FCC Eliminates DSL Internet Sharing, Handing RBOCs Freedom Over Broadband Resale

by Brian Washburn - Principal Analyst, Business Network Services
August 16, 2005

On August 5, the Federal Communications Commission (FCC) removed requirements that the regional Bell operating companies (RBOCs) must provide DSL broadband access to third-party Internet service providers (ISPs) under the same terms and conditions as their own preferred ISP. The FCC used the Supreme Court decision in the NCTA vs. Brand X case as precedent that broadband Internet is classified as an “information service” not a “telecommunications service,” and is therefore exempt from common carrier requirements. The changing regulations give third-party ISPs selling DSL one year of grandfathered service, during which they can work on negotiating market-based rates with incumbent local carriers.

Why would the FCC rule unanimously to remove DSL as a common carrier service? The Order makes sense if seen from the perspective of Commissioners that chose to rule proactively, knowing that it was a matter of time before RBOCs used the Supreme Court Brand X vs. NCTA decision to force a change.

The FCC Order carries implications on many fronts. Least significant is the practical, near-term direct impact on end customers. Most remaining broadband ISPs provide their own DSL infrastructure or resell CLEC-provided DSL services are unaffected by the Order. Earthlink is the only top-tier consumer ISP greatly affected, since the carrier resells a mix of Covad and RBOC DSL, as well as reselling cable TV broadband. A large number of small ISPs will also be affected to some extent.

The business and technology considerations are more troubling. The FCC positioned residential fiber as a way for the RBOCs to get an exemption to common carrier requirements; But if DSL Internet is excluded from common carrier requirements, that could be a disincentive for the Bells to build out residential fiber. Also, the Order suggests that it includes all types of DSL, which would include business-oriented broadband services such as symmetric DSL (SDSL) and IDSL (ISDN DSL). The status of dedicated Internet access via HDSL-delivered T1 is also unclear as the technology has a foot planted in each camp, as both a DSL service and a traditional FCC-defined “high-capacity service”. It's also not clear whether RBOCs need to provide DSL on a common carrier basis in any form. For example CLECs like New Edge Networks resell RBOC DSL not for public Internet access, but to connect private business networks.

The FCC's decision to deregulate DSL should not have a large market impact on residential and small business customers for the near to mid-term. From a logical perspective, the Supreme Court's NCTA vs. Brand X decision is a weak foundation for re-classifying DSL broadband Internet from common carrier service to part of an information service. But the Order makes sense if seen from the perspective of Commissioners that chose to rule proactively and deregulate service on their own terms, rather than have the RBOCs force changes on the Commission through the courts.

Despite strong language from some critics, it's extremely unlikely the RBOCs would take extreme measures to shut down their DSL resellers, a move which would hurt the industry. Past evidence shows that the RBOCs will be accommodating to DSL Internet resellers. Negotiated rates will probably rise modestly, though the incumbents haven't been griping loudly about losing money on DSL resale rates being set artificially low.

Top