Telecom, remystified

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As if the digital domain weren't complicated enough, now Congress is getting involved.

Quick: Name a consumer offering, besides gasoline, that has been getting more expensive, not less. It's not food or clothing or electronics or anything sold at Wal-Mart. But take a look at your cable TV bill. Odds are high that the channels you subscribe to cost considerably more than five or 10 years ago. In fact, the price of cable has risen by nearly 70 percent over the past 10 years, nearly twice the rate of inflation.

Few consumers are complaining. Here's why: First of all, many people's cable package is now bundled together with broadband Internet service, and some consumers go for the "triple play," receiving local and long-distance phone service from their cable company as well. That makes it hard to factor out the pure cost of TV. And the cost of most telecom services, especially phone and Internet service, has been falling, so on the whole consumers feel as if they're getting a pretty good deal.

But it could be better, and that's the rallying cry for one of the most important—if arcane—regulatory battles to emerge over the past decade. Ten years ago, Congress passed the Telecommunications Act of 1996, which, among other things, was supposed to lower phone and cable rates by allowing more companies to offer those services to consumers. One result was a telecom free-for-all that brought lots of small phone companies into the market. Remember the ensuing meltdown? After a flurry of hot IPOs and investor mania, most of those upstarts began to hemorrhage money. Dozens of flash-in-the-pan companies went bust, and they nearly brought down huge hardware suppliers like Lucent and Nortel, which sold billions of dollars' worth of equipment to them on credit.

Phone rates did come down, however, as long-distance companies like MCI and AT&T began to offer local service and local phone companies like Verizon and SBC got into long-distance. But as for cable rates, little changed.

In fact, the '96 act was a classic Washington example of unintended consequences. Cable companies like Comcast and Cablevision—targets of the '96 act—have ended up as its biggest beneficiaries. Because they, too, were allowed to get into the phone business, they ended up in the best position to offer consumers the triple play. Many of the big phone companies can offer only a double play—phone and Internet service. To offer video through their wires, they usually need the permission of local licensing authorities, which are often beholden to entrenched cable companies that have held monopolies for years.

Enter Congress, once again. In the name of "consumer choice"—an alarming phrase that should always trigger a hunt for the real corporate interest at stake—Congress is considering a number of measures to further regulate the way companies market phone, TV, and Internet services. The jargon surrounding this debate is so confounding that most people will probably just tune it out and flip on American Idol. Which, come to think of it, would probably be just fine with your telecom provider.

If you're not comfortable letting Verizon and Cablevision lobby on your behalf, however, here's a quick glossary to help ordinary people understand what the latest telecom wars are all about:

Net neutrality. The House of Representatives recently voted down something called the Net Neutrality Amendment, which, among other things, has prompted a lot of people to ask: What the heck is net neutrality? I recently posed the question to Republican Rep. Darrell Issa of California, who sits on one of the committees considering new telecom legislation. He told me that during one hearing, members of Congress heard eight different definitions.

Here's the lowest common denominator: Since its inception, the Internet has been essentially unregulated–or neutral–to everybody who uses it. That includes ordinary Web surfers like you and me, along with content providers and marketers like Yahoo, Amazon, and usnews.com.

Now some broadband providers, such as AT&T and BellSouth, have said they'd like to charge extra fees for services that use a lot of bandwidth, like streaming video. Common Cause, the consumer watchdog group, opposes such a two-tier system, but telecom companies argue that it makes sense that people or companies who use more bandwidth ought to pay for it. The amendment that Congress recently rejected would have prohibited them from doing that, which means that the broadband network operators are free to try out the concept in the marketplace and see who's willing to pay. The fight is far from over, though. Democratic Rep. Ed Markey of Massachusetts, who sponsored the amendment, has vowed that "we intend to prevail in the end," likening a two-tier Internet to a gated community that threatens democracy. The tech watchers at CNET are so excited about the unfolding drama that they publish a running feature called Net Neutrality Showdown that digests all the developments.

National video franchising. This has nothing to do with opening a Blockbuster store. Phone companies like Verizon, AT&T, and SBC want one national law—rather than hundreds of municipal laws, as there are now–that will allow them to offer TV and video services to residential users. That would benefit . . . consumer choice! Or so they claim. Not to mention phone company balance sheets. Phone companies would find it much easier to wire millions of homes for high-speed video lines, and consumers, theoretically, would have alternatives to cable besides balky satellite service.

The cons: Consumer advocates worry that phone companies will cherry-pick the wealthiest neighborhoods and bypass the underclass, unless they're required to offer service to everybody. And with a national law, responsibility for enforcing consumer protections would fall to the faraway Federal Communications Commission, instead of local governments, which have done a pretty good job policing the cable providers. Still, odds are good that some form of national video franchising will become law this year.

Convergence. It's happening all around you, and it has nothing to do with weather patterns or global warming. "Convergence" is merely an awkward word for the melding of a whole range of telecom services into fewer and fewer gizmos. The new Motorola Q, for instance, is a combination phone, camera, computer, MP3 player, and TV. Unlike other telecom-related issues, it doesn't really matter who's for convergence and who's against it. The marketplace is making it happen no matter what. But this natural evolution does raise questions that regulators need to address and consumers should be aware of. The big telecom providers, for instance, want to be the sole provider of every voice, data, and video service you subscribe to—and capture as big a share of your wallet as they can. The cable and phone companies, and their various supporters in government, each have different ideas about what the right answer is. And their real interests are usually hidden behind rhetoric that includes all-American words like "consumer," "choice," "opportunity," and "enhancement."

Will any of this ever lower your cable bill? Or improve service? Or make more consumer technologies available for less money? If anybody tells you yes, ask what company they work for—or whose lobbying money they're taking. Then call up those missed American Idol episodes on your TiVo.

--Rick Newman