The Internet is the New PSTN

The CompTel fall show

is shaping up to be a huge success, evidence perhaps that the competitive communications industry is on the rebound. There is a certain buzz in the air as entrepreneurs gather to make deals, see the newest technology, and learn more about the business potential of WiMAX, BPL, VoIP and other IP-enabled services.

As the new CEO of CompTel, I am excited by the opportunities and challenges that lie ahead. With the mergers of CompTel, ASCENT and ALTS now complete, the new CompTel is the competitive communications industrys trade association. Our fall and spring shows, along with our CEO Council, provide members with important opportunities to network and enhance their businesses. Our legislative and regulatory briefings keep members informed on key issues that will directly affect their companies. Working with our members, CompTel is a strong advocate at the FCC and Congress on behalf of our members. Going forward, CompTel and its members will be taking action by Advancing Communications Through Innovation and Open Networks. But more is needed if the competitive industry is going to survive and thrive.

Dark storm clouds are gathering on the horizon for the competitive industry. The two largest ILECs SBC Communications Inc. and Verizon Communications Inc. are seeking to buy outright the two largest competitive companies AT&T Corp. and MCI Inc. CompTel and its members are opposing these anticompetitive mergers, but SBC and Verizon are spending millions of rate-payer dollars to lobby in favor of approval. At the same time, the FCC recently adopted an order to eliminate common carrier requirements on the high-speed transmission facilities used by ILECs to offer information services. CompTel worked hard with the FCC chairman and commissioners to try to ensure regulatory relief contained in the order does not extend to special access lines, interconnection and unbundled network elements, but until the inevitable litigation challenging the order has been decided, the competitive industry will be in a state of uncertainty.

On top of the mergers and FCC action, there are also numerous efforts in Congress to rewrite the Communications Act, and many of those are focused on eliminating the very provisions of law that enable the competitive industry to exist in the first place. If these anticompetitive rewrites are successful, there will be much less buzz at future industry trade shows for the simple reason that there will be far fewer competitive companies who will be around to participate. And it wont just be CLECs who wont be around many of the ISPs, ASPs and other service providers that depend on access to communications networks to offer services wont be around either.

How could this be? The answer is simple. The little secret that many people appear to have forgotten is that, despite all the hype about competition, there are only a few ubiquitous networks that actually reach consumers. While roughly 90 percent of residential homes can be reached by both a phone wire and a cable wire, roughly 90 percent of commercial buildings are reached by only one phone wire. As for wireless, it is not an alternative for broadband service. The two largest wireless carriers are owned by ILECs, and no competitor has been able to deploy successfully a wireless alternative to the phone network.

In fact, the competition that exists today is the result of common carrier requirements imposed on the phone company. If you need a T1 line to connect to the Internet or offer service, you simply go to the phone company and buy it. As a common carrier, the phone company has to sell service to you, and also cant discriminate on the rate, terms or conditions or object if you choose to resell that service or capacity to someone else. As a result, ISPs, ASPs, CLECs and others can use the phone networks to offer their services to consumers. But now the FCC is eliminating those common carrier rules by reclassifying DSL and other broadband offerings by the phone company as information services which are not subject to common carrier rules.

Why did the FCC do this? Good question. The FCC gives two reasons one, that market forces from intermodal competition will ensure that ILECs and cable operators will sell access to their networks to companies who offer competing services; and two, that the ILECs needed this relief in order to stimulate ILEC investment in broadband networks and create regulatory parity with cable operators. The investment rationale is clearly naive; ILECs will deploy fiber with or without relief in order to provide video. Likewise, sacrificing competition to create parity is misguided at best.

I think any competitor who has negotiated with an incumbent LEC for access to network elements, colocation or any other service will raise a skeptical eyebrow to claims that market forces can be relied on to force an ILEC to do anything. But if you have any doubts or believe that negotiating prowess rather than force of law will result in an agreement take a look at the real-life examples of competitor access to cable networks that are not subject to common carrier regulation. The same market forces that the FCC is relying on now have been at work for the past eight years for cable networks. The results are not pretty. AT&T actually bought two cable networks, yet it was unable to negotiate its way on to any other cable network to offer phone service. AOL also bought a cable network, and yet it was unsuccessful in negotiating viable agreements to offer its ISP service on any cable network. In fact, not one company seeking to offer a competing service has managed to negotiate its way onto a cable network. Is there a pattern here?

And it is not just people seeking to offer competing services that should be alarmed by the FCCs misplaced reliance on market forces to ensure access to communications networks. The consumer electronics industry and network equipment manufacturers should be worried as well. Eight years after Congress required cable operators to allow consumers to use their own set-top boxes, the consumer electronics industry is still fighting cable industry attempts to limit what they can sell to consumers. In comparison, the consumer electronics and network equipment market for devices that attach to the Internet is thriving because common carriers (the phone companies) are required to allow attachment of devices.

Does the future sound a little bleak? Well, it might be if the industry doesnt change its tune when lobbying Congress and the FCC. The reality is that e-commerce is thriving today because common carrier regulation keeps the phone networks open to all. The Internet is the PSTN of the 21st century increasingly all traffic flows over it. Yet to date the competitive industrys primary message has been, Dont regulate the Internet, which simply reinforces the message of the RBOCs, whose networks are necessary to reach consumers and are essentially the only part of the Internet that is regulated today. What industry CEOs need to tell Congress and the FCC if they want a competitive future is: The Internet is the new PSTN. Keep open networks by requiring common carriage. CompTel intends to advocate this message forcefully but we need your help to succeed.

Earl Comstock is CEO of CompTel, a Washington, D.C.-based trade association representing facilities-based carriers, providers using unbundled network elements, global integrated communications companies and their supplier partners.