Broadband Service: A Level Playing Field? And Information Service, Telecommunications Service, CALEA, Oh My

Broadband Service: A Level Playing Field?

On August 5th, the FCC issued a critical ruling on the future of broadband communications in the United States. The ruling changed the classification status of wireline broadband Internet access service from telecommunications service to information service. As a result, incumbent carriers are no longer legally mandated to provide line sharing. Despite the anti-ISP orientation of the ruling, the FCC intends to ensure competition by shifting the focus toward services running over DSL pipes and away from DSL itself.

After trying unsuccessfully to force cable networks open using a reclassification, the incumbents turned to closing their own networks to competitors. Just as CLECs had been able to compete with and provide alternatives to incumbents’ services based on their ability to access consumer lines at a discount, independent ISPs were similarly able to compete and provide alternative services to Internet users over the incumbents’ DSL lines. In February 2005, the FCC abandoned its mandatory UNE-P unbundling requirements with the Triennial Review Remand Order. This order achieved one part of the ILECs’ goals ­ to make it more costly for CLECs to access their networks. The new DSL reclassification effectively does the same to ISPs.

This may be the final defeat for CLECs and independent ISPs as serious players in the market. According to the FCC, the total number of CLEC subscriber lines increased over each period from December 2001 to June 2004, with a range of 8 to14 percent growth between periods. However, from June 2004 to December 2004, CLEC subscriber growth fell to less than 3 percent. This drop-off may reflect the efforts of the ILECs to suppress competition, and a change in DSL wholesale rates could similarly affect ISP growth.

What about the ISPs?

According to a recent ISP-Planet report, as of the second quarter of 2005, EarthLink was the only independent ISP among the top 10 in broadband DSL subscribers. The rest of the top 10 was made up of incumbent carriers, cable companies or their subsidiaries. Despite the ruling, Earthlink plans to extend its wholesale deals with the RBOCs and continue to access RBOC networks and customers. “I believe that our size and market share will help us be a player in the broadband space,” says Dan Greenfield, vice president of corporate communications for EarthLink.

Eric Nelson, senior vice president and CIO for MegaPath Networks, a managed network provider, shares the general sentiment. Nelson expects that the majority of ISPs won't really be affected one way or the other. “A small handful will go out of business because of it, but others, who would have been in the same boat, won't be affected as much because they saw it coming and prepared for it. Companies such as Covad, who put in place direct agreements with the incumbents prior to the ruling, won’t be strongly affected.” Covad signed a commercial DSL line-sharing agreement with Verizon in December 2004.

Information Service, Telecommunications Service, CALEA, Oh My

In September, a federal judge for the Eastern District in New York ruled that law enforcement may not track individuals through their cell phones without probable cause.

The case involved an assistant U.S. attorney who tried to track an individual’s cell phone with only a pen-register—a surveillance device that reveals calling information (i.e., originating number, signaling information, recipient number) but not the content of communications. Pen registers may be acquired by court-order, but does not require probable cause. It is easier for law enforcement to access pen-registers than wire-taps. The tracking described above, however, would reveal the user’s location information, whereas for a user of the PSTN, location beyond the area code is not clearly obvious. U.S. Magistrate Judge James Orenstein ruled that a wire-tap would be needed to acquire user location information and acquiring the wire-tap would require proof of probable cause. In a summer filled with rulings and decisions focused on the reduction of privacy rights and the strengthening of the government’s ability to monitor communications, Orenstein seemed determined to maintain enforcement of the law as designed.

On August 5, 2005, the FCC released an Order mandating the inclusion of certain broadband and VoIP services under CALEA requirements. The Order specifically refers to “facilities-based broadband Internet access service providers and VoIP providers that offer services permitting users to receive calls from, and place calls to, the public switched telephone network.” When asked for clarification, FCC news media contact, Mark Wigfield, explained that services that never touch the PSTN are exempt. This would include P2P VoIP services such as Skype. However, the FCC is still “looking at whether a something like a seamless combination of Skype In and Skype Out would be classified as an interconnected carrier.”

The troubling element is the ambiguity of the official document language. The definition of a “telecommunications service” under CALEA is broader than that of the Communications Act, and thus may include service providers not classified as such by the FCC. Because of its broader scope, CALEA authorizes the FCC to classify an entity as a telecommunications carrier if the Commission “finds that such service is a replacement for a substantial portion of the local telephone exchange.” Consequently, communications service providers considered “information services” under the Communications Act are now subject to CALEA requirements as a “telecommunications service.”

The expansion of CALEA will be a financial burden on the broadband ISP and VoIP providers. When CALEA was passed, it provided $500 million for developing CALEA compliance. It is unclear whether funds will be available for those providers recently reclassified. More than likely, the communications providers will pass the costs on to the consumer as they’ve done in the past.

Last but not least, there will no longer be a December 2005 “sunset” of several positions of the USA Patriot Act. This summer saw proposals pass in the House and the Senate that renew sun-setting provisions of the Act, and make a majority permanent. The House and Senate versions vary from each other in significant ways, however. The House version grants 10 year extensions to two of the most controversial provisions: the “roving-wiretap” and investigations into library and medical records). In contrast, the Senate approved a version with 4 year extensions to the noted provisions but also includes significant restrictions on FBI power. The Senate version adds requirements for frequent public reporting and tougher standards for gaining personal record access. In addition, the Senate version would provide rights to those individuals who receive requests for personal information, including the right to challenge the request in court, as well as challenge the gag order facing all of those who receive such requests for information. There still needs to be reconciliation between the two versions before it goes to the President for execution.