INDUSTRY ANALYSIS
Battling the 'Axis of Old' for Broadband

President Bush has called for ubiquitous broadband rollout by 2007, but to reach that goal, Americans must win the fight against the Axis of Old -- entrenched interests in government and industry that are fighting the progress that comes with new technologies.

The first member of the Axis of Old is the Federal Communications Commission. For the last eight years, FCC regulations derived from the 1996 Telecommunications Act have strangled phone companies with red tape. The constant micromanagement of this sector has squashed innovation and harmed America's ability to compete internationally.

It's a sorry situation when the nation that invented the Internet only ranks 11th in high-speed Internet use per capita, behind countries like Italy and Canada. And yet the FCC won't release its grip.

Communications Industry and Cash Infusion

Currently, the agency is working to overturn an appeals court decision to vacate harmful rules requiring local phone companies to share their equipment with competitors at government-set rates, a policy known by the ungainly name of "unbundling." If broadband is going to be deployed faster and better, as President Bush hopes, the communications industry needs an infusion of cash. But investors are unlikely to offer help if they think the company in which they're investing will have to share its property with competitors.

The second force in the Axis of Old consists of state public utilities commissions. A case in point is the California PUC, which voted this week to regulate California's wireless industry. The new rules contain useless provisions, such as how large the font size should be in a customer's bill. And because wireless companies now will be subject to new bureaucratic filing, administrative procedures and reporting requirements, prices for wireless services will rise, slowing the march toward broadband.

With moves like this, President Bush should start sweating about achieving his timeline. California Governor Arnold Schwarzenegger should be embarrassed that his state, which is supposed to be technology friendly, is allowing its representatives to act like Luddites destroying factories. As California Chamber of Commerce president Alan Zaremberg said recently, the California PUC is sticking "its fingers into the highly competitive wireless industry for no good reason other than it can."

Special Interests and Irrational Regulations

The third prong in the Axis of Old consists of the special interests and companies that benefit from irrational regulations. A key example is AT&T (NYSE: T), which has made a business out of whining to state and federal legislators that it can't possibly compete in the marketplace if there aren't rules that let it free-ride on its competitors' networks. After the current telecom mess is resolved, many telecom analysts fully expect AT&T's lobbyists to begin a profitable business selling bridges in Brooklyn.

At the moment, however, AT&T lobbyists are spending their time telling federal regulators that it is highly unlikely AT&T will be able to cut a deal with SBC without government intervention. But the mischief doesn't end at the federal level.

This month, AT&T and other groups like the California Cable Association were successful in stopping proposed California state legislation that would have required the PUC to streamline outdated telecom regulations. AT&T's interest is obvious, but if anyone's wondering why the cable companies don't want phone companies to rid themselves of the state's bureaucratic morass, it's because cable now competes with the telecom industry to provide broadband.

California Assemblyman Keith Richman argues that "California policymakers need to let new technologies flourish without the threat of heavy-handed regulations that thwart the development of products and services that help consumers and businesses." He's right, and his bill would have been a step in the right direction toward the goal of serious broadband rollout by 2007.

Outdated Rules on the Books

What most people outside the telecom industry don't know is that there are a whole host of outdated rules on the books, such as one that forces telephone companies to count the number of minutes it takes to answer a customer call -- and penalizes them if it takes too long.

That type of rule is ridiculous in an era where if someone doesn't like the service the phone company gives them, they can switch to another company or use a cell phone or Voice over Internet Protocol (VoIP). The reactionary Axis of Old knows this but doesn't want anyone to realize it, because that would threaten the control and benefits they reap from the old rules. Fortunately, a brave few are trying to drag telecommunications policy into the 21st century.

One is FCC Chairman Michael Powell, who tried to start fixing the nation's telecom woes with the Triennial Review but was outvoted by his fellow commissioners. There's also California PUC commissioner Susan Kennedy, who has shown great courage and leadership on several telecom issues, including noting that opposition to Richman's streamlining bill was "ideological, not fiscal" in nature.

Broadband is what America needs to be competitive and create more jobs for the future. President Bush knows this or he wouldn't have made a point of setting a deadline for its rollout. To reach this goal, the Axis of Old must be defeated. If it is not, the price will be high indeed.