On the Internet, a Big Win for Consumers

The FCC strikes a blow for the free market

By Dave Kopel of the Independence Institute

6/29/00 11:15 a.m., National Review Online. For more: Kopel's paper on Forced Access, for the Heartland Institute.

It may be true that Al Gore has about as much to do with the growth of the Internet as the rooster's crow does with causing the sun to rise. Nevertheless, the free development of the Internet got a huge boost last week, and this time the Clinton/Gore administration really does deserve much of the credit.

At issue was an attempted theft of property rights that — had it not been stopped — would have severely impaired the growth of a high-speed Internet. After buying the cable-television company TCI, AT&T began a massive upgrade of the cable lines, to allow them to provide high-speed "broadband" connection to the Internet. At least five times as fast as a conventional narrow-band dial-up connection via telephone, these broadband connections allow the user to overcome the "world-wide wait" — and also encourage the development of streaming video and other Internet services which require high bandwidth.

If you sign up for broadband Internet service from AT&T, or another cable-television company, the company will install a cable modem in your computer, and for about $39.95 per month, you can surf the Internet at record speeds. With AT&T, your Internet Service Provider (the company that provides the link between your cable line and the rest of the Internet) will be Excite@home, a company with whom AT&T has a contractual relationship. Using Excite as your ISP, you have full access to the entire Internet. If you want to use a different ISP, then you just pay an additional fee, in order to piggyback on top of Excite.

The broadband cable deployment is great news for consumers, but terrible for other ISPs. For example, soon after the cable threat appeared, phone companies had to make massive price cuts for their own Digital Subscriber Line (DSL) services. (DSL allows broadband Internet connections via a conventional telephone line.) Formerly concentrating on highly profitable business customers, the phone companies now needed to bring DSL prices down to meet the cable competition, and to begin widespread advertising to consumers, lest the consumers sign up for cable broadband first.

Also disadvantaged by the introduction of cable broadband were all the slow-speed, dial-up ISPs, such as Mindspring and America On-Line. For only 10 to 20 dollars a month more than the narrowband ISPs were charging, a customer could get a vastly faster Internet connection, via cable modem.

At the behest of AOL (king of the slow-speed world), many of the telephone companies and slow-speed ISPs got together to start lobbying against cable broadband. Claiming to be in favor of "Open Access" (more accurately, Forced Access), the slow-speed lobby urged hundreds of city councils and state legislatures to cripple cable broadband by regulation.

According to AOL et al., the cable companies should be forced to allow any ISP to connect to the cable broadband system, at the exact same price paid by the cable company's own affiliate (such as Excite@Home). The massive influx of ISPs would quickly overwhelm the available cable bandwidth, and bring high-speed cable to a crawl. That would suit the slow-speed companies just fine.

The Forced Access push was rejected almost everywhere it was proposed, and lost its founder when AOL bought its own cable-television system (Time Warner's), and immediately changed its mind about the issue.

But a few jurisdictions, including Portland, Oregon, imposed Forced Access, in a misguided belief that forcing an innovative company to share its property with competitors will promote more innovation. It was as if a restaurant which invented a new high-speed stove were legally forced to allow every chef in town to have "open access" to the stove. After a federal district court upheld the Portland regulators, the Ninth Circuit Court of Appeals took up the case.

And this is where the Clinton/Gore Federal Communications Commission rode to the rescue. In an amicus brief filed before the Ninth Circuit, the FCC pointed to the success of the FCC's "unregulation" policy on broadband. The FCC pointed out that the best way to prevent monopoly was not by taking the property of innovators like AT&T, but by encouraging cable to compete with DSL — and both to compete with satellite and other wireless broadband technologies.

In the lower court, both AT&T and Portland had assumed that cable broadband was a "cable service," under the federal Telecommunications Act. But the FCC argued that the assumption might have been incorrect, and noted that the FCC was still studying the issue. On June 22, the Ninth Circuit agreed, and held that Internet connection, such as provided by AT&T, is not a "cable service," under the Telecommunications Act. A cable service is one-way (television programs into the home), whereas Internet connections are two-way (the home sends information to the Internet, and also receives information). Excite@Home (the ISP for AT&T broadband) was providing a "telecommunications service." According to the federal Telecommunications Act, companies which provide "telecommunications service" don't need franchise approval from local governments. Therefore, Portland's attempt to impose Internet Forced Access, as a condition for AT&T acquiring TCI's license to provide ordinary cable television, violated federal law. Thus, the whole state and local lobbying campaign against AT&T has been futile, for only the FCC has authority to impose Forced Access. (Other federal courts are not required to follow the Ninth Circuit's decision, but the decision is so well-grounded in the federal statute that there seems to be little chance of a Circuit split developing.) And the FCC knows to leave well enough alone.

FCC Chairman William Kennard explained why he believes that imposed Forced Access is destructive: "The broadband market is fertile, but still undeveloped. The future is bright, but still glimmering in the distance. We are about 50 meters into a race that is sure to be a marathon.

"Sometimes people talk about broadband as though it is a mature industry. But, the fact is that we don't have a duopoly in broadband. We don't even have a monopoly in broadband. We have a NO-opoly. Because, the fact is, most Americans don't even have broadband.

"We have to get these pipes built. But how do we do it? We let the marketplace do it.

"If we've learned anything about the Internet in government over the last 15 years, it's that it thrived quite nicely without the intervention of government.

"In fact, the best decision government ever made with respect to the Internet was the decision that the FCC made 15 years ago NOT to impose regulation on it. This was not a dodge; it was a decision NOT to act. It was intentional restraint born of humility. Humility that we can't predict where this market is going.

"Who among us could have predicted the incredible advances of the past few years? Who at the beginning of this decade could have predicted the embrace of e-mail by all ages, the birth of the World Wide Web, the advances in communications technology?

"In a market developing at these speeds, the FCC must follow a piece of advice as old as Western Civilization itself: first, do no harm. Call it a high-tech Hippocratic Oath.

"So with competition and deregulation as our touchstones, the FCC has taken a hands-off, deregulatory approach to the broadband market. We approved the AT&T-TCI deal without imposing conditions that they open their network." (William E. Kennard, Chairman, FCC, Remarks before the National Cable Television Association, Chicago, June 15, 1999)

Property rights, Internet innovation, and consumers all won a big victory. AT&T's lawyers deserve applause for fighting for their company's rights; and the FCC's lawyers and Chairman deserve applause for fighting for yours.