FCC, ILECs, DSL, and you

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The FCC has decided that DSL is an "information service" which means that the Incumbent Local Exchange Providers (ILECs) will no longer be required to lease service to ISPs under the same terms that they provide service to their own ISP divisions. What everyone expects here is for the ILECs to substantially increase the price that they charge for DSL connections, thus making life hard on independent ISPs and increasing the cost of your Internet service, and the fraction of people who go with the ILEC's in-house ISP service. If this is the worst that happens, we'll be getting off pretty light.

Remember that the telcos hate being in the business of generic data service. The business they want to be in is selling overpriced end-user services like they always have (what, you thought that it really cost them $7.95 a month to give you voice mail?). But as long as people have access to generic data service, their ability to do so is limited. Sure, they can block competing third party services but if they do people will just switch to some ISP which doesn't.

However, if people can't easily switch ISPs--for instance if the price of the DSL line triples if you don't use the ILEC's captive ISP service--then it's a lot easier for the ILECs to filter out third party services and then charge you extra for providing them themselves. It's not just a matter of money, either; it's about choice. Once you're in the filtering business, it's natural to just screen everything by default, which makes it incredibly hard for third parties to deploy new applications. That's in the ILEC's interest (at least in the short term, though not necesarily in the long term since it disincentivizes the creation of new applications that might let them sell you more bandwidth) but not really in yours.

Of course, even if there's a monopoly on DSL service, it's not a complete Internet monopoly. You can still buy your service from the cable company. Unfortunately, cable Internet, partly as a result of its technological base and partly as a result of its institutional culture, is even more committed to the idea of centrally provided service than the telcos are. Don't look for them to endorse a world where any chump with a computer can stand up a new service.

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Well, we can all just use the cellular companies' emerging broadband wireless data services. Oops. They're all owned by ILECs.

Hey, maybe municipalities can offer free Wi-Fi wireless. Oops. The ILECs are all lobbying against them based on the grounds that government run wirless networks are anti-competitive.

Can everyone say, "Regulatory capture."

OTOH, I think this hits common carrier, which would weaken some legal protections as well.

However, overall, it is NOT a good thing.

Lynne Kiesling and Declan McCullagh consider the ruling good economics.

Of course, neither Kiesling or McCullage address the monopolistic economic issues.

One question is a theoretical one of whether wired telephone access is a natural monopoly. A standard topic of both introducory and advanced economic texts, I don't think it has really been settled one way or another.

However,the ILECs were treated by governments as natural monopolies for a long time. Much of their "investment" was subsidized by preferential government policies (such as rights of way). Their competitors don't have access to the same advantages.

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