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“Would you tell me please, which way I ought to go from here?” “That depends a good deal on where you want to get to,” said the [Cheshire] Cat. “I don’t much care where,” said Alice. “Then it doesn’t matter which way you go,” said the Cat. — Lewis Carroll, Alice’s Adventures in Wonderland Today, the United States has no coherent national policy for broadband services. No one has determined where we want to get to or which way we ought to go from here. Yet, unlike Alice, we should care very much — for almost everyone agrees that access to broadband services is critical to our future. “Broadband” is shorthand for a range of new high-speed information technologies that are tying our nation together socially, commercially, politically, financially, and a hundred other ways. Through electronic alchemy, what was once a simple copper phone line can now deliver a high-speed Internet connection. Cable wires that once delivered one-way video programming are turning into two-way information highways for voice, video, and data. The airwaves are becoming broadband conduits through terrestrial radio and satellite-delivered services that link homes, cars, and people to the Internet. Already, more than 6 million Americans subscribe to these services. And that’s just the start. For all the benefits broadband promises, it faces significant perils. Billions in long-term investments must be put on the line. Consumers can be fickle about where they spend their dollars. Snags in implementation can be ruinous. Unfortunately, regulatory uncertainty is the order of the day. Due to a series of ad hoc actions by the Federal Communications Commission, providers’ obligations vary depending on the technology used to deliver the “last mile” of local broadband service: Digital subscriber lines (DSL) remain subject to traditional monopoly phone regulation; cable modem services generally are free from such rules; and wireless services operate under their own distinct regime, mostly directed toward regulating the spectrum itself. Yet the broadband services delivered by these technologies are functionally equivalent in the minds of consumers. This regulatory patchwork has prevented providers of comparable services from competing as equals. It has deterred capital investment in all broadband technologies and now threatens the United States’ position as world leader in such technologies. To avoid Alice’s fate, then, we must take stock of where we have been and where we are today, and determine where we need to go tomorrow. MAZE OF CONFLICTING REGULATION Inconsistencies in the regulation of broadband services are due primarily to the nature of the governing telecom statutes and regulations, which were drafted without a full appreciation of the extent to which different technologies would converge. This is not surprising — technological advances have a habit of moving more rapidly than government policy. Indeed, the Internet has emerged as a center of commerce, news, and entertainment in the relatively brief span since enactment of the Telecommunications Act of 1996. The speed of change has further complicated the already challenging job of the FCC and its state counterparts. The FCC has launched a series of inquiries and rule makings to sort out where, when, and how regulation should be changed in response to the developing broadband marketplace. Regretfully, these inquiries have been scattered across different bureaus of the FCC and have analyzed only isolated pieces of the problem. A series of decisions have merely reacted to issues of the moment and have blindly followed regulatory models for traditional services. Each new service offered by a particular class of providers has been placed in its own special box with its own special rules. The resulting maze of conflicting regulatory paths leads nowhere in terms of our broadband future: DSL. Because DSL service utilizes portions of the local telephone network, it has been subject to traditional common carrier regulations under Title II of the Communications Act. Yet all DSL providers are not treated equally. While “new entrants” are subject only to Title II’s basic nondiscrimination, reasonable rate, and interconnection requirements, the FCC has placed considerably greater burdens on incumbent local exchange providers — burdens that Congress did not necessarily contemplate or authorize in the act. These providers — including Verizon, BellSouth, SBC, and Qwest (the former Bell operating companies) — must unbundle the DSL-capable loops of their networks and sell them at cost to their DSL competitors; offer their retail DSL services at wholesale rates to competitive local exchange carriers for resale; allow those competitors to place their equipment and personnel at the incumbent provider’s facilities (“collocation”); and share their DSL-capable lines with competitors even when those competitors use the lines only to provide voice. Cable. While their formal categorization remains unresolved, cable modem services have not been regulated. This is primarily because the providers are cable operators, historically subject not to Title II but to Title VI, which does not impose nondiscrimination requirements. With one striking exception (AOL Time Warner), the FCC has not subjected cable operators to such Title II-style obligations. Municipalities have tried to regulate cable modem services pursuant to their authority over cable operators. But their efforts have received mixed results in the courts, and no such regulations are currently enforced. Yet the possibility of classification under the old service definitions hangs over the market, creating a disincentive to capital investment. Wireless. Wireless broadband services subject to Title III face few regulatory requirements, although they do struggle with spectrum shortages and challenges in securing rooftop and tower sites. To the extent that wireless broadband involves commercial mobile radio service, it is subject to the most basic Title II requirements, although not the more burdensome regulations applied to the Bell operating companies. Tensions between policy and political objectives further muddy the path to our broadband future. While there is general agreement on the goal of promoting rapid rollout and vigorous competition, the FCC decided nonetheless to require incumbent phone companies to offer portions of their network to other carriers at cost because of a need to jump-start local competition. Obviously, this discourages incumbents from investing in new technologies. Why make costly investments if competitors can simply piggyback on your successes and avoid the consequences of your failures? The same obligations also discourage new entrants from developing their own facilities, since they can use the incumbent’s network at unbeatable prices. Ironically, regulations designed to promote broadband deployment have actually undercut the incentives for existing providers and their competitors to build new “last mile” facilities. Finally, regulators have used the federal and state merger approval processes to cobble together requirements that apply only to specific companies, rather than to entire industries. Due to FCC merger conditions, for instance, AOL Time Warner, SBC, and Verizon are each subject to significant obligations from which their rivals are free. ISOLATED PIECES OF THE PUZZLE Today’s most popular broadband buzzword is “convergence.” Different technologies and services are coming together as they compete for consumers. Yet regulatory convergence is lagging behind marketplace convergence. The challenge of building one comprehensive regulatory framework for broadband services is complicated by the continuing ad hoc nature of proceedings. Small pieces of the problem are still being sliced and diced in isolation from a broader policy review. Consider some of the key issues being addressed by separate FCC proceedings: To encourage broadband deployment, should the FCC issue new regulations or forbear from enforcing existing ones? To what extent should incumbent phone companies be required to provide competitors with services and access to network elements needed to provide broadband services? Should providers of cable modem services be required to offer nondiscriminatory access to their networks? How should wireless advanced service providers be regulated? Should additional spectrum be made available? Congress too is considering various efforts to promote broadband deployment. The most notable bill — and the one with the greatest chance of passing — is H.R. 1542, the Tauzin-Dingell bill, which would eliminate regulatory hurdles that prevent the former Bell operating companies from providing Internet services across regional boundaries. Other bills aim to speed up deployment by offering incentives such as tax cuts, grants, and loans. WHERE WE WANT TO GET TO In order to decide which regulatory path to take, the United States needs to decide “where we want to get to.” We must establish the following core principles to govern the actions that will define our nation’s broadband future: Recognize the scope of the broadband product market. There has been much back-and-forth about the nature of competition between different broadband technologies. Clearly, from a consumer perspective, DSL, cable modems, and wireless broadband services are competing alternatives. The FCC finally agreed with this view in its AOL Time Warner order, expressly finding that all broadband services comprise a separate product market. Yet the agency has done nothing since to address the implications of this understanding. Ensure technological neutrality. As FCC Chairman Michael Powell concisely stated, “a bit is a bit.” Just as a bit does not care what platform is used to transport it, regulations should not care what telecom technology they address. Regulatory differentiation skews the marketplace and distorts the normal functioning of competition. If various services compete, there is no reason to create artificial regulatory advantages or disadvantages. Promote investment in facilities. Existing regulatory policies actually erect barriers to facilities-based competition. The FCC needs to undertake a wholesale re-examination of pricing and access policies adopted in 1996 and 1997 for telephone networks. As Rep. Billy Tauzin (R-La.) has noted, the goal of regulatory parity should not be to “subject the cable companies to the same rules that are currently being applied to the [Bell operating companies].” Instead, we should “applaud the cable companies for aggressively rolling out broadband services” and encourage government “to stay out of their way.” What the FCC should do is look hard at whether its existing broadband policies should all be relegated to the scrap heap. Congress also needs to consider pending legislation, such as S. 88 offered by Sen. Jay Rockefeller (D-W.Va.), that would provide investment tax credits as a means to fuel growth. Abandon ad hoc merger conditions. The agency leverage associated with the need for regulatory approval has frequently led to unique obligations being imposed upon individual companies. The practice of applying regulations to particular marketplace participants, while their rivals remain unhindered, is difficult to justify. The plain fact is that any such obligations should be the product of notice and comment rule makings applicable to the entire industry. Provide for reasonable and clear deregulation triggers. The goal of U.S. telecom policy is a more competitive, less regulated marketplace. Congress armed the FCC with sweeping powers to accomplish this in 1996, but the agency’s new arrows have rarely left the quiver, let alone taken flight. Very little guidance has been given about the types of factual showings that will trigger deregulation under various FCC standards. A set of reasonable, clear deregulation triggers would greatly aid those interested in providing broadband services. Today, 150 million Americans have access to the Internet, but only 6 million enjoy the vastly superior performance and additional services of broadband. Those consumers who have tasted it do not want to go back. A recent survey found that 63 percent of DSL users would give up coffee before giving up DSL. Clearly, access to such powerful technology must be expanded to all consumers. The future of the Internet rides on broadband. And the future of broadband depends on decisions made today about our regulatory policies. Alice stumbled into Wonderland. We have to build our path one mile at a time. R. Michael Senkowski and Andrew G. McBride are partners, and Catherine C. Bohigian is an associate, in D.C.’s Wiley, Rein & Fielding. Senkowski heads up the firm’s telecommunications and Internet practices. McBride is a member of the telecom practice and co-chair of the appellate practice. Bohigian works with the telecom and Internet practices. They represent a wide range of telecom clients, including former Bell operating companies, cable operators, and Internet service providers. The views expressed here are those of the authors; they do not represent the opinions of the firm or its clients. The authors wish to thank associates Marcus Maher and Anne Hoge for their assistance with this article.

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