New regulations could spur broadband investment

A rewrite of competition rules for the US telecom industry may provide incentives to roll out more broadband, but also could limit competition for consumers.

A rewrite of competition rules for the US telecom industry may provide incentives to roll out more high-speed Internet service, but also could limit competition for consumers, analysts said.

Thursday's 3-2 decision by the Federal Communications Commission was a mixed bag for the entire telecom industry, which had been furiously lobbying ahead of the complex ruling.

The divided FCC members ended up removing regulations on the big regional telecom giants, or 'Baby Bells,' to spur deployment of high-speed data lines for broadband Internet.

The FCC ruled, however, that the Baby Bells -- many of which still have a near-monopoly for local phone service -- must continue sharing existing copper lines, offering access to rivals at wholesale prices for telephony.

The Baby Bells were formed by the breakup in the 1980s of the AT and T national phone system, and now include four firms -- Verizon, SBC, BellSouth and Qwest.

The contested ruling did not give the Baby Bells the full deregulation they had been seeking, but it did give them the right to build new high-speed lines without the requirement of sharing them with rivals, analysts note. This could speed deployment of broadband, according to some in the industry.

'I think it's a shot in the arm to the tech community,' said Matthew Flannigan, president of the Telecommunications Industry Association, which represents equipment manufacturers.

Intel chief executive Craig Barrett praised the FCC for its 'bold step to promote and accelerate broadband deployment in this country.'

However, some critics say the new rules may shut out competition for high-speed Internet services like DSL using networks built by monopolies, which have heretofore been considered public utilities.

Some fear that consumers, who can now choose from a range of DSL and cable Internet providers, may face a monopoly for each of these two services.

'The FCC's action ... is highly ironic. The rules the commission adopted preserve competition for 20th-century technology while ensuring monopoly for 21st-century technologies,' said Mark Cooper, director of research for the Consumer Federation of America.

'We don't advocate a policy that says only Burger King and McDonald's can sell fast food,' said Harris Miller, president of the Information Technology Association of America, a high-tech lobby group.

The FCC's decision for broadband 'is likely to reduce the number of (service providers) consumers can choose from by about 99 percent,' Miller said.

Commissioner Michael Copps, who dissented in the ruling, said the agency was 'playing fast and loose with the country's broadband future, denying it the competitive air it needs to breathe in order to flourish. Consumers and the Internet itself may well suffer.'

Wall Street analysts said the benefits for some companies may be overshadowed by other aspects of the ruling, which is certain to be challenged in the courts.

'In our view, the FCC's decision ... hurts the majority of the telecommunications industry by extending the uncertainty related to key investment issues,' said Legg Mason analyst Michael Balhoff.

FCC chairman Michael Powell, who spearheaded the deregulation effort, said the battered telecom industry could be left in chaos.

'In choosing to abdicate its responsibility to craft clear and sustainable rules, the majority has brought forth a molten morass of regulatory activity that may very well wilt any lingering investment interest in the sector,' Powell said.