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April 28, 1998
CAMBRIDGE, MASS.—A high-speed Internet is racing toward us—a chance for video-conferencing, interactive TV, rich multimedia educational experiences, and the other mouth-watering innovations you’ve read about. But due to the structure of the industry and eccentric details in current technologies, the promise’s thunderous entrance may trample competition. While Internet service providers fight for a future, a lot is at stake for the general public: the variety of services on the market, their affordability, and the reliability with which streaming data like voice and video are delivered.
Up to now, when you’ve chosen an Internet provider, you just dial up its phone number and the telephone company has no reason to get involved. But with the new high-speed offering, ADSL, you have to notify the telephone company which provider you want and they have to type a routing command to send your data over the proper line.
This tiny intervention opens up new opportunities for the telephone company to favor its own Internet service. And the Bell companies want to get into the Internet service business in the worst way. (Take that phrase in any sense you like). Any advantage for the Bells could seriously block the future growth path for other ISPs, and deprive them of their most lucrative customers.
A deal struck in Washington state last week can teach something to everyone. In Washington, as in a number of other Western states, the Bell company U.S. West is offering a new ADSL service. The past several weeks have been spent on intensive wrangling between the U.S. West, the Internet service providers, and the Utilities and Transportation Commission, which is Washington’s public regulator.
In most states, the Internet service providers are poorly organized and the public regulatory commissions have let U.S. West offer its service with no conditions. But in Washington, the providers are well represented by a professional association called WAISP, and the UTC is eager to preserve competition.
Several potential problems were identified with the ADSL offering in Washington, and the commission negotiated rules with U.S. West to make sure it does not compete unfairly. Commission spokesperson Marilyn Meehan listed the rules for me, and said “We will hold U.S. West’s feet to the fire to make sure they honor the agreement.”
U.S. West was planning to do cross-marketing: signing up customers for its Internet service when they ask for ADSL. However, after negotiations the company agreed not to market their service to someone who already has an Internet provider (assuming the provider has service compatible with ADSL). If the customer asks for an Internet provider, the Bell company has to show them a list of all available providers.
The phone company theoretically could check customer bills to see whether they’re phoning an ISP, and try to get them to switch to U.S. West’s Internet service. The FCC will soon rule this practice to be illegal, and the UTC warned the company not to do it.
The company could charge for switching Internet providers, because they have to reconfigure their system for each change. So U.S. West wanted to charge $75 any time someone changed ISPs. The UTC found a mistake in their calculations and reduced the fee to $45. They are investigating further in case the fee is still exorbitant. But realistically, this probably won’t affect competition much. If you’ve ever switched ISPs, you know the hassles are more of a barrier than a $45 charge would be.
The company could offer its service before competing ISPs have time to sign up and be connected to the network that routes ADSL traffic. The agreement between U.S. West and the providers promises that any ISP signing up by May 29 will be hooked into their network by June 19, and U.S. West will not start marketing their service till June 19.
The company could refuse to let competing phone companies buy its ADSL lines. But the commission indicated that it believes these lines fall under the reselling provisions of the Telecommunications Act, and that they must therefore be offered on a wholesale discount basis to potential resellers.
It takes a lot of work to preserve competition in the shadow of a monopoly! Gary Gardner, president of WAISP, believes that the pressure of the ISPs and their association was critical to establishing a balanced plan. Dana Smith of U.S. West says the company is satisfied with the results. But the compromise found in Washington, while temporarily satisfying all parties, leaves other possible problems unaddressed.
An incumbent phone company could delay hooking customers up to competitors. This has been reported in other states when customers try to change regular phone service.
The company could overcharge ISPs for their side of the service, effectively cutting them out of the ADSL market.
The company could be lax in fixing service problems involving competitors’ connections.
The company can gain a marketing advantage by providing convenient one-bill pricing for phone service and Internet service.
The company could use bundling to promote its hardware, or simply require customers to buy its hardware. In Washington, U.S. West requires an ADSL customer to buy a modem from it for $200.
Finally, the specter of poor overall service was raised by Chris Easley of Telisphere, an Internet service provider and computer consulting company in Tacoma. He examined the data service that U.S. West offers to ISPs and found that it offers a low-quality “unspecified bit rate” service instead of a guaranteed throughput. Furthermore, the low prices offered to ADSL users lead Easley to suspect that U.S. West will not provide enough bandwidth to meet their expectations. Criticisms similar to those of WAISP and Easley were cited by an ISP named New Mexico Technet when U.S. West offered its service in New Mexico.
The “screaming” Internet service so many of us are waiting for is still elusive. ADSL is relatively unproven, and in many areas of the country the phone wires are too old or noisy to support it.
The main competition to ADSL comes from cable TV companies in the form of cable modems. But they’re slower than ADSL, and we still don’t know whether problems will crop up when thousands of people in a single area start using them. Also, the cable company (still a monopoly in most communities) is the sole supplier of Internet service over cable modems.
Eventually, a newer and technology for a high-speed data network will come along—perhaps something based on phone lines or TV cables; perhaps something less widespread like wireless or fiber. But we must not let a transitional technology in the short term kill off competition in the relatively young Internet industry.
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