Friday, August 05, 2005

That Giant Sucking Sound You're Hearing is the Sound of the FCC Removing Competition from the Telecommunications Landscape

Well, that didn't take long, did it?

About a month after the U.S. Supreme Court validated the FCC's earlier decision to allow cable companies to bar independent Internet service providers (ISPs) from their high-speed networks, on Friday the commission moved to close off phone companies' digital subscriber lines (DSLs) to competitors as well.

Mark your calendars, competition in the telecommunications industry will officially end a year from now when the Regional Bell Operating Companies (RBOCs) can bar competing ISPs (Earthlink, NetZero, AOL, etc.) from their DSL networks.

While it will mark the end of consumer choice, it will also be the beginning of the end of the Internet as we've known it. That is, heretofore, the Internet has been an open network and this openness has been the primary source of innovation on it. Can anyone name a single network innovation that has originated with either an RBOC or a cable company? None immediately comes to mind.

Now, with cable and phone companies having the ability to close off their networks to those pesky, innovative competitors, consumers will be stuck with the best and brightest ideas emanating from the minds of bureaucrats within companies like Cox and BellSouth.

The problem with this ruling and its predecessor dealing with cable networks as information services is that the FCC has forgotten who its employers are. These commissioners don't work for the phone and cable companies; they are, in fact, supposed to serve the public's interest. Yet, read the words of new FCC chairman Kevin Martin and tell me who you think he works for:
"It ends the regulatory inequities that currently exist between cable companies and telephone companies in their provision of broadband Internet services," Martin said, adding the vote is an "implicit recognition that the telecommunications marketplace that exists today is vastly different from the one governed by regulators over 30 years ago."
He's completely wrong! Together these rulings come closer to restoring the non-competitive telecommunications landscape that existed 30 years ago (when there was AT&T and a handful of rural telephone companies) than anything done since.

Think about it! There were at least eight RBOCs after AT&T was broken up as a result of the anti-trust ruling in 1984. There were hundreds of telecommunications company driving innovation in the phone and internet business after passage of the Telecommunication Act of 1996.

In a year, there will be a handful of big cable companies and four RBOCs. The odds are that this ruling will provide the financial basis for SBC and Verizon to buy either Qwest or BellSouth.

Meanwhile, the telecommunication industry will be returning to the vertically integrated business model that resisted innovation for decades.

James Crowe of Level 3 Communications pointed out a few years ago at the last SuperComm show in Atlanta, that innovation in the computer industry has been aided by the fact that it is a horizontally segmented industry. That is, companies excel and dominate various segments of the industry, with competition in each of those segments driving improvements, resulting in a robust culture of innovation which has come to characterize the industry.

Crowe said that the telecommunications industry has been resistant to innovation because companies owned the entire industry from top to bottom. As a result of that vertical integration, companies had little incentive to innovate because they had a lock on each segment of the market, whether it was infrastructure, services, or devices.

Thanks to the FCC's decision today, innovation in telecommunications in this country is preparing to enter another dark age.

No comments: