By Kyle D. Dixon
August 10, 2005

Broadband providers were quick to praise the FCC's unanimous decision last week to classify DSL and other phone company broadband offerings as largely unregulated "information services." But the ruling and other recent moves in Washington to deregulate broadband suggest any kudos from cable and satellite companies may be more civil than sincere.

Like the approach the Supreme Court affirmed in NCTA et al. v. Brand X Internet Services, the FCC's decision intends to promote investment in broadband networks and services by shielding companies from the heavy regulation historically reserved for local phone companies. The decision also, however, provides the latest "thud" in a drumbeat of developments this summer that favor cable and satellite operators' chief competitors.

That drumbeat is perhaps loudest regarding moves to "level the playing field" on behalf of telephone companies that provide broadband, including both DSL and fiber optic-based video services. Nevada's Senator John Ensign just introduced the "Broadband Investment and Consumer Choice Act." Ensign's bill would largely free such companies from federal, state and local franchise regulation and would allow companies to negotiate terms for interconnecting their networks, denying that task to regulators. Although it seems unlikely the bill would be adopted as is (or ever), it will certainly become a benchmark the Bell Companies will rally around, presumably encouraging the FCC to view it as a "signal" it should follow to please Congress.

Both the Ensign bill and last week's classification ruling by the FCC should reduce some of the uncertainty surrounding Bell fiber deployments and encourage the Bells to move faster. And the more fiber-based video offerings those companies can provide, the less they will need to partner with DBS to provide an attractive "bundle" of voice, video and broadband. Indeed, SBC already has announced that it seeks a shift in its partnership with EchoStar, limiting its marketing of that company's DBS service to those areas in which SBC does not plan to introduce its "Project LightSpeed" fiber-based video service.

It is true that certain aspects of deregulation for DSL and fiber-based services may remain unresolved until new FCC commissioners are seated, but that just gives the agency time to build the voluminous record it will need to answer the many questions it raised when it classified these services. Thus these issues will not be resolved any faster even if the Senate avoids delaying confirmation of commissioners to fill both a vacant seat and one that will become vacant once Kathleen Abernathy leaves the agency.

Beyond DSL and fiber, policymakers have strengthened the reality or perception that wireless broadband will become a stronger competitor after this summer. In particular, the stronger entity emerging from the recently-approved Sprint/Nextel merger seems like something cable (and especially satellite) would be better off without. The conditions the FCC imposed to promote wireless broadband build-out are unlikely to change the landscape of broadband competition dramatically. But they may help solidify the notion that terrestrial wireless is a promising "third pipe" into the home, potentially garnering customers that otherwise might have gone to cable or satellite.

Of course, the picture is not all bad for cable and satellite. Cable, in particular, has a strong lead in broadband, a technical capacity to expand bandwidth to customers with relatively minimal additional cost, as well as a strong stable of video programming. Satellite could take some solace from moves in Congress to support satellite broadband in rural areas with USF subsidies. And both can count on the Bell Companies taking a few years before they can provide a truly competitive bundle of voice, data and video all by themselves. These factors may (and, for cable, probably will) outweigh any incremental advantages obtained by the Bell Companies over the last several weeks.

That said, I think some cable and satellite companies that have been enjoying a summer that began sunny and mild with the Brand X decision may find themselves asking "when will these dog days end?"

Kyle Dixon is Senior Fellow & Director of the Federal Institute for Regulatory Law & Economics, the Progress & Freedom Foundation. Mr. Dixon served in various capacities at the FCC from 1997 until 2004, most recently as Deputy Chief of the Media Bureau and Special Counsel to the Chairman for Broadband Policy.

Reprinted with permission.