Subject: Our findings on the emptying out of Title II

From: Gordon Cook <[email-masked]>
Date: Mon, 3 Nov 2003 22:28:00 -0500

A Chain of Reasoning

What follows is an interpretive summary of what we have learned in 
putting this issue together. It is designed to be a bare bones road 
map to the evolution of the regulatory landscape and the critical 
changes now in the balance. It should give a high level sense of how 
we got to where we are. It is intended to provide a context in which 
to think about the changes being proposed.

1. In 1934 ATT was given what was tantamount to national phone 
network monopoly in exchange for agreeing to regulation with right of 
interconnection. In other words, it was required to hook up to 
non-AT&T local carriers -- the independents -- so that local 
customers could make long distance calls. With the agreement to be 
regulated came the assurance of guaranteed rates of return.

2. With emergence of data communications it was decided that 
companies providing data communications didn't need to be regulated 
since data communication was regarded as a new, open and competitive 
business.

3. The problem was that data com depended on access to the phone 
networks and the issue became what to do when the phone companies 
wanted to do data com themselves? Since they owned the network on 
which their unregulated competitor depended, the issue was: how could 
they be let into "play" without being able to use their own network 
to disadvantage the competition.

4. The telcos (regulated) were let into play in this unregulated area 
by agreeing to give their competition equal access including equal 
cost access to their networks.

5. Equal access for everyone was assured by making the transport of 
data com subject to existing common carrier regulations.

The Internet Was Born of A Separation of Transport and Services Now 
Being Abandoned

6. As computers on which data com depended became more powerful, the 
data com folk wanted to offer 'fancy' services on top of basic 
transport. In this new context, the concern was that if these 
services were regulated every one would be shoe horned into having to 
offer the same price for the same services and incentive to innovate 
would be lost.

7. As a result it was decided that enhanced services under Title I of 
the 1934 Act could be offered with no regulation and no price 
controls on top of basic data network, which was regulated, common 
carrier transport under Title II of the 1934 Communications Act

8. The telcos agreed to accept these restrictions so that they too 
could play in the enhanced services data com game under the 
unregulated Title I part of the 1934 Act

9. With Computer Inquiry II telcos got the chance to offer enhanced 
unregulated services themselves for the first time,

10. After divestiture the rules for what were "enhanced services" and 
free from regulation (Title I) and what were not (Title II) and who 
could offer what and on what terms were subject to argument.

11. With Computer III the telcos got even more freedom to offer 
unregulated services (Title I)

12. Now the following is critical -- Title II regulation had been 
designed to ensure that there could be some competition in the use of 
what otherwise would have been regarded as a natural monopoly.

No Competition without Access to the Network

13. The problem was that without access to the basic network you 
could not compete in the delivery of Enhanced Services and could not 
innovate new services so the system was set up to guarantee all would 
be providers of Enhanced Services access to the basic network under 
Title II PSTN common carriage basic services.

14. With a level playing field open equally to all comers, these 
comers were able to offer new and fancy data services (aka enhanced 
services ) on an unregulated basis.

15. Over the long term the real problem has been that the data 
services under Title I turned digital. As they did more and more 
Title II analog services could be offered digitally under Title I 
without regulation much more cost effectively than under Title II.

16. What we are now seeing is a convergence between the two 
industries. Telecom and computing and where digital computing, 
unregulated and offered under Title I, will threaten to turn suck the 
Title II PSTN dry and bankrupt it.

With Convergence Only Services Worth Giving Are Unregulated (Title I)

17. Under such a scenario, everything worth doing in a really cost 
effective way will have migrated from regulated Title II PSTN to 
unregulated enhanced services under Title I.

18. With dial up the US and Canada adopted a regulatory theory where 
Internet was an enhanced service and should not be regulated. That is 
it was an enhanced service under Title I.

19. With dial up service the telecom service underlying Internet 
access was considered competitive in both countries. Therefore both 
forbore from regulating the otherwise common carrier dial up aspects.

20. With broadband service, since dial up was deemed competitive and 
not in need of regulation, telcos requested and received forbearance 
from regulating the otherwise common carrier and hence regulated 
aspects of DSL.

21. The problem here was that with dial up ISPs did not need to be to 
have access to and make changes to the physical guts of the network. 
They could effectively attach CPE (modems) at each end.

Why Title II for DSL Matters to ISPs

22. However with DSL equipment had to be located in central offices 
or remotes and attached at many places to the copper plant to make it 
work. To do DSL a CLEC had to interface in a much more tightly 
coupled way with the copper plant than before. The copper plant had 
to be "tuned" to deliver the service in a way that dial up did not 
demand. The copper plant could be tuned by the LEC or some portion of 
it tuned and interconnected with by the CLEC. Then the LEC or CLEC 
would sell DSL transport to the ISP.

23. With access to the physical network necessary in a way that it 
was not before the change of technology, the telco has lots of new 
charges that it can levy against those CLECs who would like to be 
able to independently offer the service. Collocation charges, 
interconnection charges, engineering study and design charges.

24. ISPs do not get to collocate, interconnect, or obtain UNEs. They 
are ESPs, not carriers. Only carriers have 251/2 rights. ESPs buy 
service from LECs. DSL Transport is a telecommunications service; the 
ISP uses the LEC's DSL service, which is a bundle of the loop and 
DSLAM and requires another service (ATM, frame relay, Gig-E) to get 
to the cloud. The ISP is buying a service from the LEC. Computer 
Inquiry. The ISP then adds its information service on top of the 
telecom service and provides high speed Internet access to customers.

25. CLECs - be they companies like COVAD or 'affiliates like SBC ASI 
-- obtain a DSL capable loop, collocate in a CO or remote and install 
the DSLAM. They get UNEs and collocation under 251/2. The LEC then 
provides a telecommunications service to the ISP, which adds its 
information service on top of the telecom service and provides high 
speed Internet access to customers.

For points 26 - 39 see http://cookreport.com/12.10.shtml

-- 
=============================================================
The COOK Report on Internet Protocol,  609 882-2572 (PSTN) 703 738-6031
(Vonage) Subscription info & prices at 
http://cookreport.com/subscriptions.shtml
Independent ISPs Likely Demise? http://cookreport.com/12.09.shtml  Purchase 10
years of back issues at http://www.cafeshops.com/cookreportinter.6936314 
E-mail [email-masked] or use [email-masked] Free World Dial up 17318
=============================================================