You’ve seen the basics of the Brand X case: Cable companies are not required to sell access to competing ISPs if that’s what the FCC so rules. And it is highly likely that the FCC will now level the playing field for DSL facilities of the telecos.
So what does that mean? Who are the winners and losers?
It’s not as obvious as it may at first seem.
The self-styled consumerists are already complaining. Consumers Union jumped right in: "We believe consumers remain in a substantial risk of paying bloated prices to cable companies.” The consumers groups seemed to have had a statement ready: “The court's ruling also threatens to cement the cozy duopoly of cable modem and DSL service that has made a mockery of competition in American broadband markets." (Hmm, then what is it again that is driving DSL rates down to below the level of what dial-ups were charging a few months ago?).
Cable companies should be pleased, as would be telcos—a rare alignment of interests. But these are short run victories. In the longer term, The Brand X decision may be a huge win for consumers, a loss for the telcos, and a mixed bag for the cable folks.
Good for Consumers
Here’s why. Major stakeholders in the outcome of Brand X were EarthLink and other ISPs who resell telco DSL and hoped to resell cable broadband. While their participation in the market gives the appearance of greater competition, it is only half a glass. As resellers, they still must depend on the suppliers-- telcos or cable providers-- for wholesale pricing. This sets a floor for their own pricing. It's an easy way into the market—little capital expense. But it does not really add to the broadband infrastructure and create real competition.
With the Brand X decision, these ISPs must now fend for themselves. The good news is they have some very realistic options: multiple wireless broadband technologies. They can do what Philadelphia and various other municipalities are building—city-wide wireless. They can use Wi-Fi. They can use the developing Wi-Max. There are several flavors of fixed wireless technologies.
"We think wireless has a lot of promise and we're very aggressively pursuing that," a spokesman for EarthLink told The Wall Street Journal. The Journal also noted that: “In Philadelphia, for example, EarthLink has put in a bid to provide wireless Web service across the city, and is testing wireless technology in Northern California markets. And in Madison, Wis., AOL plans to test this year a high-speed wireless network to gain direct access to customers.”
My prediction is that, with the easy and cheap option eliminated, competition will be encouraged in new directions. (There is always talk about using electric utility wires, but so far it’s been years of talk, little action. I remain an agnostic on this as an option).
Loss for Telcos
The telcos may gain full control over DSL, but they lose a potential political ally in what may be another high stakes battle: video. As the telcos roll out cable-like video services over their new fiber networks, they are running into the same local franchise barriers that stalled the cable providers in the early 1980s. As it now stands, in most states they will need to go town by town to get permission to be in the “cable” business. Having lost a major state battle (in Texas) to get a pass around this expensive and time consuming barrier, the telcos had hoped to get a competition-oriented Congress to revise the Telecommunications Act of 1996 to provide a federal law overriding the states. If the Supreme Court had ruled in favor of Brand X, the cable companies would likely have also turned to Congress to overrule the FCC. Thus, two major industries would have joined to promote a change.
But the cable industry now sees no need for immediate legislative action, leaving the telcos all alone. That makes the possibility of getting Congress to act far less likely.
Mixed Bag for Cable
The cable industry is the big short term winner. They got the ISPs off their backs. They will not need to engage in an expensive lobby effort with Congress. Their telco competition is mired down in franchise battles and a lonely lobbying effort. (Come to think of it, perhaps the consumerists would want to align themselves with the telcos to persuade Congress to speed up competition for video programming services. I’m serious!) But down the road, cable interests will face the same enhanced competition as the telcos should the concerted efforts of the EarthLinks forge a viable third broadband option in the form of wireless. And, sooner or later, the telcos will be encroaching on their video bailiwick, just as they are moving along with switched telephone offerings in the telco space.
Brand X resolved a battle. But the war of competition and lower prices and/or more bang for the buck—and usually both of these—rages.
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