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But a third battle is brewing as well. When long distance services were deregulated local phone companies were required to open their systems to other phone companies. Now, content providers, like America Online, are trying to muscle their way onto cable systems using the same arguments the phone companies use. Of course, the cable folks are not about to give AOL a free pipe through which it can resell its content to cable company customers. And so, the whole matter is now in the hands of the courts and Washington.
Recently we interviewed Jonathan Zuck, who is the president of the Association for Competitive Technology and a member of the board of Net Compete Now. Both groups are against federal regulations that would impose upon cable broadband providers the obligation of allowing independent ISPs to simply get a free ride on their cable systems.
Pizzo: While local governments can regulate cable TV access and programming within their markets, your group doesn't want them also regulating or having any say over broadband data services. Is that correct?
Zuck: Let me back up a bit first. What's at issue here is that a real business model has grown up around putting in a lot of phone lines and providing a bank of phones that allows modems to connect to the Internet backbone. And those businesses are called ISPs or internet service providers. In the cable world, that need for a translation to take place between the end user trying to get on the Internet has disappeared, and so a lot of ISPs would like to see a situation in which the cable companies are forced to allow them to play the role of ISP, which under a new regime would be more like just a reseller of services. In other words, they wouldn't be adding any kind of value to the underlying infrastructure. There's an argument to be made that they add value in other ways, as a reseller providing some other kind of value-added services, etcetera. But from an infrastructure standpoint, they no longer bring anything to the table. And so what you have is a situation in which some of those ISPs, although not all of them, have been arguing in favor of the government intervening, and the federal government has been very resistant to do so. Chairman Kennard of the FCC has said that the industry is far too nascent -- cable represents only about 2 percent of Internet access right now, so it's tough to think of it as any kind of a monopoly, and regulation at this point would stifle the growth of broadband Internet access. And so the proponents of forced access took this battle to the streets, so to speak, and started trying to challenge it in local districts, and while over 95 percent of these cable transfers have gone through unopposed, there have been a few localities that have ruled in favor of forced access. One of them was in Portland, and that was just recently overturned by the Court of Appeals.
Pizzo: How does the cable industry differentiate then between TV programming that it carries on cable, in which local governments do have some say, and data services? What's their reasoning?
Zuck: There's two answers to that question. One is that it dates back to a time when they were basically a government-sanctioned monopoly, which they were the only game in town. It was illegal in some places to compete with the cable company. And so whenever you're bequeathed a monopoly in this way, you accept some level of regulation from the entity that bequeaths this monopoly upon you. That monopoly is already beginning to erode. There's already competition from companies like Star Power and others that are competing -- there's the phone companies, the power companies, everyone is getting into the cable television wars. But second and perhaps the more important is that the nature of the content is very different as well. In that case, it's saying that the cable companies have to carry certain programming and make certain channels available, but in the context of the Internet, all content is available anyway. None of this has to do with censorship or restricting the user's ability to get to particular Web sites. Once you have an Internet connection in place, you're welcome to go to any Web site that you want to, and so it's very different in that respect, in that there already isn't any control by the cable companies or any other ISP for that matter of the content that people view.
Pizzo: One of the arguments that could be made on the other side, in favor of some degree of federal regulation, is the merger between AT&T and AOL. The proponents could say, "Look, we're seeing a convergence here and what's going to end up happening is these major cable companies are going to end up merging with major content providers until there's just a few broadband cable ISPs. And, when it all settles out what we really need to have is more competition as we did in the phone business, therefore some degree of regulated open access should be provided for smaller ISPs.
Zuck: Well, the value of competition, I think, has more to do with value-added services. Again, remember that in the context of broadband, the ISPs don't really bring anything to the table as far as the customer is concerned. They don't give you access to more information, and the more regulation there is, the less likely it is they're able to bring you any kind of different pricing. So it's really a reseller relationship that people are trying to get imposed on cable. It's not a question of choosing between infrastructure providers. I mean, so, it's very questionable what benefits would actually be derived, like creating a sort of contrived competition between resellers of broadband. And furthermore, cable is not the only game in town either. Not only is Time Warner not the only cable company, because you have AT&T, etcetera, and Talk, but cable is not the only game when you consider fixed wireless, satellite, DSL that comes you know from the phone company. There are four or five equally viable means of getting broadband access into the home besides cable, so there will be competition between infrastructure forms, if you will.
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Pizzo: I live in a rural area and telecommute to all my jobs, and I can't get either DSL or a cable modem. I have AT&T cable and when I call them they just say, "Well, your area is just not on the list, we'll let you know." PacBell tells me the same thing.
Zuck: But be advised -- and this is a very confusing issue, I think, to a lot of people -- if Time Warner Cable was forced to allow Mindspring to resell its services, Mindspring would still not be able to deliver cable to your house. It's really a question of them piggybacking on an infrastructure that the cable companies need to have in place, and the only thing that will incent them to do that is believing that they're going to get a return on investments. I mean DSL costs $2000 a household (or something like that), so if you immediately impose some sort of take-away that says that you can only get a fixed return on this because we're going to actually put the real profits in the hands of resellers, you're not really creating an incentive for the infrastructure to be put in place. Mindspring is not going to be able to force the cable company to run a cable out to your house.
Pizzo: Well both the phone companies, the telcos and the cable companies -- and I don't criticize them for this -- will focus first on the areas where they can get the greatest return for putting in infrastructure, and those are always your population centers, and they move slowly out from that. The same kind of dynamic was going on way back when, a hundred years ago or less, when the government decided that it was a good idea to subsidize rural electrification and --
Zuck: Universal access?
Pizzo: Yes, and rural telephone service came about the same way. Basically understanding that the telephone companies were not going to invest in areas with sparse population, so the government subsidized that expansion. Do you think that with all the issues we have in this country around commuting and air pollution and whatnot -- that this could be a solution? That the government maybe subsidizes rural broadband service to some degree, along the same sort of lines that rural electrification occurred?
Zuck: Well, it's very possible that that is a viable solution to that issue of access. I just want to make a distinction, though, that this sort of forced access proposal that GTE and others are proposing -- I mean GTE doesn't even stand to benefit except by handicapping its competitors. This helps to reveal what some of the politics of this is all about. They're not even an ISP and they're the primary funding behind trying to fight to give ISPs access to cable lines. But the hazard of all of that won't help your situation. Your situation can be improved through potentially subsidized rollout of broadband, or through some of the broadband technologies becoming available like two-way satellite, that AOL has recently invested a great deal in. There will be broadband technology that comes to your place probably just as fast as the government would be able to bring it about.
I think the customer needs to understand that regulation as a whole is rarely in their interest, and while it's sold as being in their interest, it very often leads to higher prices and less flexibility in a relationship that they're able to have with some kind of service provider, and that right now, when we are in the middle of de-regulation, this would be the wrong time to regulate this industry while it's beginning to grow, and if they really want to see more broadband, if they want to see rollout of broadband, regulation will almost slow that process down, not speed it up. And so I think we're going to continue to see this debated by city councils and things like that where people will have perhaps even more direct access than they would when it was a federal debate. So I think you should keep an eye open within their own district and bear in mind who the people are behind this debate, and make sure that they are in the vanguard of their own interests.
Pizzo: Of course, the cable industry really doesn't hold much more affection with consumers than the telcos do. I don't think the consumer, after all the telecommunications jerking around that the consumer's gotten over the last ten years, really has much love or trust in either.
Zuck: No, I think that's exactly right. I think, though, that if you just look at complete Machiavellian self-interest, more people are likely to get broadband faster if the profit incentives exist for that to happen. That's what people need to understand. It isn't about liking the cable companies. It's about understanding that the intent, the literal intent of the open access movement, is to slow deployment of cable broadband. I mean, that's what I mean about talking about who's behind it. The purpose of that movement is to slow deployment of cable broadband.
Pizzo: Slow deployment to give who time for what?
Zuck: Well, if you consider that the primary force behind it is GTE, which is a phone company that's struggling to roll out DSL, it's about the Bell companies trying to get a leg up because they have to face regulation themselves. This isn't being headed up by small businesses everywhere or something. The primary force behind this is GTE, who has no interest in the rollout of cable broadband. They're not in that business. Nor are they an ISP that would benefit directly from the regulations that they propose. They are instead a phone company that benefits indirectly from the confusion and slow-downs that would result.
Pizzo: I know you don't speak for AOL, but since their merger with Time Warner, how has their position on this modified?
Zuck: Well, I can't speak for them, certainly, but I know that AOL is very savvy politically, and I think to some extent participation in this movement was a smoke screen to provide cover for the merger. I don't really think -- and you can look at their instant messaging performance -- that they're big proponents of giving other people a free ride, but I think that they will try to find a way that is mutually beneficial to them and their customers and their partners to roll out broadband as quickly as possible. There just isn't anything to be gained by creating this reseller arrangement for which there's no value added to the customer.
Pizzo: One last question. If consumers want to keep track of this, at least your organization's side of it, is there a Web site that's sort of a one-stop shopping center for up-to-date information on this?
Zuck: Sure. Our Web site is www.actonline.org, and we keep them up to date on this and many other issues related to technology policy. So that's probably the best way, generally, to stay informed.
Pizzo: Great. Well, Jonathan, thanks a million for taking time to talk to us, and we'll stay on top of this.
Zuck: It's my pleasure.
Stephen Pizzo is an award-winning non-fiction author, and newsman for the O'Reilly Network.
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