance is bliss
You reap what you sow.
part, there deck my boy), when will SBC be offering phone
services (cheap dsl, cheap anything) in the Verizon areas? Let us
all know so we can sign up. In fact, when will Comcast get that
ONE other cable to go head to head with (in a one and one olny
cable company town).
And for the Mason moron, with little respect, when would
Southwest ever "loan" its jets without compensation? Airlines
share routes all the time. They are called "partners". Buy a ticket
from United and fly our"sister" airline Aair Canada. And besides,
if I can rent my jet rather than have it sit empty, I'm renting.
Talk about competing with cable? there is no competion. dsl is availbe for 1/3 the price.
what is happening here is that the fcc is giving the bells what they need to recreate a monolopy.
lower prices create a customer base, rule changes allow the bells to put small isp's out of business then come higher prices with no option to leave.
The airline analogy was terribly wrong. The coppers have been there hunred years or more. And it won't motivate Telcos to build fiber network. Why bother if there is no competition anymore? There is Cable yes, but please read studies about the effectiveness of oligopoly competition.
And the "Soviet-style regulation" analogy. Jesus, what a crap. You know perfectly well that there needs to be regulation to break monopoly and often oligopoly market situations.
If the FCC decision had been to give e.g. 15 years protection for residential fiber networks, that would have been understandable, but to give monopoly to old investment that has paid itself already several times is plain stupid from goverment side.
Just look at Fios. It never would have happened if the old-style telecom regulations were extended to fiber.
If you are fall with certain poverty classes you can qualify for free incoming phone service and emergency outgoing phone 911 service. This is installed and serviced at the cost of the taxpayers, again because minimal phone service is considered an essential public utility on the same level as public water or sewers.
As phone lines are a partially government-subsidized utility (that has the potential to carry DSL), we have the responsibility to fight for DSL market competition.
Your article casually glosses over the fact that not all houses are wired for cable, that some families have dropped all cable service for something called satellite TV and are screwed when it comes time to hook up to cable internet (basic cable is thrown in the package), that companies like Comcast routinely exploit customers who cannot get DSL price-wise or decide to drop those who use "too much bandwidth", the fact that the cost-benefit ratio is too high for Bells to connect rural (and even suburban) areas to FIOS, that cities are being driven out of offering free wireless broadband due to these same boradband carriers, the fact that DSL speeds are improving to parity with cable (at least in downstream) to stay completive, and that "naked DSL" carriers such as SBC Yahoo! have had real market penetration and have been effective in hooking up less affluent customers to some basic form of broadband (and God-forbid VoIP so they drop their local Bell entirely).
But it doesn't mean that every new service must follow the same type of regulation. Remember that the Bells are the underdogs when it comes to providing broadband.
As for your claim that connectivity is lacking, check out my column on that topic:
<a class="jive-link-external" href="http://news.com.com/U.S.+broadband+A-OK/2010-1071_3-5517695.html" target="_newWindow">http://news.com.com/U.S.+broadband+A-OK/2010-1071_3-5517695.html</a>
As it stands, the only criminals that get caught are the stupid ones. They use cell phones and hardlines, and they get arrested. Introduce technological savvy deemed "bottom rung" by most 5th graders (such "cutting edge" tech as IM, SMS, and -- egads -- VOIP) and drug traffickers, terrorists, and even spies, can communicate just about as freely as they want, because those communication networks are difficult to reliably penetrate. It can be done, but it is an expensive, technically challenging, and time-consuming process that must be restarted every time the bad-guy employees a new tactic. And lets not forget: HE'S the BADGUY.
Mr. McCullagh, I tend to agree with you. Let's embrace less gov't restriction on innovation and enterprise. But let's also embrace security and justice, hm? They aren't incompatible. If we don't, then let's not look far in assigning the blame when we learn that the next 9/11 was coordinated using an unconventional communications technique not technically covered by CALEA. Descrying the "onerous burden" of CALEA compliance is a total crock of crap. The beauty of a market economy is that producer expense is always passed to the consumer. This consumer will pay a little more for broadband and VOIP if that payment carries with it the assurance that terrorists and drug dealers aren't cowering safe and sound in the shadows of the same service.
I don't think that's really the wisest policy choice. There's also the tricky question of constitutionality. :)
Your analogy of an airline that buys a fleet of new planes is a little off. It's more like an airline that gets a fleet of 80 planes bought by federal taxpayers, and then buys 20 new ones, but is required to timeshare the 80 older ones. There's nothing strangely communist about that.
The newer FCC rulings, however, are CLEARLY contradictory. Stating that any line services above 64K are broadband information services and not phone services, and therefore aren't subject to traditional regulations, but also requiring VoIP providers using these broadband information services to conform to traditional phone service provider restrictions is very much having your cake and eating it, too. It's almost as though the FCC is TRYING to have its ruling contested.
The only ones who really hurt here are the consumers.
numerous mistakes - of fact as well as economic theory -
contained in your article. However, after having read all of the
above posts, I realize that more than enough people have
already called you to task for that. No need to flog a dead horse.
What consistently bothers me about your comments regarding
economic matters and government Declan is that you always
parrot ideas that are ideological, rather than empirical, in nature.
Ideas that can, in fact, be easily proved false just by looking
around at what's happening to the pocket books of the average
citizenry, of which I assume you are a part. Let alone what's
happening in every other industrialized country in the world.
Japan, Korea, and pretty much all of Europe ... all have tightly
controlled, sometimes even government owned, IT
infrastructures. And ALL have higher bandwidth, lower prices,
and more ubiquitous usage of just about any computing or
communicating device that you can think of, when compared to
the US of A. The reason: We insist here on the fiction that
unfettered corporate conduct (with regards to basic
infrastructure of all kinds, I might add) equals free and
competitive markets. It simply does not.
Furthermore, markets that are controlled mainly by regional
monopoly forces are just as harmful as those that are national or
global in scope - UNLESS they are forced to behave in some way
that ensures a competitive environment. The economists you
quoted should know that - it's in every textbook they ever had
to study OR teach from. And that's all that the former FCC
treatment of DSL lines and providers was doing. Think about it -
regional monopolies have effectively the same power over their
customers as total monopolies do, if for no other reason than no
one is likely to get up and move their persons and possessions a
couple of time zones just to get a few bucks off their phone
service. Making the regional DSL providers 'share the wires' is
the only practicible way of bringing any sort of meaningful
competition about.
The only alternative, that would be consumer/market friendly at
least, is too regulate the Baby Bells just as stringently as Ma Bell
was all those years ago. Or have the government take the whole
shebang over. Which would you prefer?
Declan, you clearly have the brains to think these things
through. And I do not doubt your desire to see a truly consumer
friendly market (no matter the product or service being sold). So,
do yourself and your readers a favor: Stop being seduced by
your other desire, to have an ideologically pure world. Start
realizing that many ideas that get labled 'lefty' are in fact more
consumer - and hence market - friendly and efficient than
comparable ideas from the 'right'.
It may be scary to take such a step, at first, but I think you'll find
a much better way of dealing with the problems of the world if
you do.
I don't argue with your point about Korea and portions of Europe, for instance, but I did address that question in an earlier column:
<a class="jive-link-external" href="http://news.com.com/U.S.+broadband+A-OK/2010-1071_3-5517695.html" target="_newWindow">http://news.com.com/U.S.+broadband+A-OK/2010-1071_3-5517695.html</a>
Broadly speaking, it's easy enough to say "let's have really really fast network connections." We could allocate billions of tax dollars to R&D, spend billions more in grants to municipalities, maybe even give tax credits to people who wire their homes with cat6 cable.
But those measures have costs. That money comes from somewhere, and if taxes were raised to pay for it, it comes by preventing people from engaging in productive activities elsewhere in the economy.
It could mean that a biotech startup that would change the world won't happen because the founders don't have sufficient money (change takes place on the margins, remember). Maybe it won't. We can't predict what would happen, except the costs will be there, somewhere.
I'll provide my own experience as a good example. When I first moved to my current area about 3 years ago, neither Charter (my cable vendor) nor PacBell/SBC (my local phone company) would provide static IP service to "residential customers," even if I required it for business use. So I decided to use Covad DSL, which offered great service, including a static IP, for very competitive prices. I had 3 years of very good service and my price even dropped $10/month along the way.
Meanwhile, my in-laws chose Charter for their internet service against my recommendation. Not only are Charter's prices exorbitant, but their service is *terrible* -- during peak hours, speeds drop below 128KB/s on a 3MB/s plan and outages are frequent. Worse still, recent testing indicates that they are blocking IPSec traffic on some networks.
Recently, I moved to a new location. In dealing with Charter, I learned that they now offer static IPs to "qualifying businesses." Unfortunately, Charter determination of a business customer is solely based on location, which completely undermines IT consultants and other data-hungry users who have home offices. Charter, on account of their monopoly, can completely disregard how their customers work. I called the local Charter business representative 4 times over 3 weeks, left voice mails each time, and received no reply at all. If they were in any way *competing* for my business, they would not be able to ignore potential customers.
So I tried SBC again -- while they now offer residential static IP for a charge, they said that I was too far from the local central office to be offered regular residential DSL (or, more accurately, ADSL). Their solution? Extremely expensive business SDSL (something like $189/month for 256KB/s up and down).
Again, I called Covad to see what they could do. For $10 more per month than SBC's residential DSL service, Covad offered me a dedicated local loop for ADSL (1.5KB/s down, 384KB/s up) and a static IP. Why could/would Covad do what SBC wouldn't? Because they're hungry and they need to compete to stay alive against monopolies like SBC. SBC has no such driving force.
My point? Just because you have cable broadband and DSL in your neighborhood does NOT mean you have adequate competition. Presuming Covad will get screwed by this ruling (a fair assumption), what is my option? Which giant corporation should I trust to look out for my best interest and continue to drive down prices and increase service in the face of little or no competition?
Worse still, what happens when cable operators and the Bells start to merge? You have to see that coming, Declan. Given our current business happy climate, a deal between Charter and SBC might be scrutinized by the FTC and FCC, but it would undoubtedly be allowed with minor concessions.
I am generally not a big believer in government regulation, but where the government has helped to create and continually sponsor monopolies, the market will never be fair and free. Especially when it comes to something as important as the last mile, the government simply can't take a completely hands-off approach to an uncompetitive environment that the government itself created.
-Mister Winky
Example: If there are 3 grocery stores in my town and each carries different brands of colas and chips that seem comparable, it might appear that I can avail myself of healthy competition. Unless all 3 grocery stores carry the same brand(s) of colas and chips (including the ones I really want), there is no true competition.
Similarly, considering DSL and cable to be adequate broadband competition is flawed logic. Does NYC not regulate taxi drivers simply because you could alternatively take a bus or shuttle to the airport?
-Mister Winky
I don't think they mandate the rates. They regulate the rates. Not quite the same thing. Challenge to Declan: Where can I find the price the government requires SBC charge CLECs for wholesale DSL? Here's an URL that illuminates how the difference can be important: <a class="jive-link-external" href="http://www.cispa.org/press_sbc_rates.html" target="_newWindow">http://www.cispa.org/press_sbc_rates.html</a>
I think that (in this arena) consumers are best served by regulation; you think they're best served by competition. Are you willing to put your money where your mouth is? Even with the dirty tricks SBC's been playing, my cost for DSL has been going down in price steadily over the years. I'll bet you I won't be able to pay less for the DSL I have now a year and a half from now. (All bets off if the DSL deregulation expected a year from now doesn't occur as expected.) $100? $500?
PS. great comment, Mr. Winky.