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AOL AND AT&T … WHEN THEY CHALLENGE THE CABLE MONOPOLY
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AOL AND AT&T …. WHEN THEY BECOME THE CABLE MONOPOLY?
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Press Release Monday, February 28, 2000 |
Contact: |
Washington, D.C. -- Consumer Federation of America (CFA),
Consumers Union (CU), and the Media Access Project (MAP) today
released a detailed analysis of official filings on open access to
the broadband Internet by American Online (AOL) and AT&T in the
U.S. and abroad.
The study demonstrates how AOL and AT&T have sharply reversed
their position on open access since announcing plans to purchase
major cable companies. The study is entitled Who Do You Trust?
AOL and AT&T… When They Challenge the Cable Monopoly or AOL
and AT&T… When They Become the Cable Monopoly?
Consumer groups are releasing the study as the heads of AOL and
Time Warner prepare to testify before Congress on February 29 about
their planned merger. The groups are asking lawmakers to probe
whether AOL/Time Warner or AT&T can be trusted to keep their
promises to provide open access without a legal obligation to do so.
AOL, the nation's largest online company, is seeking to acquire
Time Warner, the world's largest media corporation and the nation's
second-largest cable provider. The largest cable operator,
telecommunications giant AT&T, would also own more than ten
percent of AOL/Time Warner through its pending acquisition of cable
company Media-One.
"Before AOL and AT&T bought cable companies," said Mark
Cooper, CFA re-search director, "they both argued vigorously for
government-backed obligations to provide open access to cable. They
no longer do, although they still support such a legal obligation on
facilities owned by other companies."
"AOL and AT&T have done a unique flip-flop," said Gene
Kimmelman, co-director of CU's Washington office. "They are asking
policymakers to take a hands-off approach to open access, claiming
they can be trusted to do what they previously claimed could only be
done through regulation. By saying "trust us," the companies have
made honesty an issue. We believe it is appropriate to scrutinize
whether these companies can be trusted to open their cable networks
to allow citizens and small businesses to send and receive data
without restriction on the Internet service providers (ISPs) of their
own choosing."
"I assume that AOL and AT&T mean what they say in written
statements to public officials," said MAP's president Andrew Jay
Schwartzman. "They have eloquently ar-gued why truly open access
will happen only if it is mandated by law. They also con-firm the
feasibility of enforcing a simple non-discrim-inatory policy. We
agree: thous-ands of innovative ISP's serving entrepreneurs and
millions of individual citizens will never be able to purchase their
own cable wires. Those ISPs still need the pro-tec-tions that these
two huge corporations once demanded."
"The events of the past year make it patently obvious that public
policy to determine the free flow of commerce and information in the
"Internet Century" cannot be left to the whims of the large
corporations whose commercial interests change with every merger or
acquisition," Cooper said.
The following page contains key findings of the 40-page study.
For further information, contact CU at (202) 462-6262.
Consumers Union, publisher of Consumer Reports magazine, is an
independent and nonprofit testing, educational and information
organization serving only the consumer. We are a comprehensive source
of unbiased advice about products and services, personal finance,
health, nutrition and other consumer concerns. Since 1936, our
mission has been to test products, inform the public and protect
consumers.
The Consumer Federation of America is the nation's largest
consumer advocacy group, composed of over two hundred and forty state
and local affiliates representing consumer, senior, citizen,
low-income, labor, farm, public power and cooperative organizations,
with more than fifty million individual members.
Media Access Project is a twenty-six year old nonprofit, public
interest law firm that represents the interests of the public to
speak and to receive information via the electronic media of today
and tomorrow.
The study reviews the detailed descriptions of market structure
and elements of open access presented in official AOL and AT&T
filings - at the Federal Communications Commission, the Canadian
Radio-Television and Telecommunications Commission, and the
Department of Telecommunications and Information Services of the City
of San Francisco - before they sought to become cable companies
through merger.
FACTORS CREATING A NEED FOR OPEN ACCESS
The report also documents the very detailed recommendations that
AOL and AT&T offered policymakers to ensure open access.
NINE KEY ELEMENTS OF OPEN ACCESS
AOL AND AT&T … WHEN THEY CHALLENGE THE CABLE
MONOPOLY
OR
AOL AND AT&T …. WHEN THEY BECOME THE CABLE MONOPOLY?
EXECUTIVE SUMMARY
I. PUBLIC POLICY FLIP FLOPS
American Online (AOL) and AT&T were once vigorous advocates
for public policy to ensure fair competition and open access to the
broadband Internet. That was before they bought cable TV companies.
Promptly upon acquisition of cable wires - the very bottleneck
facilities about which they had complained -- they reversed their
policies and stopped supporting a public obligation to provide open
access to cable facilities. Yet AOL and AT&T continue to demand
that government impose open access requirements on other types of
facilities that they do not own.
This is certainly not the first time that a company has
flip-flopped on a position because of merger and acquisition.
However, it is unique given what AOL and AT&T are seeking from
policymakers: a trust-me, hands-off approach to open access. They
claim they can be trusted to do what they previously claimed could
only be accomplished through regulation. By saying "trust us," they
have made their honesty an issue. Therefore, we believe it is
appropriate to scrutinize whether these companies can simply be
trusted to open their cable networks to nondiscriminatory open access
for nonaffiliated Internet service providers (ISPs).
If AOL and AT&T were just expressing a self-interested, but
inaccurate, description of cable's monopoly power before they
purchased cable properties, then how can they be trusted now to do
anything other than follow their current self-interest in exercising
control over access to their cable systems? On the other hand, if
their previous policy positions reflected an accurate description of
the market structure and critical steps needed to ensure open access
- as we believe they did - then how is it possible for the "market,"
as they described it, to open itself up? This paper offers a
detailed description of the market structure and elements of open
access as presented to the public by AOL and AT&T before they
sought to become cable companies through merger.
Based on AOL and AT&T's past assessment of the market, which
coincides with our own past
research,(1) how can the public trust
them to do anything other than abuse the market power that they
claimed cable companies possess? Why should policymakers entrust
open access rules to a cable market dominated by AOL and AT&T
when those companies provided policymakers with the market analysis
demonstrating that openness can only be achieved through regulatory
mandate?
The purpose of the paper is to understand why AOL and AT&T
were so determined to secure open access to cable facilities before
they obtained a favored place on the information superhighway by
purchasing exclusive rights to its most attractive high-speed lanes.
Their previous statements about open access should carry special
weight with policy makers who are considering the demands that should
be placed on them as facilities owners. There are still thousands of
Internet service providers who will never be able to purchase their
own cable wires. They still need the protections that these two huge
corporations demanded.
Last October, AOL was deeply involved in a bitter fight to impose
an open access requirement on AT&T's cable company in San
Francisco. The city supported the concept of open access, but
required technical, legal, and economic analysis before
implementation. AOL answered the challenge by outlining the
justification for open access and offering a road map to the
light-handed requirements that would keep the broadband Internet
open. AOL aggressively lobbied city commissioners to adopt open
access and include the right for private parties, as well as the city
and county, to sue the cable operator if access was denied. A few
months earlier, AOL urged the FCC to impose the open access
obligations on AT&T at the federal level.
Contrast that position to AOL's current stance. When AOL chairman
Steve Case announced the merger with Time Warner, he said, "We always
hoped [open access] would come through the marketplace,
rather than having to get government involved." Time Warner chief
executive Gerald Levin said that the two companies were "going to
take the open-access issue out of Washington, out of city hall, to
the marketplace."
In a filing before the Canadian Radio-Television and
Telecommunications Commission in 1997, AT&T argued strongly that
an open access requirement was necessary to promote competition and
ensure that owners of broadband access facilities did not
discriminate against unaffiliated content providers. In doing so,
AT&T provided a point-by-point refutation of every argument it
has made against open access in the United States. In a filing at
the FCC in January 2000, AT&T made the same arguments in support
of an open access obligation on telephone companies in the U.S. that
it made in Canada three years earlier. The only change is now that
it owns cable wires it no longer supports open access for those
facilities.
The sharp reversal of position underscores the need for binding
public policy to protect and promote competition in the next
generation of Internet development. To put it bluntly, it is patently
obvious that public policy which will determine the free flow of
commerce and information in the "Internet Century" cannot be left to
the whims of the large corporations whose commercial interests change
with every merger or acquisition.
The recommendation that government requirements for open access
are necessary rests on extensive analysis of market structure. A
comprehensive case was laid out by AT&T and AOL by analyzing
supply and demand conditions.
SUPPLY-SIDE
VERTICAL INTEGRATION: AT&T and AOL viewed one
fundamental problem as leveraging market power from the core business
of vertically integrated facilities owners who have a dominant
position in an adjacent market. Thus, they advocated open access not
only because there was a lack of competition in the new market
(broadband access), but also because there was a lack of competition
in the core markets that the facilities owner dominates (cable TV
service for cable operators and local exchange service for telephone
companies).
PAUCITY OF ALTERNATIVE FACILITIES: AT&T and AOL
maintained that the presence of a number of vertically integrated
facilities owners does not solve the fundamental problem that
nonintegrated content providers will inevitably be at a severe
disadvantage. Since non-integrated content providers will always
outnumber integrated providers, competition can be undermined by
vertical integration. In order to avoid this outcome, even multiple
facilities owners must be required to provide non-discriminatory
access.
ESSENTIAL ACCESS FUNCTIONS: AT&T and AOL also made a
much more profound argument about the nature of the integration of
facilities and programming. They defined access to the customer as
an essential input to the delivery of information services for both
cable and telephone facilities. Because of the essential nature of
access, AT&T attacked the claim made by cable companies that
their lack of market share indicates that they lack market power.
AT&T argued that small market share does not preclude the
existence of market power because of the essential function of the
access input to the production of service. AOL also identified access
facilities as a key to keeping the market competitive.
NEW MARKETS NEED OPEN ACCESS: AT&T argued for open
access at an early stage of development of broadband in Canada.
Thus, AT&T's words respond directly to the claim that the market
is too new to require an open access obligation. AT&T argued
that the requirement is necessary to ensure that the market develops
in a competitive direction from its early stages in Canada. AOL
argued exactly the same thing in the U.S., when the market was still
new, but much more highly developed. It argued that requiring open
access early in the process of market development would establish a
much stronger structure for a proconsumer, procompetitive market.
Early intervention prevents the architecture of the market from
blocking openness and avoids the difficult task of having to rebuild
the market on an open basis later.
OPEN ACCESS SPEEDS DEPLOYMENT: A final supply-side argument
that these companies have made that is critically important to the
ongoing debate is its impact on the deployment of facilities. AOL
argued that open access requirements would do little to slow, and
might actually speed the development and deployment of broadband
facilities, while they ensure a vigorously competitive content
market.
MITIGATING FACTORS DISMISSED: AT&T also refuted each of
the major arguments against open access we hear in the U.S. The
existences of alternative facility providers is not enough to
eliminate the need for open access requirements, nor was the fact
that they were nondominant. It urged policymakers not to speculate
about technological breakthroughs.
DEMAND-SIDE FUNDAMENTALS
NARROWBAND DOES NOT COMPETE WITH BROADBAND: The most
fundamental observation on the demand side offered by AT&T in
Canada is the fact that narrowband services are not a substitute for
broadband services. AT&T and the cable industry say exactly the
opposite in the U.S. and this is a critical point in the antitrust
analysis of the AT&T-MediaOne merger. If the narrowband market
is a separate market from broadband, as AT&T so clearly argued in
Canada, then the concentration of broadband services that AT&T
proposes to accomplish through merger in the U.S. runs a very high
risk of violating the antitrust laws.
Not only did AT&T reject the notion that competition for
narrowband Internet service is sufficient to discipline the behavior
of vertically integrated broadband Internet companies, it expressed
the concern that leveraging facilities in the broadband market might
damage competition in the whole content market. AOL made similar
claims in the U.S., arguing that that closed networks would have a
chilling effect on competition for traditional cable services.
SWITCHING COSTS: AT&T also made an argument in Canada
on the demand-side that undercuts it claims in the U.S. that the
current advantage of cable over DSL should not be a source of
concern. AT&T argued that the presence of switching costs can
impede the ability of consumers to change technologies, thereby
impeding competition. The equipment (modems) and other front-end
costs are still substantial and unique to each technology. There is
very little competition between cable companies (i.e. overbuilding).
Thus, switching costs remain a substantial barrier to
competition.
BUNDLING: A third demand-side problem identified by
AT&T in Canada and AOL in the U.S. is the leverage that
vertically integrated firms possessing market power in an adjacent
market can bring to bear on a new market. By packaging together
broadband services, particularly those over which integrated firms
exercise market power, non-integrated competitors can be placed at an
unfair advantage. Bundling remains one of the focal points of debate
in the U.S. and AOL raised this concern, stressing that video
services play a key role in the emerging communications bundle.
While AT&T might argue that conditions have changed since it
so vigorously supported open access in 1997, and therefore it should
not be held to those comments, AOL can make no such claim. In fact,
AT&T's analysis of the broadband market is still applicable.
First, many of the arguments it made are unaffected by changes in
the industry. Second, AT&T's view of the likely development of
alternative technologies is similar to the view that many take today.
The two wireline technologies that are up and running, although not
fully deployed, are dominant. Cable is ahead of DSL. Wireless is
farther out in the future. Third, even where there have been
positive developments in the industry to expand alternatives, it is
not clear that such changes have been or will soon be of sufficient
magnitude to change the basic conclusion of AT&T's analysis.
Many analysts reach the same conclusion today about the U.S., that
AT&T reached three years ago about the Canadian market. Fourth,
AT&T continues to make the same arguments about vertically
integrated telephone monopolies that it made in the past. Until very
recently, AOL argued that cable companies had the incentive and
ability to behave in an anticompetitive and anti-consumer manner.
AOL always intended for private parties to implement open access
by negotiating the necessary details to implement an obligation
created by government action, but it simply cannot hide from the
critical role it felt government had to play. AOL urged governments
to make an unequivocal commitment to a comprehensive and meaningful
policy of open access that clearly signaled that closed access is not
acceptable. It urged the FCC to impose such a requirement on
AT&T. It urged the San Francisco to back up that commitment by
providing a private right of action and a threat of government
enforcement.
AOL's proposed rule for San Francisco typifies its approach to
light handed open access requirements in government authority creates
the obligation and then allows private parties to work out the
details with city enforcement as a backstop. This is the model
Congress applied to the telephone industry in the U.S., which
AT&T vigorously defends in its efforts to gain open access to
telephone wires.
Commenting before a federal body with much broader regulatory
powers in Canada, AT&T proposed an even more vigorous regime of
regulation. AT&T's policy recommendations were oriented toward a
federal agency. It argued that federal regulatory authorities should
not forbear regulation, exactly the opposite of what it now argues in
the U.S.
AT&T's regulatory proposal goes far beyond anything being
considered for cable operators in the U.S., although the telephone
companies are subject to exactly this type of regulation in their
high speed services. Indeed, AT&T continues to push for
regulation of telephone companies, including their advanced DSL
services. In fact, one of the more important implications of the
AT&T analysis in Canada is that the cable and telephone
industries should be subject to similar obligations. In the U.S. it
vigorously defends asymmetric regulation, with its property being
unregulated. AOL argued for symmetrical regulation of cable and
telephone facilities.
Policy makers can readily adopt AOL's recommendations of light
handed regulation and use AT&T's exhaustive discussion of the
elements of nondiscriminatory access as a standard by which to
measure whether private negotiations are working to implement the
obligation of open access. These can be summarized in nine points.
1. Comparably efficient interconnection, with the identification of several options for physical and virtual interconnection, a list that can hopefully be expanded.
2. Open standards with change management.
3. ISP neutral network management.
4. Minimum content and service restriction, consistent with neutral network management.
5. Performance parameters, including a list of services to be made available and practices to be avoided.
6. Confidentiality of competitively sensitive information and protection against abuse of such information by vertically integrated broadband service providers.
7. A wholesale relationship between unaffiliated ISPs and vertically integrated service providers from whom the independents wish to purchase facilities.
8. Rates for transport service that are subsidy free and not anticompetitive.
9. Bundling and marketing provisions that prevent the abuse of leverage over monopoly services.
The concept of essential functions in network industries that
provide market power over end user customers even where several
access providers are available is extremely important. These are the
new choke points in the Internet economy. Switching costs,
convergence of access, and bundling of products interact with the
relative lack of facilities to lead to the inevitable result that
without an open access obligation many independent content providers
will be at a severe competitive disadvantage to affiliated content
providers.
Both AT&T and AOL were fundamentally correct in concluding
that even without vertical integration and dominance, access is an
essential function that presents a significant problem for public
policymakers who are concerned about preserving the remarkably
dynamic innovation and competition. In the information economy where
the smooth flow of information is so critical, these choke points may
call for even greater commitment to ensure open access than has
historically been the case, because their importance imbues them with
even greater potential for the exercise of market power.
It is quite clear in the analysis of these companies that
broadband access services should be available on non-discriminatory
terms, even where there is an absence of vertical integration and
dominance. Through this analysis, they arrive at an entirely
reasonable public policy formulation that is consistent with our view
that communications and transportation networks have always been and
should be subject to a requirement to be open because of the critical
role they play.
What AT&T and AOL said as "unaffiliated" companies has even
greater importance for other "unaffiliated" entities. Even as
non-facilities owners, AT&T and AOL were still very large and
powerful corporations. Their analysis makes a strong case that the
problems facing unaffiliated ISPs are large and real. Their frank
discussion of the potential problems and the specificity with which
they offered solutions should be a wake up call to policy makers.
All but the most powerful ISP are likely to fare very badly in a
commercial setting where discriminatory access is not firmly
rejected.
It is obvious, however, that in the terms of the American debate
over open access, the remedies that AT&T proposed in Canada is
well beyond anything being contemplated in the U.S. No one in the
U.S. is advocating or contemplating such a heavy handed regulatory
approach. AOL's light-handed approach, with government triggering
private negotiations and backstopping the process, has received
considerable attention and been adopted in a number of communities.
At the same time, AOL's desire to make open access as efficient as
possible by using a public obligation to trigger private negotiations
over the details of open access is a valid observation. Because
interconnection is so important to the flow of commerce,
inefficiencies could be very costly, although not necessarily more so
than the abuse of market power. Without the public obligation,
there is little chance that open access will be provided for those
who need it most, the smaller niche players and innovative start ups,
who have defined the special nature of the Internet.
A. CHANGING POLICY POSITIONS
Before they purchased cable TV companies, both AT&T and AOL
were vigorous and prominent advocates for the proposition that
governments need to adopt a public policy to ensure fair competition
and open access to the broadband Internet. Promptly upon the
acquisition of cable wires -- the very bottleneck facilities about
which they had complained so loudly -- they reversed their policies
and ceased supporting a public obligation to provide open access to
cable facilities. Yet, they continue to demand that open access
requirements be imposed on other types of facilities that they do not
own.
While this is certainly not the first policy flip-flop driven by
merger and acquisition, it is unique given what AOL and AT&T are
seeking from policymakers: a trust-me, hands-off approach to open
access. They have made their honesty an issue by claiming that they
can be trusted to do what they previously claimed could only be
accomplished through public policy action. Therefore, we believe it
is appropriate to scrutinize whether these companies can be simply
trusted to open their cable networks to nondiscriminatory, open
access for nonaffiliated internet service providers (ISPs).
If AOL and AT&T were just expressing a self-interested, but
inaccurate, description of cable's monopoly power before they
purchased cable properties, then how can they be "trusted" to do
anything other than follow their current self-interest in exercising
control over access to their cable systems? On the other hand, if
their previous policy positions reflected an accurate description of
the market structure and critical steps needed to ensure open access
- as we believe they did - then how is it possible for the "market,"
as they described it, to open itself up? This paper offers a
detailed description of the market structure and elements of open
access as presented to the public by AOL and AT&T before they
sought to become cable companies through merger.
Based on AOL and AT&T's past assessment of the market, which
we believe is accurate and coincides with our own past research, how
can the public trust them to do anything other than exercise the
market power that they claimed cable companies possess? Why should
policymakers entrust open access rules to a cable market dominated by
AOL and AT&T, when those companies provided policymakers with
market analysis demonstrating that openness can only be achieved
through regulatory mandate?
B. INCREASING URGENCY FOR PUBLIC POLICY TO REQUIRE OPEN
ACCESS
The AOL flip-flop resulting from its acquisition of Time Warner,
coming on the heals of the AT&T merger with MediaOne, is a
special source of concern. These transactions push the ongoing
trend of concentration and consolidation in the cable TV and
broadband and Internet industries to alarming new levels. To trust
them to voluntarily refuse to exercise monopoly power that they
previously sought government control over is like relying on a
dictator to act benevolently. Their economic interests will
inevitably drive them to abuse their market power.
We now face the prospect of having two huge, interconnected
companies - AT&T and AOL - completely dominating the broadband
landscape. First, they would own over half of all cable wires in the
nation and half of the most popular cable TV programming. They would
have over half of the narrowband Internet subscribers and at least
three quarters of all residential broadband Internet subscribers.
Second, the cable industry has never behaved in a competitive
manner and this merger makes competition even less
likely.(2) Major cable companies
never overbuild one-another's facilities. They never compete
head-to-head in the wires business and they are joint ventured up to
their eyeballs in programming.(3) The
AOL-Time Warner merger creates one, interconnected set of owners of
broadband service providers since AT&T owns more than 10 percent
of AOL/Time Warner through MediaOne's substantial ownership of Time
Warner Entertainment. Indeed, AOL/Time Warner executives trumpeted
the fact that the first call they made after announcing the merger
was to AT&T CEO Michael Armstrong to offer to work together.
Third, AOL was being counted on by some to use its strong position
in the narrowband Internet market to propel the telephone industry's
high-speed technology (Digital Subscriber Line or DSL) forward as a
competitor to cable. DSL is behind cable in roll out and subscribers
and has significant technological disadvantages compared to cable,
including geographic coverage and bandwidth. It was hoped that AOL's
marketing and money would make this less attractive alternative a
future competitor for cable, particularly in the residential sector,
where DSL's limitations are greatest. There could be no clearer vote
of no confidence in DSL than AOL's acquisition of Time Warner.
In order to allay fears about the remarkable concentration that is
taking place in the industry, these companies have offered a series
of explanations and claims that actual and potential competition will
alleviate or prevent market power problems. When these arguments
fail to quiet critics and the companies are pressed to provide better
assurances, the companies insist that they can be counted on to
voluntarily negotiate fair arrangements for access to their newly
acquired facilities. These promises stand in sharp contrast to the
statements they made before they secured a favored place on the
information superhighway by purchasing exclusive rights to its most
attractive high-speed lanes.
This paper demonstrates that their statement about open access
before they obtained this advantage should carry special weight in
informing policy makers about the demands that should be placed on
them as facilities owners. The paper relies on official statements
made to governmental entities by these corporations. They loudly
demanded a public policy that imposes open access obligations on
broadband facility owners before their commercial interests in the
issue changed. The purpose of this paper is not to chastise the
companies for changing positions, although it does point out the many
ways in which what they now say contradicts what they said so
recently. Rather, the purpose of the paper is to understand why they
were so adamant to secure open access to cable facilities. There are
still thousands of Internet service providers out there who have not
been able to purchase their own wires, and never will be. They still
need the protections that these two huge corporations demanded.
AT&T made a lengthy filing before the Canadian
Radio-Television and Telecommunications Commission from the
perspective of an unaffiliated content provider owning no wires in
Canada.(4) It argued strongly that an
open access requirement is necessary to promote competition and
ensure that unaffiliated content providers would not be discriminated
against by the owners of broadband access facilities. In the
process, it provided a detailed and point-by-point refutation of
every one of the arguments that AT&T, as a dominant cable
operator in the United States, has made against open access.
AOL's advocacy of a public policy requiring open access is well
known and its overnight reversal of position has attracted a great
deal of attention. It argued vigorously for open access at the
federal level.(5) What is less well
known is the detailed description of open access that AOL offered a
couple of months before it acquired Time
Warner.(6) The City of San Francisco
witnessed one of the most prolonged fights over open access,
supporting the concept but requiring technical, legal and economic
analysis to flesh it out before it imposed a requirement. AOL, which
had fought bitterly for open access in the City, answered the
challenge by outlining not only the justification for open access,
but a road map to the light handed requirements that would keep the
broadband Internet open.
Contrast that position to AOL's current stance. When AOL chairman
Steve Case announced the merger with Time Warner, he said, "We always
hoped [open access] would come through the marketplace,
rather than having to get government involved." Time Warner chief
executive Gerald Levin said that the two companies were "going to
take the open-access issue out of Washington, out of city hall, to
the marketplace."(7)
Although the advocacy of AT&T and AOL for open access for
cable modems for broadband Internet service are the central concern
in this paper, it is important to note that these two corporations
have also advocated open access for other technologies. AT&T
argues for open access to telephone networks for advanced services.
Its most recent statements, filed in the U.S. in late-January 2000,
make especially interesting reading in light of the vigorous fight
AT&T has put up against open access requirements for its cable
systems.(8)
The sharp reversal of position underscores the need for binding
public policy, rather than vague private sector promises, to protect
and promote competition in the next generation of Internet
development. To put the matter bluntly, it is patently obvious that
important public policies which will determine the free flow of
commerce and information in the "Internet Century" cannot be left to
the whims of the commercial interests of large corporations that
change their views with every merger or acquisition.
C. THE GOVERNMENT ROLE IN ENSURING OPEN ACCESS
Did these companies really advocate a role for government policy
to ensure open access? There is no doubt about it.
1. AOL
While AOL always intended for private parties to implement open
access by negotiating the necessary details to implement an
obligation created by government action, it simply cannot hide from
the critical role it felt government had to play. AOL urged
governments to make an unequivocal commitment to a comprehensive and
meaningful policy of open access that clearly signaled that closed
access is not acceptable. It urged San Francisco to back up that
commitment by providing a private right of action and a threat of
government enforcement. AOL stated:
The City's critical and appropriate role is to establish and firmly embrace a meaningful open access policy, not to manage the marketplace. We believe that once such a policy is fully in place, the industry players will negotiate the details to fairly implement open access. The City thus should not have to play an active role in enforcing non-discriminatory pricing or resolving pricing disputes. Rather, the City should simply adopt and rely on a rule that a broadband provider must offer high speed Internet transport services to unaffiliated ISPs on the same rates as it offers them to itself or its affiliated ISP(s). The City's unequivocal commitment to this policy and the resulting public spotlight should offer enforcement enough, and indeed we expect that cable operators will adjust their ways readily once they understand that a closed model for broadband Internet access will not stand. When necessary, the opportunity to seek injunction or bring a private cause of action would offer a fallback method of obtaining redress…
As stated above, the City's role is to establish a comprehensive open access policy with an effective enforcement mechanism. Network management issues are best left to the industry players, and the City need not play a hands-on role in this area. The companies involved are in the best position to work out specific implementation issues. This is not to say, however, that a reluctant provider would not have the ability to interfere with the successful implementation of an open access regime. Accordingly, through its enforcement policy if necessary, the City should ensure that the necessary degree of cooperation is achieved. (AOL, pp. 4-5).
AOL did not have to defend the need for open access in its
comments to San Francisco, since the proceeding was to implement open
access requirements. It did, however, pat the city on the back for
endorsing open access. As AOL put it
AOL applauds the City for taking this critical step in the implementation of the Board of Supervisors' open access resolution, which wisely supports consumers' freedom to choose their Internet service provider and to access any content they desire - unimpeded by the cable operator. (AOL, p. 1).
AOL also offered its arguments for open access in the FCC's
proceeding overseeing the AT&T/MediaOne merger.
What this merger does offer, however, is the means for a newly "RBOC-icized" cable industry reinforced by interlocking ownership relationships to (1) prevent Internet-based challenge to cable's core video offerings; (2) leverage its control over essential video facilities into broadband Internet access services; (3) extends it control over cable Internet access services into broadband cable Internet content; (4) seek to establish itself as the "electronic national gateway" for the full and growing range of cable communications services.
To avoid such detrimental results for consumers, the Commission can act to ensure that broadband develops into a communications path that is as accessible and diverse as narrowband. Just as the Commission has often acted to maintain the openness of other late-mile infrastructure, here too it should adopt open cable Internet access as a competitive safeguard - a check against cable's extension of market power over facilities that were first secured through government protection and now, in their broadband from, are being leveraged into cable Internet markets. Affording high-speed Internet subscribers with an effective means to obtain the full range of data, voice and video services available in the marketplace, regardless of the transmission facility used, is a sound and vital policy - both because of the immediate benefit for consumers and because of its longer-range spur to broadband investment and deployment. Here, the Commission need do no more than establish an obligation on the merged entity to provide non-affiliated ISPs connectivity to the cable platform on rates, terms and conditions equal to those accorded to affiliated service providers. (AOL, FCC, p. 4).
2. AT&T
AT&T's policy recommendations in Canada were oriented toward a
federal agency. It argued that federal regulatory authorities should
not forbear regulation, which is exactly the opposite of what it now
argues in the U.S.
AT&T Canada LDS submits that the application of the Commission's forbearance test to the two separate markets for broadband access and information services supports a finding that there is insufficient competition in the market for broadband access services and the market for information services to warrant forbearance at this time from the regulation of services when they are provided by broadcast carriers. As noted above, these carriers have the ability to exercise market power by controlling access to bottleneck facilities required by other service providers. It would appear, therefore, that if these services were deregulated at this time, it would likely impair the development of competition in this market as well as in upstream markets for which such services are essential inputs. (AT&T, p. 15).
AT&T argued that vertically integrated cable and telephone
facility owners possess market power and have to be prevented from
engaging in anticompetitive practices. These are the very same
arguments AOL made in the U.S. over two years later.
The dominant and vertically integrated position of cable broadcast
carriers requires a number of safeguards to protect against
anticompetitive behaviour. These carriers have considerable
advantages in the market, particularly with respect to their ability
to make use of their underlying network facilities for the delivery
of new services. To grant these carriers unconditional forbearance
would provide them with the opportunity to leverage their existing
networks to the detriment of other potential service providers. In
particular, unconditional forbearance of the broadband access
services provided by cable broadcast carriers would create both the
incentive and opportunity for these carriers to lessen competition
and choice in the provision of broadband service that could be made
available to the end customer. Safeguards such as rate regulation
for broadband access services will be necessary to prevent instances
of below cost and/or excessive pricing, at least in the
near-term.
Telephone companies also have sources of market power that warrant maintaining safeguards against anticompetitive behaviour. For example, telephone companies are still overwhelmingly dominant in the local telephony market, and until this dominance is diminished, it would not be appropriate to forebear unconditionally from rate regulation of broadband access services (AT&T, p. 15).
In the opinion of AT&T Canada LDS, both the cable companies and the telephone companies have the incentive and opportunity to engage in these types of anticompetitive activities as a result of their vertically integrated structures. For example, cable companies, as the dominant provider of broadband distribution services, would be in a position to engage in above cost pricing in uncontested markets, unless effective constraints are put in place. On the other hand, the telephone company will likely be the new entrant in broadband access services in most areas, and therefore expected to price at or below the level of cable companies. While this provides some assurances that telephone companies are unlikely to engage in excessive pricing, it does not address the incentive and opportunity to price below cost. Accordingly, floor-pricing tests would be appropriate for services of both cable and telephone companies. (AT&T, pp. 16-17)
Furthermore, in the case of both cable and telephone broadcast carriers, safeguards would also need to be established to prevent other forms of discriminatory behaviour and to ensure that broadband access services are unbundled. (AT&T, p. 17).
The recommendation that government requirements for open access
are necessary to promote and protect competition rests on extensive
analysis of market structure. A comprehensive case was laid out by
AT&T in Canada and AOL in the U.S, which rejected each of the
major arguments against open access. AT&T/AOL cited at least five
fundamental supply-side characteristics that support the
recommendation for open access and three demand-side
characteristics.
A. SUPPLY-SIDE
1. VERTICAL INTEGRATION
AT&T drove a very hard bargain when it came to the question of
regulation of access to broadband facilities. It viewed one
fundamental problem as leveraging market power from the core business
of vertically integrated facilities owners who have a dominant
position in an adjacent market. Thus, it advocated regulation of
access not only because there was a lack of competition in the new
market (broadband access), but also because there was a lack of
competition in the core markets that the facilities owner dominates
(cable TV service for cable operators and local exchange service for
telephone companies).
In terms of the appropriate period in which to apply the safeguards, AT&T Canada LDS is of the view that safeguards against anticompetitive behavior would need to be maintained for cable companies until competition in the provision of broadband access services has been established in a substantial portion of the market…
In the case of cable companies, there would need to be evidence that vigorous and effective competition had evolved in a substantial portion of the market for broadband access services and in their core businesses (i.e., the distribution of broadcast programming services). Moreover, in order to protect against abuse of any residual market power, safeguards should be in place, including the implementation of an effective price mechanism for basic and extended basic cable services in order to prevent instances of cross-subsidization, and provision of non-discriminatory and unbundled access to the broadband service of cable broadcast carriers. (AT&T, pp. 17… 18)
Similar considerations apply to the case of telephone companies with respect to local telephone services. Until vigorous competition in local telephony markets exists, some safeguards… will be needed. (AT&T 17).
AOL described the threat of vertically integrated cable companies
in the U.S. in precisely these terms.
At every link in the broadband distribution chain for video/voice/data services, AT&T would possess the ability and the incentive to limit consumer choice. Whether through its exclusive control of the EPG or browser that serve as consumers' interface; its integration of favored Microsoft operating systems in set-top boxes; its control of the cable broadband pipe itself; its exclusive dealing with its own proprietary cable ISPs; or the required use of its "backbone" long distance facilities; AT&T could block or choke off consumers' ability to choose among the access, Internet services, and integrated services of their choice. Eliminating customer choice will diminish innovation, increase prices, and chill consumer demand, thereby slowing the roll-out of integrates service. (AOL, FCC, p. 11)
2. PAUCITY OF ALTERNATIVE FACILITIES
AT&T maintained that the presence of a number of vertically
integrated facilities owners does not solve the fundamental problem
that nonintegrated content providers will inevitably be at a severe
disadvantage. Since non-integrated content providers will always
outnumber integrated providers, competition can be undermined by
vertical integration. In order to avoid this outcome, even multiple
facilities owners must be required to provide non-discriminatory
access.
Furthermore, as noted above, every carrier that provides local access services will control bottleneck access to its end customer. This means that any connecting carriers, such as IXCs, have no alternatives available to obtain access to the end customers or the access provider, other than persuade their customers to switch to another access provider or to become vertically integrated themselves. In AT&T Canada LDS' view, neither of these alternatives is practical. Because there are and will be many more providers of content in the broadband market than there are providers of carriage, there always will be more service providers than access providers in the market. Indeed, even if all of the access providers in the market integrated themselves vertically with as many service providers as practically feasible, there would still be a number of service providers remaining which will require access to the underlying broadband facilities of broadcast carriers. (AT&T, p. 12).
AOL also argues that the presence of alternative facilities does
not eliminate the need for open access.
Moreover, an open access requirement would provide choice and competition of another kind as well. It would allow ISPs to choose between the first-mile facilities of telephone and cable operators based on their relative price, performance, and features. This would spur the loop-to-loop, facilities-based competition contemplated by the Telecommunications Act of 1996, thereby offering consumers more widespread availability of Internet access; increasing affordability due to downward pressures on prices; and a menu of service options varying in price, speed, reliability, content and customer service. (AOL, FCC, p. 14)
Another indication of the fact that the availability of
alternative facilities does not eliminate the need for open access
policy can be found in AOL's conclusion that the policy should apply
to both business and residential customers. In San Francisco, the
city asked whether the policy of open access "should apply only to
residential services?" The business sector has experienced a great
deal more competition for telephone service and broadband services.
DSL, which was originally intended by telephone companies as a
business service, is much better suited to this market segment and
market analysis indicates that cable and telephone companies are
dividing this market more evenly. If ever there was a segment in
which the presence of two facilities competing might alleviate the
need for open access requirement, the business segment is it. AOL
rejected the idea.
Defining "consumers" to include only residential customers,
however, would unduly limit the fulfillment of these goals. There is
no indication that the Board intended to exclude business customers
from the benefits flowing from competition and choice… The City
should thus ensure nondiscriminatory open access to broadband
Internet access for residential and business services alike. (AOL,
pp. 1-2).
3. ESSENTIAL ACCESS FUNCTIONS
AT&T also made a much more profound argument about the nature
of the integration of facilities and programming. AT&T defined
access to the customer as an essential input to the delivery of
information services for both cable and telephone facilities.
AT&T Canada LDS is of the view that broadband access services are a bottleneck service. These facilities are a necessary input required by information service providers seeking to deliver their services to their end-user customers. In fact, many of these access facilities share the same bottleneck characteristics as those exhibited by narrowband access facilities, such as those which are used in the provision of local and long distance telephony services. (AT&T, p. 10)
Because of the essential nature of access, AT&T attacked the
claim made by cable companies that their lack of market share
indicates that they lack market power. AT&T argued that small
market share does not preclude the existence of market power because
of the essential function of the access input to the production of
service.
By contrast, the telephone companies have just begun to establish a presence in the broadband access market and it will likely take a number of years before they have extensive networks in place. This lack of significant market share, however, is overshadowed by their monopoly position in the provision of local telephony services.
In any event, even if it could be argued that the telephone companies are not dominant in the market for broadband access services because they only occupy a small share of the market, there are a number of compelling reasons to suggest that measures of market share are not overly helpful when assessing the dominance of telecommunications carriers in the access market…
Where the market under consideration involves the provision of telecommunications access service (such as the market for broadband access services), it is more important to examine the supply conditions in the relevant market than the demand conditions which characterize that particular market. This is because telecommunications access service represents an essential input to the production process of other service providers. Therefore, even if the service provider only occupies a very small market share of the overall market for broadband access services, it is dominant in the provision of its access services because alternate providers must rely on that access provider in order to deliver their own services to the end-user subscriber. (AT&T, pp. 8, 9).
AOL also identifies the critical importance of access.
The key, after all, is the ability to use "first mile" pipeline control to deny consumers direct access to, and thus a real choice among, the content and services offered by independent providers. Open access would provide a targeted and narrow fix to this problem. AT&T simply would not be allowed to control consumer's ability to choose service providers other than those AT&T itself has chosen for them. This would create an environment where independent, competitive service providers will have access to the broadband "first mile" controlled by AT&T - the pipe into consumers' homes - in order to provide a full, expanding range of voice, video, and data services requested by consumers. The ability to stifle Internet-based video competition and to restrict access to providers of broadband content, commerce and other new applications thus would be directly diminished. (AOL, FCC, p. 13)
AT&T explicitly rejects the claim that nondominant firms in
the access market should be excused from open access regulation.
AT&T Canada LDS does not consider it appropriate to relieve the telephone companies of the obligation… on the grounds that they are not dominant in the provision of broadband services. These obligations are not dependent on whether the provider is dominant. Rather they are necessary in order to prevent the abuse of market power that can be exercised over bottleneck functions of the broadband access service. It should be noted that… Stentor [a trade association of local telephone companies in Canada] was of the view that new entrants in the local telephony market should be subject to regulation and imputation test requirements because of their control over local bottleneck facilities. Based on this logic, the telephone companies, even as new entrants in the broadband access market, should be subject to similar regulatory and imputation test requirements (AT&T, p. 24, emphasis added)
4. NEW MARKETS NEED OPEN ACCESS
As indicated in the above quotes, AT&T argued for open access
at an early stage of development of broadband in Canada. Thus,
AT&T's argument responds directly to the claim that the market is
too new to require an open access obligation. AT&T argued that
the requirement is necessary to ensure that the market develops in a
competitive direction from its early stages in Canada.
AOL argued exactly the same thing in the U.S., when the market was
still new, but much more highly developed. It argued that requiring
open access early in the process of market development would
establish a much stronger structure for a proconsumer, procompetitive
market. Early intervention prevents the architecture of the market
from blocking openness and avoids the difficult task of having to
rebuild the market on an open bases later.
The Commission should proceed while the architecture for cable broadband is still under construction. To wait any longer would allow the fundamentally anti-consumer approach of the cable industry to take root in the Internet and spread its closed broadband facility model nationwide. Must consumers await an "MFJ for the 21st Century"?
Obliging AT&T to afford unaffiliated ISPs access on nondiscriminatory terms and conditions - so that they, in turn, may offer consumers a choice in broadband Internet Access - would be a narrow, easy to administer, and effective remedy. It would safeguard, rather than regulate, the Internet and the new communications marketplace. The openness it would afford is critical to a world in which - as boundaries are erased between communications services and applications - we ensure that consumers likewise are truly afforded choice without boundaries. (AOL, FCC, p. 18)
5. OPEN ACCESS SPEEDS DEPLOYMENT
There is a final supply-side argument that these companies have
made that is critically important to the ongoing debate, which
involves the impact of open access requirement on the deployment of
facilities. AOL argues that open access conditions would do little
to slow, and might actually speed, the development and deployment of
broadband facilities, while they ensure a vigorously competitive
content market.
Open access will not unduly increase cable operator's financial risk. A nondiscriminatory transport fee set by the cable operator would allow AT&T to recover full transport costs plus profit from each and every interconnecting provider. And AT&T's affiliated ISP would still be free to compete - based on cost and quality - with other ISPs. As Forrester Research observed, "[c]able companies can make money as providers of high-speed access for other ISPs. Instead of gnashing their teeth, large cable operators should make their networks the best transport alternative for providers of all types of telecommunications services." According to AT&T itself, "the only way to make money in networks is to have the highest degree of utilization." Open access would allow AT&T to do just that, fostering a wholesale broadband transport business that would increase use of the cable operator's platform, fuel innovation, and attract additional investment. (AOL, pp. 6-7)
B. DEMAND-SIDE FUNDAMENTALS
AT&T offered a series of observations about the nature of the
demand side of the broadband market that reinforces the conclusion
that an open access requirement is necessary.
1. NARROWBAND DOES NOT COMPETE WITH BROADBAND
The most fundamental observation on the demand side offered by
AT&T is the fact that narrowband services are not a substitute
for broadband services.
AT&T Canada LDS notes that narrowband access facilities are not an adequate service substitute for broadband access facilities. The low bandwidth associated with these facilities can substantially degrade the quality of service that is provided to the end customer to the point where transmission reception of services is no longer possible. (AT&T, p. 12).
AT&T and the cable industry say exactly the opposite in the
U.S. This is a critical point in the antitrust analysis of the
AT&T-MediaOne merger. If the narrowband market is a separate
market from broadband, as AT&T so clearly argued in Canada, then
the concentration of broadband services that AT&T proposes to
accomplish through merger in the U.S. appear to violate the antitrust
laws.
Not only did AT&T reject the notion that competition for
narrowband Internet service is sufficient to discipline the behavior
of vertically integrated broadband Internet companies, it expressed
the concern that leveraging facilities in the broadband market might
damage competition in the whole content market.
As noted above, even though the market for Internet access service generally demonstrates a high degree of competition (with the exception of co-axial cable Internet access services), the potential exists for providers who also control the underlying access to undermine the continuation of such competition. Accordingly, AT&T Canada LDS submits that safeguards against anti-competitive behaviour should be applied to the provision of information service by those broadcast or telecommunications carriers who own and operate broadband access networks. (AT&T, p. 17).
AOL raised a parallel concern. It argues that the leverage from
integration could undermine the prospects for increased competition
in the traditional cable industry.
We submit that, to answer this question, the Commission should examine certain critical "meg-effects" of the proposed AT&T/MediaOne combination. First, the FCC should consider how this merger's video and Internet access components together would service to keep consumer from obtaining access to Internet-delivered video-programming - and thereby shield cable from competition in the video market. (AOL, FCC, p. 8)
2. SWITCHING COSTS
AT&T also made an argument in Canada on the demand-side that
undercuts its claims in the U.S. that the current advantage of cable
over DSL should not be a source of concern. AT&T argued that the
presence of switching costs can impede the ability of consumers to
change technologies, thereby impeding competition.
[T]he cost of switching suppliers is another important factor which is used to assess demand conditions in the relevant market. In the case of the broadband access market, the cost of switching suppliers could be significant, particularly if there is a need to adopt different technical interfaces or to purchase new equipment for the home or office. Given the fact that many of the technologies involved in the provision of broadband access services are still in the early stages of development, it is unlikely that we will see customer switching seamlessly form one service provider to another in the near-term. (AT&T 12)
The equipment (modems) and other front-end costs are still
substantial and unique to each technology. There is very little
competition between cable companies (i.e. overbuilding). Thus,
switching costs remain a substantial barrier to competition.
3. BUNDLING
A third demand-side problem identified by AT&T in Canada is
the leverage that vertically integrated firms possessing market power
in an adjacent market can bring to bear on a new market. By
packaging together broadband services, particularly those over which
integrated firms exercise market power, non-integrated competitors
can be placed at an unfair advantage.
[T]his dominance in the broadband access market provides cable broadcast carriers with considerable market power in the delivery of traditional broadcasting services. This dominant position in the core market for BDU (cable TV programming] services can, in turn, be used by the cable companies to leverage their position in the delivery of non-programming services, the vast majority of which will be carried over their cable network facilities.
As broadcasting and telecommunications technologies converge, subscribers will seek to simplify their access arrangements by obtaining all of their information, entertainment and telecommunications services over a single broadband access facility. This in turn will make it more difficult for service providers to use alternate access technologies as a means of delivering service to their customers. (AT&T, pp. 8-9).
Bundling remains one of the focal points of antitrust and
competitive concern in the U.S. AOL raised the bundling issue in its
comments at the FCC as well.
Second, the agency should reflect upon how this merger would enable cable to use RBOC-like structure to limit consumer access to the increasingly integrated video/voice/data communications services offered over the broadband pipe controlled by cable. And finally, the agency should recognize how these two "mega-effects" of the merger together reinforce cable's ability to deny consumers the right to choose: (a) between a competitive video-enhanced Internet service rather than a traditional cable service; (b) among competing cable Internet services; and (c) among competing "bundles" of video/data/voice services that contain multichannel video. (AOL, FCC, p. 8)
C. UNDERSTANDING THE PRESENT AND LOOKING TO THE FUTURE: OPEN
ACCESS REMAINS NECESSARY
While AT&T might argue that conditions have changed since it
so vigorously supported open access in 1997, and therefore it should
not be held to those comments, AOL can make no such claim. In fact,
AT&T's analysis of the broadband market is still applicable.
First, many of the arguments it made are unaffected by changes in
the industry. There are fundamental characteristics of the
communications and broadband industry identified by AT&T/AOL that
do not change which require open access to facilities. These are
enduring characteristics of the market - paucity of facilities
compared to content providers, access as an essential input, separate
narrowband and broadband markets, switching costs, bundling -- that
establish the need for a public obligation to provide open access.
Second, AT&T's view of the likely development of alternative
technologies expressed in Canada is similar to the view that many
take today. The two wireline technologies that are up and running,
although not fully deployed, are dominant. Cable is ahead of DSL.
Wireless is farther out in the future.
[I]t would appear that there is only a limited number of broadcast carriers that are capable of offering broadband access services. Indeed, only the cable and telephone companies appear to be positioning themselves as hybrid broadcast/telecommunications carriers at the present time. While this is not to say that other service providers such as MMDS and LMCS carriers do not have plans to launch hybrid services of their own, neither of these service providers currently offer both broadcasting and telecommunications services on a facilities basis over their networks.
In the opinion of AT&T Canada LDS, the supply conditions in broadband access markets are extremely limited. There are significant barriers to entry in these markets including lengthy construction periods, high investment requirements and sunk costs, extensive licensing approval requirements (including the requirements to obtain municipal rights of way)… Under these circumstances, the ability for new entrants or existing facilities-based service providers to respond to nontransitory price increases would be significantly limited, not to mention severely protracted (AT&T, pp. 7, 12).
Third, even where there have been positive developments in the
industry to expand alternatives, it is not clear that such changes
have been or will soon be of sufficient magnitude to change the basic
conclusion of AT&T's analysis. Many analysts reach the same
conclusion today about the U.S., that AT&T reached three years
ago about the Canadian market. The changeable characteristics of
the market that might lessen, but not negate, the need for open
access, have simply not moved far enough to create a basis to
contradict AT&T's conclusion that open access is necessary.
Ironically, AT&T told Canadian regulators not to speculate about
the development of technologies. They were told to deal with the
facts on the ground, not what might happen in the future.
As noted above and in some of the preceding sections, the market for broadband access services is subject to rapid innovation and technological change. Indeed, the recent advances in wireless broadband delivery systems suggests that the possibility exists, at least in the long term, for a break-through in technology which could have a significant impact on the supply conditions affecting broadband access services. However, since the happening of these events is difficult to anticipate and the resulting impact on the market essentially unpredictable, it is appropriate to design policies and approaches to regulation which address the current market conditions and a need to supply safeguards in those instances where market power is present. (AT&T 15).
Any claim that the market situation has changed so much that open
access is no longer necessary is totally undermined by AT&T's
continued insistence in the U.S. that telephone companies be required
to make their advanced services networks available to competitors on
an open access basis. AT&T continues to make exactly the same
arguments about the telephone companies in the U.S. in 2000, that
they made about the telephone companies in Canada in 1997.
In opposing the entry of SBC into long distance in Texas, AT&T
complains about bottleneck facilities, vertical integration, bundling
of services. As a result, it demands non-discriminatory access. It
has simply stopped making the arguments that apply with equal force
to cable companies. Needless to say, AT&T refuses to accept the
same public policy obligation to provide open access to the
approximately 2 million cable homes that its cable wires pass in
Texas.
Today, SWBT is exploiting its control over essential xDSL-related inputs, not only to prevent advanced services competition from AT&T and others, but also to perpetuate its virtual monopoly over the market for local voice services…
SWBT has not, in fact, complied with its statutory duties to provide nondiscriminatory access to xDSL-capable loops (47 U.S.C. s. 271(c)(2)(B)(ii)&(iv)) and the operational support systems and processes that are needed to enable Texas consumers to benefit from a competitive market for xDSL services (47 U.S.(c)(2_(B)(ii))…
SWBT must also have policies, procedures, and practices in place that enable AT&T (by itself, or through partners) to provide consumers with the full range of services they desire, including advanced data services. Otherwise they will not be able to purchase some services - and will therefore, be less inclined to obtain any services - from AT&T. Thus, SWBT's inability (or unwillingness) to support AT&T's and other new entrants' xDSL needs not only impairs competition for advanced services but also jeopardizes competition for voice services as well.
As both the Commission and Congress have recognized, high-speed data offerings constitute a crucial element of the market for telecommunications services, and, because of their importance, the manner in which they are deployed will also affect the markets for traditional telecommunications. Many providers have recognized the growing consumer interest in obtaining "bundles" of services from a single provider. Certainly SBC, with its $6 billion commitment to "Project Pronto" has done so. AT&T is prepared to compete, on the merits, to offer "one-stop shopping" solutions. Competition, however, cannot survive if only a single carrier is capable of providing consumers with a full package of local, long distance, and xDSL services. (AT&T SBC Comments, pp. 9… 10… 11… 12)
Now that AT&T has bought a stake in the majority of cable
wires in the country, it excludes cable programming and cable-based
broadband Internet from the mix of services that must be included in
the bundle. It is willing to compete on the "merits to offer
one-stop shopping" by demanding open access to other people's wires,
but it will not allow the same terms and conditions for others to
compete over its wires.
AOL, however, did not hesitate to point out the powerful
anticompetitive effect that integrating video services in the
communications bundle could have. The video component of the bundle
is certainly one of the most important of the components.
The second "mega-effect" of this proposed merger is of even broader potential consequence. With this merger, AT&T would take an enormous next step toward its ability to deny consumers a choice among competing providers of integrated voice/video/data offerings - a communications marketplace that integrates, and transcends, an array of communications services and markets previously viewed as distinct. (AOL, FCC, pp. 9-10).
D. CONCLUSION
The concept of essential functions in network industries that
provide market power over end user customers even where several
access providers are available is extremely important. These are the
new choke points in the Internet economy. Because of switching
costs, convergence of access, and bundling of products this is a
fundamental observation about the nature of these industries. These
demand side structural problems interact with the observation that
facilities providers will always be far fewer in number than content
providers with the inevitable result that absent an open access
obligation many content providers will be at a severe disadvantage.
AT&T-AOL were fundamentally correct in concluding that even
without vertical integration and dominance, access is an essential
function that presents a significant problem for public policymakers
who are concerned about preserving the remarkably dynamic innovation
and competition of today's Internet. In the information economy
where the smooth flow of information is so critical, these choke
points may call for even greater commitment to ensure open access
than has historically been the case, because their importance imbues
them with even greater potential for the abuse of market power.
Where a broadband access provider is neither vertically-integrated nor dominant with respect to telecommunications or broadcasting service, but is offering broadband access services then the requirement for third party access tariff, CEI and other non price safeguards should apply. (AT&T, p. 29)
It was quite clear in the formulation of these two "unaffiliated"
companies that broadband access services should be available on
non-discriminatory terms, even where there is an absence of vertical
integration and dominance. Through this analysis, they arrived at an
entirely reasonable public policy formulation that is consistent with
our view that communications and transportation networks have always
been and should always be subject to a requirement to be open because
of the critical role they play.
A. OVERVIEW OF APPROACHES AND GOALS
AOL's proposed rule for San Francisco typifies its approach to
light handed open access requirements in which the local franchising
authority creates the obligation and then allows private parties to
work out the details with city enforcement as a backstop.
Section 1: Non-discrimination requirements: Franchisee shall immediately, with respect to this franchise, provide any requesting Internet Service Provider access to its broadband Internet transport services (unbundled from the provision of content) on rates, terms and conditions that are at least as favorable as those on which it provides such access to itself, to its affiliates, or to any other person. Such access shall be provided at any point where the Franchisee offers access to its affiliate. Franchisee shall not restrict the content of information that a consumer may receive over the Internet…
Section 2: Private Right of Action: Any Internet Service Provider who has been denied access to a Franchisee's Broadband Internet Access Transport Services in violation of this Ordinance has a private cause of action to enforce its rights to such access.
Section 3 Enforcement Rights of City and County: In addition to any other penalties, remedies or other enforcement measures provided by Ordinances or state or federal laws, the City and County may bring suit to enforce the requirements of this Ordinance and to seek all appropriate relief including, without limitation, injunctive relief. (AOL, pp. 2-3.)
AOL made essentially the same recommendation to the FCC.
The essence of an open access policy is thus competition, not regulation. Open access would create a competitive check on conduct - a far more preferable option than a behavioral check requiring constant step-by-step scrutiny of a cable operator's dealing with every provider of content or new applications to make sure that the company's conduct doesn't skew its network in favor of affiliated service providers.
This approach does not require imposition of legacy common carrier regulation. The model for such early, targeted safeguarding is drawn directly from the existing cable regulatory framework, but its policy foundation cuts across all FCC regulation. Any cable television system operator that provides any Internet service provider access to its broadband cable facilities would have to provide a requesting ISP comparable access to its facilities on rates, terms, and conditions equal to those under which it provides access to its affiliate or to any other person. (AOL, FCC, p. 14).
Commenting before a federal body with much broader regulatory
powers, AT&T proposed a much more vigorous regime of regulation.
Given the incentives and opportunities available to broadcast carriers to abuse their market power and control over bottleneck facilities, AT&T Canada LDS has recommended the adoption of a number of safeguards in order to prevent instances of anti-competitive behaviour…
1) implementation of a cost based price floor to protect against below cost pricing of broadband access services;
2) implementation of a cost-based price ceiling with a limited mark-up to prevent excessive pricing of access services in uncontested markets;
3) implementation of a third party access tariff, allowing for non-discriminatory and unbundled access to broadband bottleneck facilities, as well as comparably efficient interconnection and associated non-price safeguards;
4) implementation of price caps, accounting separations and other safeguards against anti-competitive cross-subsidization; and
5) imputation of appropriate third party access tariffs to value added information services providers by broadcast carriers. (AT&T, p. iii)
It is interesting to note that the provisions of the
Telecommunications Act of 1996 to which AT&T points when it
demands open access to xDSL in the U.S. are almost identical to the
provisions that AOL proposed in the San Francisco proceeding. This
makes it quite clear what entities that do not own essential access
wires need to enter markets.
s. 271 (c)(B) COMPETITIVE CHECKLIST-Access or interconnection provided or generally offered by a Bell operating company to other telecommunications carriers meets the requirements of this subparagraph if such access and interconnection includes each of the following:
(ii) Nondiscriminatory access to network elements in accordance with the requirements of sections 251 (c)(3) and 252 (d) (2)…
(iv) Local loop transmission from the central office to the customer's premises, unbundled from switching or other services.
s. 251 (c)(3) UNBUNDLED ACCESS - the duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable and nondiscriminatory in accordance with the terms and conditions of the agreement and the requirements of this section and section 252. An incumbent local exchange carrier shall provide such unbundled network elements in a manner that allows requesting carriers to combine such elements in order to provide such telecommunications service. (Telecommunications Act of 1996)
It is also interesting to note that AT&T embeds the obligation
to provide nondiscriminatory access and unbundling into the permanent
conditions in the industry structure. That is, it recommends the
relaxation of detailed regulation only after vigorous competition
develops in both the access market and the adjacent core markets
where facilities owners have market power. However, even after this
deregulation, AT&T recommends the continuance of "safeguards to
ensure that broadband access services continue to remain available
from the telephone [and] cable companies on a
non-discriminatory and unbundled basis." (AT&T, p. iii)
While AT&T Canada LDS considers that forbearance from the regulation of broadcast carrier access and value-added information services is not warranted at this stage in the development of the broadband market, conditional forbearance may be warranted when certain barriers to entry are removed in the cable distribution and local telephony markets. With respect to the broadband services provided by telecom broadcast carriers, the following safeguards should be treated as preconditions to any relaxation of the rules applicable to these carriers:
1) local competition issues are resolved and the terms and conditions for local entry have been successfully implements such that practical alternatives to the supply of local services exist in the local market;
2) the broadband tracking requirements established in Decision 95-21 have been implemented and reports from the telephone companies satisfy the Commission that treatment of broadband investment and expenses are appropriate;
3) price cap regulation has been implemented in such a manner as to preclude telephone companies from recouping broadband investment costs from utility services: and
4) the establishment of safeguards to ensure that broadband access services continue to remain available from the telephone companies on a non-discriminatory and unbundled basis.
With respect to the broadband services provided by cable broadcast carriers, the following safeguards should be treated as pre-conditions to any relaxation of the rules applicable to these carriers:
1) a demonstration that vigorous and effective competition has evolved in a substantial portion of the market for broadband access services and in the market for BDU services:
2) the implementation of an effective price cap mechanism for basic and extended basic services in order to prevent instances of cross-subsidization; and
3) the establishment of safeguards to ensure that broadband access services continue to remain available from the cable companies on a non-discriminatory and unbundled basis. (AT&T, p. ii, emphasis added)
AT&T's regulatory proposal goes far beyond anything being
considered for cable operators in the U.S., although wireline
telephone companies are subject to exactly this type of regulation in
their high speed services. Indeed, as noted, AT&T continues to
push for regulation of telephone companies, including their advanced
DSL services. In fact, one of the more important implications of the
AT&T analysis in Canada is that the cable and telephone
industries should be subject to similar obligations. In the U.S. it
vigorously defends asymmetric regulation, with its property being
unregulated.
Whether through AOL's private negotiations backed up by a public
obligation or AT&T's direct regulation, the objectives of both
companies were generally the same. The standards by which we should
measure the quality of open access are the conditions that AOL and
AT&T stipulated that facilities owners should grant to
non-affiliated ISPs when they were non-affiliated ISPs
themselves.
B. SPECIFICATION OF NONDISCRIMINATORY ACCESS CONDITIONS
In order to analyze the complex issue of nondiscriminatory access
to the broadband facilities, CFA has adopted the analytic approach
presented in Table 1.(9) It
identifies three broad areas of concern and about two dozen specific
practices. AT&T and AOL provided extensive concrete discussions
of these potential problems.
In addition to pricing safeguards, AT&T advocated a number of
non-price safeguards to accomplish three general goals of open
access.
Such safeguards are necessary to ensure that competing service providers:
(1) are able to gain comparable access to network bottlenecks; (2) are protected against abuse of confidential information which is provided to the bottleneck access provider; and (3) are not otherwise disadvantaged in the market by the bottleneck access provider through, for example, the negotiation of exclusive or preferential agreements with other service providers. (AT&T, p. 22)
C. ARCHITECTURE: TECHNOLOGY BIAS
The first source of potential discrimination lies in the
architecture of the network. It involves the technical capabilities
of the network that could disadvantage independent ISPs in
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TECHNICAL AND ECONOMIC SOURCES OF DISCRIMINATION IN PROPRIETARY BROADBAND NETWORKS |
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ARCHITECTURE: |
THE MARKET: |
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INTERCONNECTION Physical connection |
INFORMATION GATHERING PRICING Price Squeeze |
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FILTERING Committed Access Rate |
PRODUCT BUNDLING CUSTOMER RELATIONSHIP Marketing |
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STRUCTURE Restricted backbone choice |
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NORMS: SERVICE RESTRICTIONS Speed of service |
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CONSUMERS |
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the activities that they are allowed to conduct. The architecture
of the network, controlled by the proprietor, can be configured and
operated to restrict the ability of the independent ISP, while it
does not restrict the ability of an affiliated ISP. Technology bias
can take several forms, including interconnection, structure, and
flow control. We have already noted that AOL urged the FCC to act
early in the development of the industry to prevent it from embedding
anti-consumer characteristics into its architecture.
1. INTERCONNECTION
Interconnection involves allowing ISPs to establish a connection
between networks. These connections must be compatible if they are
to be meaningful. The cable industry's existing exclusive contracts
do not allow independent ISPs to connect directly to the consumer.
AT&T Canada was very concerned about exclusive and preferential
deals.
A prohibition on preferred agency or exclusive arrangements between vertically-integrated broadband access providers and integrated or affiliated information service providers which contain discriminatory access provision, either in terms of price or quality of access. (ATT, p. 23)
It is important to recognize that mere physical interconnection
and protocol support are only very minimum conditions that must be
met to ensure access to customers. They are necessary, but not
sufficient, conditions. AOL described interconnection in some
detail.
Access: The term "access" means the ability to make a physical connection to cable company facilities, at any place where a cable company exchanges consumer data with any Internet service provider, or at any other technically feasible point selected by the requesting Internet service provider, so as to enable consumers to exchange data over such facilities with their chosen Internet service provider (AOL, p. 2).
There are at least three possible network designs that allow for open access. These include:
· policy-based routing, which routes packets to the appropriate ISP using the source IP address as the unique identifier;
· virtual private networks (VPNs) and IP tunnels, which create virtual dedicated connections over the HFC network between the customer and the ISP (a solution appropriate to routed (layer 3); and
· Point-to-Point Protocol over Ethernet (PPPoE) encapsulation, which is a protocol analogous to commonly employed designs for dial-up (a solution appropriate to bridged (layer 2) access networks).
Each of these options has its own unique set of advantages and disadvantages. The appropriateness of each option varies depending on the type of cable system (i.e. large or small, multiple nodes vs. single node) and the networking architecture being addressed. (AOL, p. 7-8)
AT&T uses the term Comparably Efficient Interconnection (CEI)
to describe interconnection in the broadband market.
More specifically, in order to effectively compete with broadcast carriers in the provision of non-programming services, competitors must be able to provide end users with equivalent services at equal or lower prices. Therefore, in providing non-discriminatory access to their broadband networks, broadcast carriers must allow competitors to access their broadband distribution network in the most efficient manner possible. For example, competitors must have the option to specify the point of interconnection as either the headend, the drop, inside wire, or any combination thereof. This concept is known as Comparably Efficient Interconnection (CEI) and refers to the principle of providing competitors with access to the broadband network on terms that are technically and economically equivalent to those provided by the broadcast carrier to itself. Under CEI, the interconnection provided must be equivalent in terms of scope, quality and price but may vary by type of competitive entity. (AT&T, pp. 25-26)
AT&T also expressed a concern about standards and their
management.
To the extent that standards are developed for interfacing with broadband access services, the carriers who provide these services should not be permitted to implement any non-standard, proprietary interfaces, as this would be contrary to the development of an open network of networks. In addition, any new network or operational interface that is implemented by a broadband access provider should be made available on a non-discriminatory basis. (AT&T, p. 23).
2. STRUCTURE
Structure involves the deployment of physical facilities in the
network. The proprietary network owner can seriously impair the
ability of independent ISPs to deliver service by restricting their
ability to deploy and utilize key technologies that dictate the
quality of service. Structure determines how facilities are deployed
and the effect that deployment has on the quality of service.
Substantial discrimination can result from forcing independent ISPs
to connect to the proprietary network in inefficient or ineffective
ways or giving affiliated ISPs preferential location and
interconnection. The quality of service of independent ISPs can be
degraded.
The ability to deploy facilities to ensure and enhance the quality
of service will be particularly important in the third generation of
Internet service development. The multimedia, interactive
applications that will distinguish the next phase of the Internet are
particularly sensitive to these aspects of quality, much more so than
previous applications.
Of course, allowing a single entity to abuse its control over the development of technical solutions - particularly when it may have interests inconsistent with the successful implementation of open access - could indeed undermine the City's policy. It is therefore vital to ensure that unaffiliated ISPs can gain access comparable to that the cable operators choose to afford to its cable-affiliated ISP. (AOL, p. 8).
3. FLOW
Flow control involves the filtering of the flow of information.
Even though networks are interconnected, there is still the
possibility of discriminating against some of the data that flows
through the Internet. Simply put, the technology allows pervasive
discrimination against external, unaffiliated service providers.
Of course, it is implicit in the open access resolution that non-discriminatory access for multiple ISPs extends to all relevant aspects of the technical and operational infrastructure, so that all business system interfaces will be open to all ISPs and performance levels will not favor the affiliated ISP. (AOL, p. 7)
It is important to confirm that the cable operator must provide equal treatment for local content serving (caching or replication) that the affiliated and nonaffiliated ISPs can provide, specifically, no firewalls, protocol masking, extra routing delays or bandwidth restrictions may be imposed in a discriminatory manner. (AOL, p. 9)
D. NORMS: SERVICE RESTRICTIONS
The second source of potential discrimination involves behavioral
norms. The network owner can place restrictions on how nonaffiliated
service providers can use the network. As long as the network owner
is also a direct competitor of the independent ISP, concerns about
restriction being imposed to gain competitive advantage will persist.
Restrictions that are explained as necessary for network management
may be viewed as driven by business motives, rather than technical
considerations, by independent ISPs. These limitations can be
applied to either service providers or consumers.
In a last mile shared environment, proper network and bandwidth management might possibly require certain limitations on data transmission. However, content- or service-specific restrictions can be both over- and under-inclusive - and most of all, anticonsumer. Limitations on video streaming, for example, protect cable's traditional video programming distribution business. TCI admitted early on, its 10-minute cap is a "restriction which we imposed on @Home so that we were the determiner of how stream video works in our world… [and] so that [we] determined [our] future in the area of streaming video. Any legitimate network management policies must be free of such anticompetitive intent and effect. (AOL, p. 10)
E. BUSINESS LEVERAGE
Open access cannot ignore business reality. If the network owner
inserts himself in the relationship between the customer and the
independent ISP in such a way as to ensure that its affiliated ISP
has a price, product or customer care advantage, then competition
between ISPs will be undermined. This gives rise to the third
category of discrimination issues, which involves the market. The
potential anticompetitive problem is the abuse of business leverage.
1. INFORMATION
In order to manage the network and effectuate the service
prohibitions discussed above, the network owner must engage in
intensive monitoring of individual activity and gathering of
information. The proprietary network owner must identify flows of
data. Needless to say, this raises business and competitive
concerns. The gathering of all that information places the network
owner in a powerful position vis-à-vis competitors and
consumers. The detailed control of the network confers an immense
information advantage on the system operator. Because of the
conflict of interest created by the vertical integration of
facilities and content, the potential for competitive abuse of
information is substantial. It is an advantage that is evident to
those in the industry
Confidential treatment of information provided by service providers to broadband access carriers that are vertically-integrated… Broadband access providers that are affiliated with or have joint marketing arrangements with broadband service providers should also be required to enter into non-disclosure agreements affording these latter parties the same level of confidential treatment… (ATT, p. 23)
2. PRICING
The most critical business issue is a potential price squeeze that
can be placed on independent programmers and service providers by the
closed business model. By controlling a bottleneck, network owners
can place price conditions on independent content providers that
undermine their ability to compete. Both AOL and AT&T appear to
want a separate, wholesale transport service to be made
available.
Broadband Internet Transport Services- The term 'broadband Internet access transport services" means broadband transmission of data between a user and his Internet service provider's point of interconnection with the broadband Internet access transport provider's facilities. (AOL, p. 3)
In Canada, AT&T insisted that tariffs be set subject to clear
conditions and filed. The central goal was to avoid the problem of
cross subsidy.
Accordingly, the cable companies and telephone companies should be required to file tariffs for approval of their broadband access services and to include in such applications evidence that the rate is compensatory.
Cross-subsidization is an issue for vertically integrated carriers particularly where the broadband service (including access) is not provided on an arm's length basis. The Commission has required telephone companies to maintain an accounting separation for their broadband activities and to provide adequate tracking reports. (AT&T, pp. 19, 22)
In the U.S., AT&T has now offered to make transport services
available at a price that is, presumably, less than it charges its
customers for transport and content. That price remains to be
negotiated, however, and the principles for arriving at a reasonable
price are not stated. The potential for cross subsidy and
discrimination is shifted, not eliminated, by this concession. In
the context of the more regulatory model advocated by AT&T in
Canada, it was able to specify what would constitute reasonable
rates.
1) cost-based rates to prevent vertically-integrated access providers from engaging in predatory pricing;
2) limits on the level of mark-up over cost with respect to cable companies' broadband access services;
3) unbundling and non-discriminatory access in the price of information services of all broadcast carriers.
4) imputation of the tariffed rates for broadband access in the price of information services provided by vertically-integrated broadcast carriers;
5) price caps in core markets where vertically-integrated carriers are dominant; and
6) investment and expense tracking as a further check against cross subsidization. (AT&T, p. 21)
In the case of cable companies, the implementation of an appropriately designed price cap regime could provide some protection against cross-subsidization… Furthermore, if in addition to price caps, the Commission considers it necessary to insulate basic cable subscribers from cross-subsidizing cable companies' other broadband activities as common carriers, it could implement accounting separation and tracking requirements for cable companies. (AT&T, p. 22)
AOL worries about AT&T in the U.S. offering "one click access"
to the Internet without a price difference. This forces independent
service providers to subsidize the content of the affiliated ISP.
Provided that the City establishes the right policy - allowing the consumer to choose any ISP they want without being required to pay for or go through the cable-affiliated ISP - then there are many technical solution available to broadband providers and no need for the City to mandate any particular approach. (AOL, p. 7)
Beyond the cross subsidy question, in the U.S. the whole idea of a
wholesale transport tariff remains up in the air. AT&T has
steadfastly resisted the basic idea of entering into commercial
relationships with ISPs and allowing the ISP to have the only
relationship to the customer.
However, the pricing standards to which AT&T points in its
efforts to obtain nondiscriminatory access to xDSL technology from
local telephone companies in the U.S. embody these fundamental
principles of cost-based, nondiscriminatory prices for unbundled
services.
s. 252 (d) PRICING STANDARDS. -
(1) INTERCONNECTION AND NETWORK ELEMENT CHARGES. - Determinations by a State commission of the just and reasonable rate for the interconnection of facilities and equipment for purposes of subsection (c)(2) of section 251 and the just and reasonable rate for network elements for purposes of subsection (c)(3) of such section -
(A) shall be -
(i) based on the cost (determine without reference to a rate of return or other rate-based proceeding) of providing the interconnection or network elements (whichever is applicable), and
(ii) nondiscriminatory, and
(B) many include a reasonable profit.
(2).. [A] State commission shall not consider the terms and conditions for reciprocal compensation to be just and reasonable unless -
(i) such terms and conditions for the mutual and reciprocal recovery by each carrier of costs associated with the transport and termination on each carriers network facilities of calls that originate on the network facilities of another carrier; and
(ii) such terms and conditions determine such costs on the basis of a reasonable approximation of the additional costs of terminating such calls. (Telecommunications Act of 1996)
3. BUNDLING
As noted above, in Canada AT&T expressed concerns about an
incumbent monopolist selling video "broadcast" services or local
telephone services and planning to sell bundles of "broadband
services." In this regard a fundamental issue arises over what
independent ISPs will be allowed to sell and how consumers will be
allowed to buy services. Cable TV's bundling of programming has long
been a source of concern. If cable owners leverage bundles with
Internet and cable service, independent ISPs will be at a severe
disadvantage.
AT&T proposed principles to govern bundling raise concerns in
two regards. On the one hand, it recommended unbundling of service
elements. On the other hand, it recommended that the unaffiliated
content provider be allowed to resell (and therefore bundle) the
cable programming - i.e., to create a complete bundle.
Because broadcast carriers exercise control over bottleneck facilities, they have both he incentive and the opportunity to bundle these facilities with their other services and offer the entire package to their customers for a single price… [T]he Commission concluded that the bundling of monopoly service elements with competitive service elements is generally appropriate subject to three conditions:
1) the bundled service must cover its cost, where the cost for the bundled service includes:
a) the bottleneck component(s) "costed" at the tariffed rate(s) (including, as applicable, start-up cost recovery and contribution charges); and
b) the Phase II causal costs for components not cover in a) above;
2) competitors are able to offer their own bundled service through the use of stand-alone tariffed bottleneck components in combination with their own competitive elements;
3) resale of the bundled service permitted…
In the absence of such a requirement, broadcast carriers will be able to engage in strategic and anti-competitive pricing behaviour arising directly out of their dominant position in the access market. (AT&T, pp. 27-28)
What AT&T had identified as a powerful lever in the
marketplace, control over the core product, it sought to neutralize
by requiring unbundling and resale.
AT&T Canada LDS submits that broadcast carriers should not be permitted to bundle their broadcast and telecommunications service until the Commission has established rules which permit the unbundling and resale of BDU services. Furthermore, to the extent that the unbundling and resale of BDU services is tied to entry of the telephone companies into the BDU market, no telephone company should be permitted to bundle BDU service with its local telephone service until all of the issues relating to unbundling and resale of these service have been resolved by the Commission. (AT&T, p. 28)
The question of how and what independent ISPs will be able to
market to customers remains a bone of contention between AT&T in
the U.S. and the unaffiliated ISPs.
The "unaffiliated" AT&T/AOL indictment of a vertically
integrated, highly concentrated market clearly applies to the current
situation in the U.S. and will likely continue to for the foreseeable
future. The discussion of demand-side problems points to issues that
are long term in nature. The insightful discussion of network access
as an essential function for communications technologies establishes
the need for open access on an enduring footing. The recommendation
by AT&T that the federal governments in Canada not forbear from
regulation was correct in 1997, as it was in 1999, when AOL made a
similar recommendation in the U.S. That conclusion applies to the
U.S. today as a matter of public policy.
What AT&T and AOL said as "unaffiliated" companies has even
greater importance for other "unaffiliated entities." Even as
non-facilities owners, AT&T and AOL were still very large and
powerful corporations. Their analysis makes a strong case that the
problems facing unaffiliated ISPs are large and real. Their frank
discussion of the potential problems and the specificity with which
they offered solutions should be a wake up call to policy makers.
All but the most powerful ISP are likely to fare very badly in a
commercial setting where discriminatory access is not firmly
rejected.
It is obvious, however, that in the terms of the U.S. debate over
open access, the remedies that AT&T proposed in Canada are well
beyond what is being considered in the U.S. for cable TV. Telephone
companies in the U.S. are under legal obligations that match the
array of regulations AT&T advocated for cable TV and telephone
companies in Canada. No one in the U.S. is advocating or
contemplating such a heavy handed regulatory approach for cable.
AOL's light-handed approach, with government triggering private
negotiations and backstopping the process, has received considerable
attention. It has been adopted in a number of communities.
Combining the defense of open access with AOL's description of the
necessary policy elements to ensure nondiscrimination through
light-handed regulation presents a complete and compelling package.
Public policy makers can readily adopt AOL's recommendations of a few
months ago to ensure that unaffiliated ISPs, who are unable to buy
broadband wires, will have a reasonable chance of competing in the
broadband marketplace that AOL believes will be the dominant form of
communication in the century ahead.
AT&T's much more detailed road map to non-discriminatory
access could be useful, however, in providing guidelines and
benchmarks as private negotiators and the courts develop a means to
understand the issues they need to be on the lookout for as
negotiations proceed. The long debate over open access has produced
some key barometers of open access.
1) Comparably efficient interconnection, with the identification of several options for physical and virtual interconnection, a list that can hopefully be expanded.
2) Open standards with change management.
3) ISP neutral network management.
4) Minimum content and service restriction, consistent with neutral network management.
5) Performance parameters, including a list of services to be made available and practices to be avoided.
6) Confidentiality of competitively sensitive information and protection against abuse of such information by vertically integrated broadband service providers.
7) A wholesale relationship between unaffiliated ISPs and vertically integrated service providers from whom the independents wish to purchase facilities.
8) Rates for transport service that are subsidy free and not anticompetitive.
9) Bundling and marketing provisions that prevent the abuse of leverage over monopoly services.
At the same time, AOL's desire to make open access as efficient as
possible by using a public obligation to trigger private negotiations
over the details of open access is a valid process. Ironically, the
Telecommunications Act of 1996, to which AT&T points in its
demand for open access to telephone company xDSL services, had a
negotiation and arbitration procedure in place to attempt to have
private parties implement. AT&T's complaints about the Baby
Bells reluctance to open their markets only makes it clear that
obstinate corporations can make the process difficult, but that does
not obviate the need for the process. The obligation to negotiate
and recourse to legal authority for redress drives the process
forward. Without the public obligation, there is little chance that
open access will be provided for those who need it most, the smaller
niche players and innovative start ups, who have defined the special
nature of the Internet.
Early in the twentieth century, as the telephone was just starting
its evolution to the dominant means for people and businesses to
communicate at a distance, AT&T first articulated the concept of
universal service.(10) While the
motivation for and impact of that commitment have been hotly debated,
there is no doubt that it deeply affected the development of public
policy throughout the entire century.
As we begin the "Internet Century," there is clearly a need f