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COMPUTING

From...
PC World

Broadband, narrow choices

Image

January 25, 2000
Web posted at: 9:49 a.m. EST (1449 GMT)

by Eric Brown

(IDG) -- Broadband Internet access has the potential to turn the current e-commerce trickle into a waterfall and open up new worlds of collaborative education, multimedia entertainment, and interactive communications.

That's no secret to anyone, least of all the phone and cable companies that promise to bring fast Web access to your door. But these industries have had monopolies over their local service areas for decades. Does that mean that soon they'll also monopolize your access to the Net?

  MESSAGE BOARD
Broadband networking

 

In the past several years, a record number of acquisitions and mergers has resulted in a shrinking band of companies that dominate Internet delivery. Telecommunications conglomerates are swallowing cable giants. Long-distance carriers are hooking up with backbone operators and big ISPs. Ma Bell is morphing into Ma Net.

Today's business users and consumers still enjoy low flat-rate pricing and plenty of choices among dial-up Internet access providers. But that could change as the transition toward broadband Net access takes hold. Not only are the costs of implementing fast access higher -- and thus out of reach of many small ISPs -- but the broadband networks themselves are often off-limits to all but a handful of big cable and telephone companies.

The long-term result? It depends on whom you ask. According to some industry observers and open-access advocates, we can expect spotty reliability, tepid customer service, and higher rates. Others, including the Federal Communications Commission, believe that the intensifying rivalry between cable modem, DSL, and other bandwidth technologies will help jump-start the rollout of broadband access across the country, keeping rates -- and service -- at least as competitive as they are today.

The Net: Who's in charge?

You've probably heard the Internet belongs to no one, and in many ways that's still true. In fact, the physical Net -- the servers it runs on and the backbones that connect them -- is far more diversely "owned" than it was a decade ago when the U.S. government and a handful of universities ran the show.

Nevertheless, the wave of consolidation among cable and telecommunications companies over the past two years threatens to change that picture. Here are some of the major deals so far:

  • AT&T acquired cable provider Tele-Communications, Inc. in 1999, renaming it AT&T Broadband and Internet Services. AT&T already owns WorldNet, the third largest dial-up ISP in the nation, and the TCI purchase gave it a controlling interest in Excite@Home, the larger of two major cable modem access providers. The other large cable modem access provider, Road Runner, is co-owned by MediaOne Group -- a company AT&T plans to acquire.

  • WorldCom has been on a shopping spree, snapping up rival long-distance provider MCI, plus the two largest Internet backbone providers, UUNet and ANS. MCI WorldCom has also announced plans to merge with Sprint -- a local, long-distance, and Internet backbone provider.

  • SBC Communications (the parent company of Southwestern Bell) acquired West Coast-based Pacific Bell in 1997. In 1999, SBC became the largest U.S. local phone company with its $61 billion acquisition of Ameritech, the Midwestern Baby Bell.

As a result of these mergers, AT&T is expected to own the pipeline into over half of all U.S. cable households, though FCC rules will require the firm to reduce its market share to 36.7 percent. And by 2001, we're likely to have only four companies -- AT&T, Bell Atlantic, MCI WorldCom, and SBC Communications -- controlling 70 percent of the U.S. residential telecommunications market, according to Tele-Trend, a research firm.

The number of players in the traditional Internet backbone market is shrinking, too. Today, the major backbone providers include Cable & Wireless USA, GTE (merging with Bell Atlantic), Intermedia Communications, PSINet, MCI/UUNet, and Sprint. Most of the major network access points, which connect the various backbones, are also owned by communications giants, primarily MCI WorldCom and SBC.

But while Internet backbone ownership is consolidating, the number of alternative backbone providers is growing. Over the last year, the average cost of moving data over domestic or international lines has dropped 25 percent. This is in large part due to long-haul fiber-optic carriers like Qwest and Global Crossing that provide corporations and ISPs with alternate routes. The sheer quantity of new fiber optic lines, combined with optical switching technology that increases how much data can travel over each line, means the cost of bandwidth is dropping for everyone.

At the same time, there's a widespread corporate movement toward virtual private networks that avoid the bottlenecks of the Internet at large by using dedicated, secure fiber networks among corporate branches and supply-chain customers. Satellite services are beginning to beam streaming content directly between content providers and ISPs. And a nationwide network of data hubs is being built to compete with the existing Internet infrastructure.

Thus, despite the spate of recent mergers and acquisitions, a number of competitive pressures have kept the Net backbone market wide open, preventing the dominance of just one company or industry -- for now.

The more ISPs, the merrier

In the marketplace of ISPs serving business users and consumers, a paradox emerges. The ISP business has been rapidly consolidating, capped off by the recent merger between EarthLink and MindSpring. At the same time, however, the number of ISPs has been rising. Between October 1998 and July 1999, a period that saw dozens of ISP acquisitions, the number of ISPs jumped 36 percent, from 5078 to nearly 7000, according to Boardwatch, a magazine for the ISP community.

While regional ISPs are merging and buying up local ISPs to better compete with the likes of AOL, new competitors are attracted by cheap bandwidth and lower barriers to entry. To be an ISP today, all you need to do is handle billing and customer service -- you can outsource the rest to a backbone provider.

One reason smaller dial-up ISPs are thriving is the growing importance of customer service. "[Smaller] ISPs serve some important marketing and service functions that can't be served by large companies," says Andrew Jay Schwartzman, president of the Media Access Project, a public interest law firm. Smaller ISPs may be better attuned to the needs of niche industries and minorities, and they're usually better at handling the needs of individual consumers.

ISP competition has kept monthly dial-up access rates steady -- and in some cases, prices have even dipped slightly (you can still find all-you-can-eat Internet access for as little as $9.95 a month). What's more, smaller ISPs that merged with bigger ones have gained more competitive features such as Web-server hosting. And the unions between larger ISPs such as EarthLink and MindSpring give the combined companies more clout to negotiate better prices for the wholesale bandwidth they buy from UUNet and other backbone providers -- all of which is good news for Web surfers.

The game of monopoly

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Cheap bandwidth, a robust economy, and fast-changing technology have offset most of the negative effects of industry consolidations. But as broadband replaces standard dial-up access, those blue skies may turn gray.

Obtaining broadband Net access isn't a problem for most businesses -- as long as they can afford to spend $80 per month or more per DSL line from companies like NorthPoint, which sells top-of-the-line DSL services to corporations.

For home-office users and consumers, however, affordable broadband access is probably available from only one DSL provider, such as a $50-per-month service from the local phone company, or from one cable modem provider (for about $40 per month). A recent FCC ruling that requires regional phone companies to share existing voice lines with third-party firms such as NorthPoint and Covad should make DSL more affordable and more widely available for most consumers. Still, compare that with the multiple ISPs you can choose from in the dial-up realm, and you can see a problem.

What's more, the big local phone companies offering high-speed access have the ability to make things difficult -- if not downright impossible -- for their potential ISP competitors, according to their critics. Here's a look at the state of affairs among DSL and cable modem service providers:

DSL

According to FCC regulations, regional phone companies can sell DSL access through their affiliated ISP subsidiaries. But they're required to lease out their "last mile," the copper wires that run from their central offices to neighborhood homes. Just as Baby Bells must provide access to these lines to long distance companies, they also must lease them to broadband ISPs. In addition, they must also let third-party DSL providers house equipment installed in the Baby Bell's central offices.

But the phone companies are charging such high fees for that access that only their own affiliated ISPs and very large competitors can afford to take the hit, according to the United States Internet Service Providers Alliance, an organization of ISPs lobbying to rein in alleged anticompetitive behavior in the telecommunications industry.

"The pricing is predatory," says Barbara Dooley, director of USISPA. "If ISPs want to stay competitive in the future, they need to provide broadband [access]. If they can't, we're going to see a shrinkage in the ISP market."

USISPA and others also claim that phone companies engage in other anticompetitive tactics, such as filling new orders from independent ISPs much more slowly than orders that come from their affiliated ISPs.

Meanwhile, the House Commerce Committee, headed by chairman Tom Bliley (R-Virginia), has begun an investigation into claims that the big phone companies are trying to shut broadband ISP competitors out in favor of their own affiliates. For instance, Bliley's staff recently obtained an internal SBC Communications e-mail that allegedly ordered employees to destroy records relating to the rollout of SBC's broadband services.

The internal e-mail message was "harmless and had no impact on our competition or their access to our DSL lines," counters Selim Bingol, an SBC spokesperson in San Antonio, Texas. SBC is "giving competitors the same access and treatment we give ourselves," he adds. In addition, SBC has established a separate subsidiary, Advanced Solutions, specifically to ensure that SBC treats all of its ISP customers fairly -- a requirement the FCC imposed on SBC as a condition of approving its merger with Ameritech, Bingol says.

Cable

AT&T touts the advantages of customers receiving all their communications and entertainment needs -- cable television; local and long distance telephony; broadband Net access; and, in the future, videoconferencing and interactive TV -- over a single line. In this scenario, the more services a consumer buys from AT&T, the cheaper those services become.

But critics say Ma Bell is getting too big and is locking potential cable modem competitors out of the market.

Until 2002, AT&T and 19 other cable providers are bound by exclusive contracts with Excite@Home, meaning that Ma Bell and the other companies must offer only Excite@Home's ISP services to their cable modem customers. (Time Warner and MediaOne are bound to similar agreements with the Road Runner service.)

These agreements are being attacked on all sides. In October 1999, GTE challenged cable modem exclusivity contracts in an antitrust case against AT&T and Comcast. In Congress, open-access activists are supporting a bill called the Markey Open Access Resolution. This resolution is similar to a recent Canadian Radio-Television and Telecommunications Commission ruling, which demanded that cable operators sell access to their cable modem infrastructure to third-party ISPs.

Meanwhile, hundreds of service providers have joined a group called the OpenNet Coalition. Led by America Online and backed by three powerful phone companies -- GTE, US West, and MCI WorldCom -- OpenNet claims AT&T has emerged as a dangerous broadband monopoly. The group is urging the FCC to force AT&T to open its cable pipelines to competitors.

Local governments have also been trying to force cable companies to open their networks. Cable providers won battles in San Francisco and Miami but lost in Broward County, Florida, and in Cambridge and Somerville, Massachusetts. At press time, similar disputes loomed in Portland, Oregon, and in St. Louis and Los Angeles.

All these cases are undergoing appeals. But the outcome is unlikely to have a major impact because national rulings supersede local jurisdictions, and the FCC has taken a hands-off approach. "I envision a broadband oasis," FCC Chairman William Kennard told members of the National Association of Telecommunications Officers and Advisors in a September 1999 speech, "where anybody who wants to compete in this broadband marketplace and make the investment to deploy should be able to do so in an unregulated or a significantly deregulated environment. That is the fastest way to get broadband out to the American public."

Kennard has also said that AT&T's efforts to bundle local phone service with cable modem access and other services should create some competition in the local phone service market. But the FCC may be overly optimistic. AT&T won't be offering local phone service as a separate service, says Mark Cooper, director of research at the Consumer Federation of America. Instead, Ma Bell will "only offer cheaper local service if you also buy their long distance and cable" services, Cooper explains, "and that won't do the average consumer any good."

AT&T argues that sharing access to its cable infrastructure presents considerable technical challenges. The company also claims that it's unfair to demand that it give away the meager fruits of its ongoing, multibillion-dollar investment in cable infrastructure.

Nonetheless, it seems that AT&T isn't completely averse to sharing: At press time, it had struck a deal with MindSpring to give that ISP (currently in the midst of a merger with EarthLink) access to the AT&T cable system, once its exclusive agreement with Excite@Home expires in 2002. Ma Bell says it is willing to hammer out similar agreements with other third-party ISPs. "The Internet should be driven by consumer needs and not regulated by the government," says Mark Siegel, a spokesperson for the company.

Within several years, the closed cable argument is likely to come before the Supreme Court. But by then, the Court could be looking at a much more entrenched infrastructure. There's a danger to the FCC's wait-and-see attitude because, if this cable infrastructure does indeed become more entrenched, it will become more difficult to open up, CFA's Cooper predicts.

The FCC is also working to stimulate broadband access by making DSL expansion a requirement of mergers between phone companies. For instance, the FCC demanded that SBC Communications boost its DSL business as a condition for approving its merger with Ameritech. In October, SBC appeared to go beyond the scope of the FCC's requirements by announcing it would invest $6 billion to make DSL available to 80 percent of its customers by the end of 2002.

Which broadband option is right for you?

Cable modem, satellite, symmetrical vs. asymmetrical DSL: There's more than one way to fly at Concorde speeds on the Net. Here's a guide to your current broadband choices.

Small to midsize businesses

If you own a business in a major metropolitan area and can afford several hundred dollars per month in access fees, you're likely to find a number of DSL providers competing for your broadband needs. Companies such as Flashcom offer a variety of DSL services -- such as symmetrical DSL, which offers transmissions at the same speed (up to 1.5 mbps) in each direction. SDSL service can cost $200 to $500 per month, but it's still cheaper than a T1 line and is a more mature technology than asymmetrical DSL (ADSL) or cable. And frequently the bandwidth can be shared among multiple users in the office.

Another option: fixed-point wireless services, such as Local Multipoint Distribution Service, which can crank bandwidth up to 2 mbps over one- to two-mile distances. With a fixed-point wireless service, voice, video, and data are converted to a microwave signal via a rooftop antenna and beamed to a base station, where the signal is translated back into a digital bitstream. But like microwave technology, LMDS has difficulty penetrating obstructions like buildings and leafy trees. So far, fixed wireless companies like Teligent and Winstar are aiming services at businesses, but expect MCI WorldCom to make a big push into fixed-point wireless for consumers as early as next fall.

Suburban home offices

For broadband access under $100 a month, you typically have only two options: your local cable provider, which usually charges $40 per month for download speeds up to 3 mbps and up to 128 kbps for uploads, or your local telephone company, which charges $50 to $60 per month for the typical 640-kbps (downloads) and 128-kbps (uploads) ADSL service. There are sometimes lower-cost, lower-bandwidth DSL options available for as low as $40 per month. And if you live close enough to a central phone company office, you may be eligible for high-speed ADSL service of up to 7 mbps -- but that service can cost hundreds of dollars per month. If you work primarily during the day, you'll get the most bandwidth for the buck with cable modems. However, after 3 p.m. on most business days, cable performance often slows to sub-ADSL speeds (the more people that get online, the slower everyone's access becomes). Another disadvantage: interactive cable is less secure than a point-to-point DSL connection.

Rural home offices

Out in the country, you're not likely to get cable modem or DSL service for years, and in extremely remote areas you'll never see them. But don't worry: You've got satellites! Hughes Electronics' DirecPC service offers 400-kbps download speeds -- but upload speeds are closer to the 33.6-kbps limit of your old dial-up modem. Installation costs (you'll need a satellite dish) are often pricey: about $200 and up, and monthly service ranges from about $30 to $130. By 2002, Hughes expects to offer broadband service from its Spaceway two-way low-orbit satellite project. Similar services are expected from Alcatel, Lockheed Martin, Loral, and the long-awaited Teledesic. Early services should be capable of cable modem-like speeds, with future satellite networks promising far speedier service.


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