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Ever since the landmark Telecommunications Act of 1996 became law, Baby Bell phone companies have been seething about provisions requiring them to lease access to their networks -- including their coveted high-speed broadband lines -- to rivals. The law's goal was to spark competition, but the Bells claim that the requirement has instead hindered their ability to compete in a high-speed telecom market.
Enter the Internet Freedom & Broadband Deployment Act, a bill introduced in Congress by pro-Bell Representatives Billy Tauzin (R-La.) and John Dingell (D-Mich.) and better known as the Tauzin-Dingell bill. Last month, the House approved the measure, which would eliminate the requirement that the Bells allow rivals to lease their delivery networks. But the measure still faces strong opposition in the Senate, where Commerce Committee Chairman Fritz Hollings (D-S.C.) is Tauzin-Dingell's most outspoken critic. Hollings plans to hold hearings on Mar. 20 that will address these broadband issues.
Even if Senate passage is unlikely, the Bells have other cards to play. In February, the Federal Communications Commission ruled that the Bells' consumer Internet offerings are information -- not telecom -- services (see BW, 3/18/02, "Broadband Policy: Did Somebody Say Oligopoly?") The ruling was preliminary, and it could take several months for the agency to make it final, but the new distinction would allow the FCC to ease regulations without congressional approval. While competitors are up in arms, the Bells counter that it's high time the rules forcing them to "unbundle" their networks were relaxed.
San Antonio-based SBC Communications is the nation's largest provider of digital subscriber line (DSL) service, with more than 1 million customers. Ross Ireland, the company's chief technology officer, recently spoke with BusinessWeek telecom correspondent Roger O. Crockett about why SBC and other Bells are pushing so hard for changes. Edited excerpts of their conversation follow:
Q: Do you feel that the proposals on the table in Washington will enable you to invest more in broadband services?
A: Yes. We want to be on a level playing field with other broadband providers. That's something we think the Tauzin-Dingell bill will do for us. Because of current law, I've spent almost $350 million on equipment that allows SBC to ship the traffic of a competitive phone company to their customers. But no one is using that except our own affiliate.
Q: Now you're required to open your networks to competition as a concession to getting into long distance. If regulations are loosened, wouldn't you stop sharing your network and still be allowed into the long-distance market?
A: To say we would not open our networks to get into long distance is not true. All current regulations [about sharing our network] would still apply [under the Tauzin-Dingell bill] to the "old" voice network. But forward-looking services would be free of the unbundling requirement.
Q: In many cases, your rivals have preferred to build their own networks rather than lease access to yours, right?
A: At the same time we're running fiber into the neighborhoods, we're [required by law] to provide space in the cabinets attached to the fiber so that others can put their equipment in there. We've spent $35 million to $50 million to do that, and to date, we don't have anyone in those cabinets except us. No competitor has taken advantage of it.
I have to be able to earn on the monies that I'm investing, and yet there's no way for me to. That causes us to look at the product and say we can't afford that.
Q: Was your raising prices last year related to this?
A: The only thing we could do was to raise our price on DSL from $39 to $49 a month. We didn't want to do that.
DSL competes with [broadband cable] and [cable companies] typically charge less. Cable is the dominant provider of broadband [nationwide], and yet it's not burdened by any such rules and requirements.... I need to price [DSL] down so that I can compete effectively against the cable providers. If we could find a way to price lower, then we would.
Q: Why have you stopped investing in your broadband network in Illinois?
A: Illinois had such onerous [regulations] that we withdrew from building in that state. There are similar [regulatory] orders in California and Texas. If those orders make us noncompetitive against cable and others, we're forced to curtail in those markets. That is not what we want to do.
Q: You're still investing in your broadband network. So what new services are we being deprived of because of these regulations?
A: One example is broadband passive optics. It's a breakthrough in providing fiber directly to the home. It replicates the signal on one fiber and translates it to many fibers. One fiber can serve between 32 and 48 homes or 12 midsize businesses. We feel that's pretty powerful. If you say to me, "We think you ought to find a way to have a [a competitor] interconnect to that," man, is it risky to build.
If I'm going to invest, I've got to have some guarantee that I'm going to get some return on that investment.... I have 100 business customers on this new technology in Houston. But I've capped the trial. I'm not doing anything further until we get better signals from regulators on our ability to earn.