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FCC at the crossroads

Two key directions could make or break near-term broadband.

No U.S. regulating body has more power to affect computer users than the Federal Communications Commission (FCC). In the wake of the 1996 Telecom Act, under then-Chairman William Kennard, the FCC carved up the map for hundreds of start-ups. It auctioned off most of the wireless licenses in use today. It laid the groundwork for what looked to be a fiber-optic superhighway with many wired and wireless off-ramps in both urban and rural areas.

For a variety of reasons (bubble economics, unscrupulous business practices, a recession), the FCC’s grand plan under the Clinton administration didn’t work out. President Bush’s FCC chairman, Michael Powell, was left to clean up the mess while pushing a more conservative platform of deregulation and opening up markets in which only the strong will survive. If the Powell platform works, he will be hailed as a savior not only of a tattered telecom sector, but of every IT sector. A revitalized telecom sector would make broadband available to hundreds of millions of people, which would boost the ISP, PC, and training sectors. If it fails, it could send the IT sector into a double-dip recession. Without a strong supply of new broadband options, the aforementioned industries will continue to struggle, and many small companies fighting for survival will simply fold.

The main push Powell is making is toward spurning key provisions in the 1996 act that force Incumbent Local Exchange Companies (ILECs,or Baby Bells) to lease their infrastructure to Competitive Local Exchange Companies (CLECs) at substantial discounts. These provisions were supposed to help CLECs compete for ILEC customers. In theory, this competition would force the Baby Bells to invest in the equipment necessary to bring broadband to areas outside of the small loops around their local switching stations. In practice, it has prevented this investment. Baby Bells are loath to roll out new equipment only to be forced to lease it to their competitors at rock-bottom prices. The Bells have pushed hard to roll back these provisions, convincing Powell that it is the only way to get them to invest in the DSLAM equipment needed to bring DSL to new customers.

Critics of this plan have two main arguments. First, Powell would be rewarding companies found guilty on countless occasions of preventing CLECs from accessing their infrastructure by making it legal to prevent them. Second, while the Bells claim that they will invest in telecom if the FCC lifts the Telecom Act’s provisions, there is no guarantee that they will. Who’s to say they aren’t just lobbying furiously to avoid fines levied since the act was made law? Given how the ILECs have found it better to pay the fines than to cooperate with the CLECs, this argument has merit. And it is only strengthened by other questionable business dealings by some of the Bells, most notably Qwest. Qwest is the WorldCom of the Baby Bells. Do we want to make it easier for it to misbehave?

It appears the FCC is going ahead with its plan regardless of the arguments against it. While this will result in fewer telecom companies, some of the stronger ones will take the opportunity to invest in DSLAM equipment simply because they will get a better return on their investments than they could under the Telecom Act. In areas outside of Qwest’s domain, it will help users. Inside Qwest’s domain, it will harm users because Qwest doesn’t have the money to invest anyway. But the old arrangement wasn’t working, so the FCC is resigned to try something new in hopes that some progress will be made. My prediction is that it will have a marginal affect. The stronger Bells will invest to pick low-hanging fruit. But DSL is a losing proposition for them outside of fairly densely populated, affluent suburbs.

There are two technologies that could bring broadband to less densely populated areas: Fiber to the User and fixed wireless. Alcatel’s Fiber to the User project is being slowly adopted by rural cooperatives and municipalities that have received CLEC licenses from the FCC. As long as Powell doesn’t do anything to mess up this grass-roots development, Fiber to the User will do more to help users than repealing the Telecom Act. Look for more on this intriguing development in our September Telecom issue.

Powell and co. can really help out on the fixed wireless front. Under Kennard, the FCC licensed spectrum to the highest bidder, regardless of the bidders’ ability to pay the fees or roll out the services. The NextWave debacle is a case in point of why this was a bad idea. NextWave bid $5 billion for spectrum when it only had a small fraction of the money in cash. It spent all of its cash on 10 percent of the licensing fee and never erected a tower. Now that spectrum is tied up in the Supreme Court, unused. Other examples include WorldCom, which owns fixed wireless spectrum (2.5MHz band) and has no money to invest in the technology or equipment to use the spectrum.

Minneapolis-based NextNet has a USB box that could get you up and running with multimegabit secure wireless service in a matter of minutes. But WorldCom has no ability to bring that broadband to users. Only people in small pockets of Iowa and Wisconsin have this type of access. If the FCC were willing and able to take stronger control of who gets this spectrum, as Mexico has done, fixed wireless could blanket the country as it has in Mexico, where 25 million users are projected to hook in by year’s end. Perhaps a new law needs to be passed that would give the FCC power to grant spectrum not only to the highest bidder, but to the company in the best position to actually use the spectrum. And if the Supreme Court makes a favorable decision, Powell and co. can buy back spectrum from companies that are not in a position to use it, as in the case of the bankrupt NextWave and WorldCom. This would go against Powell’s philosophy, which favors unfettered capitalism, even for abject failures. But it is the only way to get wireless broadband off the ground (outside of insecure and unlicensed Wi-Fi networks).

The FCC is at a crossroads, and with prudent decisions and a little help from both Congress and the Supreme Court, it could emerge from Bush’s first term having cleaned up the telecom regulatory mess. Its current course is not nearly as aggressive as it should be, enabling only the wealthiest few companies to offer broadband to the wealthiest few users. Hopefully Powell will have the courage to take more promising avenues despite his laissez-faire attitudes. I’m waiting with bated breath.

James Mathewson is editor of ComputerUser magazine and ComputerUser.com.

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