So Much for Michael Powell's Net Vision


By Alex Salkever The unraveling of Federal Communications Commissioner Michael Powell's grand plan for the Internet continued on Oct. 6 with a ruling from a U.S. court in San Francisco. A three-judge panel on the 9th Circuit Court of Appeals found unanimously that cable-TV companies should allow competing Internet service providers (ISPs) to sell Web access over broadband cable networks.

Powell had long asserted that cable outfits and phone companies should not be forced to open their networks and let competitors get a free ride on infrastructure improvements paid for by the incumbents. Allowing access, he claimed, would dissuade cable outfits and phone giants from investing in further technology upgrades that would improve U.S. broadband infrastructure.

ON LIFE SUPPORT? The court found otherwise, opting to continue classifying cable-Internet as a telecommunications service. This means it falls under federal telecom laws, which mandate open access. Powell vowed to appeal the decision -- and he might have better luck in another venue, since this decision came out of what is considered one of the most liberal appeals courts in the land.

Still, the decision's importance is hard to overstate. Congress has already hammered Powell for his support of policy changes to allow large media conglomerates to own bigger chunks of individual local markets. It has even threatened to pass legislation reversing Powell's policy, which would be almost unprecedented. With the judicial branch now going against his views, Powell's plan to deregulate the communications and media industries may be ready for life support.

Should the ruling stick, a host of ISPs could establish toeholds in cable systems that provide tens of millions of Americans with high-speed Internet access. About 14 million households subscribe to cable Internet services, but that figure could grow by as much as 50% in the coming year as more people warm to broadband's benefits.

BELL WRINGER. America Online (AOL) and Earthlink (ELNK) would be two of the big winners, but a host of smaller players could likewise pry their way into cable systems. Aside from cable giants such as Comcast (CMCSA), the other big losers are the Baby Bells such as BellSouth (BLS), Verizon (VZ), and SBC (SBC). All had hoped for a ruling that defined high-speed Internet access as an unregulated data service, not a telecom service.

If that had happened, telcos might later have convinced courts to let them cut off DSL network access to competitors. That would free the Baby Bells of the hated albatross of having to sell cut-rate access on their high-speed networks to competitors that lure away their lucrative broadband subscribers. As it is, the ruling could have a more severe impact for the Bells than for their cable cousins, since the telcos are relying on growth prospects from broadband to shore up flagging revenues in landline markets, while the cable companies have a healthy business selling an ever-increasing array of TV-related products.

Consumer groups hailed the decision, claiming it as a victory for choice and competition. The Bells and cable companies kept mum, though they're expected to mount sustained lobbying and judicial offensives to try to prop up the flagging Powell Doctrine as the Presidential election kicks into high gear.

MORE QUESTIONS. Their fear? Should the Democrats win the White House in 2004, Powell would be gone -- and so would their chance. At the same time, Powell is looking like an increasing liability to the current Administration, which could, likewise, terminate the commissioner should Bush win reelection.

Beyond the obvious winners and losers, the Oct. 6 decision raised far more questions than it settled. Rules on which ISPs get a crack at the cable systems are a long way off, and it's possible the cable companies could undermine the decision by awarding access only to weaker ISPs.

Setting the access price for cable systems could prove a sticky proposition, too. In the DSL industry, this price-setting mechanism has long been a point of contention. The Bells swear they're losing money on the mandated prices they must provide to the upstart local exchange carriers, which in turn maintain that the prices are too high.

ON THE SCRAPHEAP? Perhaps more important, a broad shift in court policy that views the Internet as an extension of existing telecom services could pave the way for laws guaranteeing high-speed Net access to all communities, much like the universal access provisions for local phone service. It's too early to know whether that will happen. In the short term though, the decision could affect rollout timetables for the massive effort, recently announced by Verizon, to bring fiber-optic connections to additional millions of homes.

Above all, the decision puts a big dent in Powell's contention that DSL, cable, and other forms of broadband service coming online in the future will allow sufficient competition. And it decreases the likelihood that broadband Internet access will more closely resemble the rollicking long-distance phone competition that has ensued since the Telecom Deregulation Act of 1996 unshackled the sector.

Based on this latest court ruling, it seems more likely that little of substance from Powell's controversial three-year crusade to change the face of telecom in the U.S. will survive. Salkever is Technology editor for BusinessWeek Online


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