Critics who oppose deregulating the broadband market say the move will seal the fate of smaller ISPs and lay the foundation for a duopoly between the Bells and cable companies.
The Federal Communications Commission is considering whether to declare the Bells nondominant providers of broadband services, and in a separate proceeding, whether to classify DSL as an information service -- which would subject the phone giants to far fewer regulations. Under the FCC's computer rules, the Bells are required to provide ISPs service on a nondiscriminatory basis at the same rates, terms and conditions they offer their own ISP affiliates.
Some opponents of deregulation say ISPs can't compete with the phone and cable leviathans in the mass market under the current rules because it takes too long to break even on a customer. Deregulation will make matters even worse for ISPs, they say.
Maura Colleton Corbett, executive director of the Washington D.C.-based BroadNet Alliance, says deregulation will topple her ISP members. "It's game over for independent ISPs," she says.
Some ISP associations say the Bells can circumvent the law by charging their affiliates an inflated price and then cross-subsidizing them.
"SBC ASI [aka Advanced Solutions Inc., the ISP unit of SBC Communications Inc.] has the same problem [as outside ISPs] except they get recapitalized by Mama Bell," says David Robertson, president of the Texas ISP Association.
SBC spokesman George Thompson says that claim is a far cry from the truth.
"That is an illegal practice, so the suggestion is simply not the case. There isn't a shred of evidence to support that," Thompson says.
The incumbent phone companies argue they should not be subject to broadband regulations when the dominant providers of high-speed Internet access -- cable operators -- are largely unregulated and free to negotiate their own rates and terms.
Cable modems served about 9.2 million lines through the first six months of 2002, while during the same period there were 5.1 million ADSL lines, according to FCC data released in December.
Supporters of the current regulations say the Bells make a weak argument because the phone giants dominate the one technology through which most ISPs serve their broadband customers: DSL. The cable companies have opened their networks to some ISPs, but they are not required to do so and there are relatively few agreements today.
"Competition among different monopolies is not competition and that is what they are proposing," says Colleton Corbett. "We are so under siege in the DSL market. We don't even have the luxury to worry about cable right now. We have to fight one battle at a time."
An FCC spokesman could not predict in January when the agency would issue rules on the broadband proceedings. The first priority is completing the controversial Triennial Review, which also addresses some aspects of DSL but not the issue of how DSL service is classified.
Analysts say broadband deregulation won't have an immediate effect on ISPs because the Internet companies have multiyear contracts with their providers, and an FCC decision is likely to be challenged.
"It will get stopped in court. Either way nothing will happen in 2003," says Gartner Inc. analyst Ron Cowles.
