ISPs worried about FCC’s next DSL decision

Fresh from a defeat at the hands of the FCC, independent DSL providers say that what may happen next – a further relaxing of requirements that regional Bells must share their DSL networks – may kill off some small ISPs.

On Feb. 20, the FCC voted to allow the regional Bell operating companies to stop providing the “line-sharing” portion of their DSL networks to competitors at discounted prices. The FCC ruling, still not published in its final form, allows the regional Bells over a three-year period gradually to raise the prices they charge competitors to share telephone/DSL loops into residences.

The FCC’s rationale: The price regulations are no longer needed because significant competition exists in the residential broadband market, and that competition, from cable modem services as well as multiple DSL providers, should keep prices low.

Many independent ISPs saw that FCC decision as a blow to their businesses, but they may be more worried about another FCC decision on the horizon, one that would reclassify DSL as a less-regulated “information service” instead of a “telecommunications service.” Under the Telecommunications Act of 1996, telecommunications services are more heavily regulated than information services, with more requirements on how the owners of the networks share their services with competitors.

The FCC’s notice of proposed rulemaking, dated Feb. 14, 2002, outlines the reasons for the change, which could remove some of pricing regulations for Bell-controlled DSL lines. The FCC document suggests DSL should be treated consistently with cable-modem service. Broadband services should exist in a “minimal regulatory environment that promotes investment and innovation,” according to the FCC notice.

Some industry participants said the final FCC decision on DSL classification could happen late this spring or early this summer.

The regional Bells argue that DSL should be regulated at the same level as its closest competitor, cable-modem service, where the owner of the cable line doesn’t have to share it. Unnecessary regulation is hampering the adoption of DSL service, which has only about half the market share of cable-modem service, the Bells argue.

“There’s no reason we should be subsidizing our competitors, just as cable companies don’t,” said Bill McCloskey, director of media relations for BellSouth.

The FCC needs to provide “clarity and certainty” for the struggling telecommunications industry, but the current policy giving different regulations for cable-modem service and DSL does not, said Link Hoewing, vice president for Internet and technology policy for Verizon, another regional Bell.

“This service competes directly with cable,” Hoewing added. “How can you justify treating it differently?”

The ISPs worry that such a reclassification would further remove any DSL line price controls on the regional Bells. The result, some ISPs fear, is that independents would be driven out of the DSL business, and consequently, out of the ISP business altogether.

Sue Ashdown, executive director of the American ISP Association, worries that the pending FCC action would allow the regional Bells to jack up prices to the point where they’re charging a competitor more for access to the line than they’re charging their own direct DSL customers.

“That’s a big disaster,” said Ashdown, of the reclassification. “I don’t see them as overnight flipping the switch, but I see them as having a free hand to discriminate.”

The reclassification, combined with the Feb. 20 FCC decision, could leave customers with fewer choices of DSL providers, said Dan Gregoire, co-founder of IgLou Internet Services, in Louisville, Kentucky.

With dial-up service, the Bells aren’t “wedged between” the customer and ISP, because the customer can choose a new provider simply by dialing a new phone number, Gregoire said. “In the case of DSL, the phone companies have created an environment where they have permanently wedged themselves between that ISP and the customer, and have prevented ISPs from getting the infrastructure needed to provide DSL by any other means than buying it from the phone companies,” he added.

Ashdown and Gregoire claim some of the regional Bells are already raising the prices they charge ISPs, but Verizon’s Hoewing questions those claims.

“It could be an issue where they just stop deployment to ISPs completely,” Gregoire said. “‘We are no longer required to do this, it’s been nice doing business with you guys, have a nice day.’ That may not be the case with all the carriers. Some other ones may over time raise the fees, so the price we pay per line may double, triple, to the point where the ISP may have to make a decision to get out of that business.”

BellSouth’s McCloskey denies that the Bells will jack prices up to outrageous levels, and said he doesn’t see ISPs getting cut off. “We are, for the most part, happy to have other people sharing our lines, as long as we can get a reasonable rate out of it,” he added.

Verizon has no plans to stop sharing its DSL networks, either, Hoewing said. The FCC may continue some regulations on sharing DSL, he said, such as requiring the Bells to share the lines, but not setting the prices. The FCC could also require the Bells to offer independent ISPs similar prices as they charge other DSL providers with similar contracts; for example, the same price that Verizon charges its online division.

“I would think the FCC would be watching those kinds of developments,” Hoewing added. “I would think that if they said we’ll be open, they’d make sure the pricing that’s done and the offerings made to ISPs wouldn’t be unduly discriminatory.”

Some observers suggest the FCC may not completely shift DSL away from being a telecommunications service; instead, the FCC would classify DSL coupled with Internet service as an information service, while still regulating the price Bell competitors pay for raw DSL.

The line-sharing decision last month caught some of the ISPs by surprise, and Gregoire called the waiting game on the next FCC decision “a real murky time right now” for the 3,000-plus independent ISPs in the United States.

“The switch is going to be potentially turned off for these guys,” Gregoire said. “Going forward, if you don’t have access to DSL long-term, it’s questionable what your role is going to be.”