Is telecom pick-me-up in FCC’s hands?

We recently mentioned that “business-class” DSL services are scarce. While there are several contributors to this situation, a big one can be chalked up to regulatory chaos.

The after-effects of key issues long left untreated are now being felt by all of us in the telecom sector. One, of course, is the failure of the Telecom Act of 1996 to promote local competition.

Last month, FCC Chairman Michael Powell issued a written statement in which he promised a flurry of FCC activity and decision-making over the next six months. Specifically, Chairman Powell’s self-described “digital migration” effort will see the FCC tackle proceedings regarding “telephone competition, broadband deployment, media ownership reform and 21st century spectrum policy.”

Top executives active within the High Tech Broadband Coalition (HTBC) – a group of industry lobbyists representing largely software and manufacturing companies – have been urging the FCC to “remove the outdated regulations that are hindering investment and limiting competition in high-speed Internet access.”

It is a natural reaction to be skeptical of groups with blatant self-interests. However, the HTBC does make a good point: How enthusiastic will local/last-mile network service providers be to make network investments until they know where they stand from a regulatory (and thus a competitive) standpoint? Regulatory uncertainty is not much of a motivator for telecom companies to invest and innovate.

In this respect, it seems likely that the local loop (and that means DSL) too-will remain in the status quo until the players feel they have a strong business case for moving forward. Interestingly, cable modem services, which aren’t subject to the same incumbent unbundling rules because they aren’t based on the legacy phone network, have fared significantly better than DSL in homes. According to Powell, in June 2002, 9.2 million cable modem lines provided residential broadband Internet access, compared to 5.1 million ADSL lines.

Of course, the HTBC wants the FCC to reclassify broadband as an unregulated information service, relieving the phone-company incumbents of having to unbundled or share new, last-mile broadband facilities, including fiber and DSL electronics. What’s fair to both competitive and incumbent carriers, what will motivate carriers to invest and to innovate, and what will and won’t work remains to be seen. But the next few months are critical.