Broadband Internet Access: The Market Solution Vs. Government Intervention

David Rice, Kennedy School of Government, Harvard University 2 The future of the Internet will be shaped more by policy choices than technology choices, – Steve Case, Chairman and CEO, America Online

David Rice, Kennedy School of Government, Harvard University 3 What is Broadband? Narrowband: 56K Dial-up modem Web Surfing Download text files Broadband: 100 x Faster Watch movies and listen to music Two-way Audio/Visual communication Large file downloads Always On

David Rice, Kennedy School of Government, Harvard University 4 Broadband Technologies DSL Cable ATM Satellite Wireless Fixed Wireless Fiber

David Rice, Kennedy School of Government, Harvard University 5 Broadband Penetration

David Rice, Kennedy School of Government, Harvard University 6 Broadband Distribution by Technology

David Rice, Kennedy School of Government, Harvard University 7 The Last Mile

David Rice, Kennedy School of Government, Harvard University 8 Open Access Telcos vs. Cable Traditional ISPs use regulated phone lines Cablecos use closed, proprietary networks Issue: Competition for high-speed Internet users and unbundling of delivery and content providers

David Rice, Kennedy School of Government, Harvard University 9 Bundling ITC Services: The AT&T Strategy AT&T acquires TCI and MediaOne Access to 30 million US cable subscribers Goal: provide one-stop-shopping for voice, Internet, and video.

David Rice, Kennedy School of Government, Harvard University 10 Controlling the Pipe and the Content: The AOL-TimeWarner Merger AOL: Largest ISP in the world 22 million subscribers in October, 2000 TimeWarner: Second-largest media conglomerate in the world 500,000 cable Internet subscribers in % of the current broadband subscribers

David Rice, Kennedy School of Government, Harvard University 11 ILECs: Fighting for Relevance Incumbent Local Exchange Carriers Marketspace openly competitive as a result of the 1996 Telecommunications Act Trying to roll-out DSL technology Fraught with technical problems and high-costs

David Rice, Kennedy School of Government, Harvard University 12 Drivers of Government Intervention in the Market Consumers need for security. Business desire for stability. Losers seeking relief. Winners wanting to cement their lead. The Internets role as official channel.

David Rice, Kennedy School of Government, Harvard University 13 Losers Beg for Government Action Open Net Coalition Funded by small, regional ISPs Founded by AOL (pre-Time Warner) Seeking Congressional or regulatory action to force cable companies to allow other ISPs access to their networks Spin: The Internet will become a Corporate Intranet

David Rice, Kennedy School of Government, Harvard University 14 Winners Warn Against Stifling Broadband Investment Hands Off the Internet Funded by AT&T Represents the cablecos who want to maintain their dominant position by keeping networks proprietary Spin: The Free marketit works!

David Rice, Kennedy School of Government, Harvard University 15 Open Access Fights Around the U.S.

David Rice, Kennedy School of Government, Harvard University 16 Political Stakes are High IT Industry Contributions (in millions) * January1 st through July 31 st only

David Rice, Kennedy School of Government, Harvard University 17 Confluence of Regulation Municipalities have jurisdictional authority over cable television franchises FCC has jurisdiction of Internet service providers and traditional telecom providers 1996 Telecommunications Act was perfectly vague regarding clear jurisdictional authority Court decisions and attempts to force open access at the municipal level have further muddied the issue

David Rice, Kennedy School of Government, Harvard University 18 Turning Points: AT&T v. City of Portland Portland, OR requires AT&T Broadband to open cable networks to competition Decision is overturned by the 9 th Circuit Court of Appeals Regulation of cable Internet networks is remanded, defacto, to the FCC

19 Turning Points: AOL-TimeWarner Proposed Merger AOL, the most outspoken critic of AT&Ts merger with TCI and proponent of open access to cable networks, abandons the grassroots effort Merger requires FTC approval (12/14/00) Expected to be required to open networks to competition Recently announced a pilot project to voluntarily allow access to ISP Juno, MindSpring, and Earthlink (Sprints ISP)

David Rice, Kennedy School of Government, Harvard University 20 Unanswered Questions Should cable companies be required to open networks to competition? Under what conditions? Price for leasing lines Level of bandwidth Authority to control network traffic Who has jurisdiction How much authority

David Rice, Kennedy School of Government, Harvard University 21 Recommendations Apply anticipated FTC ruling on AOL- TimeWarner as a model, scaled appropriately, for voluntary action by all cable operators Provide jurisdiction over fees, competition, consumer, and deployment to state-level PUCs Provide the FCC authority over broad policy issues, guidelines for PUCs, and technical assistance

David Rice, Kennedy School of Government, Harvard University 22 To comment or criticize, please contact the author: David Rice Candidate for Masters in Public Administration, 01 Kennedy School of Government Harvard University