© 1999 Howard A. Shelanski.

Acting Professor, University of California, Berkeley, Boalt Hall School of Law (on leave 1998-1999); Senior Economist, Council of Economic Advisors. I am grateful to Bert Huang, the editors at the Berkeley Technology Law Journal, and to participants in the conference on the Legal and Policy Framework for Global Electronic Commerce, March 5-6, 1999 at the University of California at Berkeley. The views expressed in this essay are the author's and are not necessarily shared by the Council of Economic Advisers or any other government agency.

1. See INDUSTRY ANALYSIS DIV., FEDERAL COMMUNICATIONS COMM'N, TRENDS IN TELEPHONE SERVICE 90 tbl.17.2 (July 1998).

2. See id.

3. Indeed, in 1986, total fiber deployment by AT&T was less than 30 percent of its total network, including long distance lines where the bulk of fiber was used. See John Haring & Ewan Kwerel, Competition Policy in the Post-Equal Access Market, 62 Rad. Reg. 2d (P & F) 587, n.18 (OPP Working Paper, Feb. 1987).

4. See INDUSTRY ANALYSIS DIV., supra note , at 91 tbl.17.3.

5. See JONATHAN M. KRAUSHAAR, FEDERAL COMMUNICATIONS COMM'N, FIBER DEPLOYMENT UPDATE END OF YEAR 1997 10 tbl.2 (1998).

6. See id. at 24 tbl.6.

7. See id. at 36 tbl.14.

8. INDUSTRY ANALYSIS DIV., supra note , at 91 tbl.17.3.

9. See COUNCIL OF ECONOMIC ADVISORS, PROGRESS REPORT: GROWTH AND COMPETITION IN U.S. TELECOMMUNICATIONS 1993-1998, 24 (Feb. 8, 1999) (White Paper).

10. See KRAUSHAAR, supra note , at 21 n.18.

11. At the high end of the telecommunications market are high-capacity data links called T1 (or T3) lines. Prices vary by distance, contract length, and share of line capacity, with the minimum monthly charge being around $300. See Telco Express (visited Mar. 2, 1999) <http://digiquote.telcoexpress.com> (providing an online pricing tool for digital line rates around the country based on location and distance). Because T1 lines tend to be affordable only for large businesses and institutions, they are not considered part of the solution for real consumer-level broadband service-i.e., service affordable by households and small businesses.

12. See Digital Starter: ISDN, COMPUTER SHOPPER, Feb. 1999, at 300.

13. See INDUSTRY ANALYSIS DIV., supra note , at 90 tbl.17.2.

14. See id.

15. See Digital Starter, supra note , at 300. Usage charges are 1 to 2 cents per minute in addition to the monthly fee.

16. See Richard Sekar, A Panacea for DSL Access, TELEPHONY, Jan. 18, 1999.

17. See Shawn P. McCarthy, Internet Technologies to Watch, LOGISTICS MGMT. DISTRIBUTION REP., Jan. 31, 1999, at 74.

18. See Memorandum from Carol W. Wilner, Director, Federal Government Relations, AT&T, to author, (Feb 5, 1999) (on file with Berkeley Technology Law Journal) (providing maps depicting states with DSL and cable modem service).

19. SBC, which currently serves 37 million customers, is targeting 8 million for broadband availability by 2000. See Got Bandwidth? Pacific Bell Answers California's "need for speed" with $39 ADSL Service, Major Availability (visited Apr. 9, 1999) <http://www.sbc.com/PB/News/Article.html?query_type=article&query=19990112-04>. Bell Atlantic, which serves 42 million customers, has set approximately the same goal. See Bell Atlantic.net cuts price of Infospeed DSL package (visited Apr. 9, 1999) <http://www.ba.com/nr/1999/Mar/19990331001.html>. Bell South began service in 1998 with 7 cities, and plans to offer service in 30 cities total by 2000. See Fastaccess city availability (visited Apr. 9, 1999) <http://www.bellsouth.net/external/adsl/city_availability.html>. U S West currently provides service in 40 cities. See U S WEST Brings Lightning Fast New Internet Access to Homes in 40 Cities by June 1998 (visited Apr. 9, 1999) <http://www.uswest.com/com/insideusw/news/012998.html>. Ameritech plans to make broadband available to 70 percent of its 21 million subscribers by 2000. See Ameritech Launches High Speed Internet Service (visited Apr. 9, 1999) <http://www.ameritech.com/media/release/view/0,1038,8421_2,00.html>.

20. See Wilner, supra note .

21. See Bell Atlantic Infospeed DSL Pricing (visited Mar. 2, 1999) <http://www.bell-atl.com/adsl/more_info/pricing.html>.

22. See Fastrak DSL-Pricing & Availability (visited Mar. 2, 1999) <http://www.pacbell.com/products/business/fastrak/dsl/pricing.html>.

23. See, e.g., Eric Krapf, Slow roll for DSL, BUS. COMM. REV., Aug. 1998, at 47.

24. See id.

25. See generally GEORGE ABE, CISCO SYSTEMS, RESIDENTIAL BROADBAND 180-90 (1997) (discussing the principles of operation for cable modems).

26. To be sure, the "upstream" channel away from the consumer need not be as big as the downstream channel, but some upstream capacity is necessary.

27. See James B. Speta, Handicapping the Race for the Last Mile 27 (Feb. 16, 1999) (unpublished manuscript, on file with Berkeley Technology Law Journal).

28. See Wilner, supra note .

29. See id. (citing Credit Suisse First Boston, The Infrastructure Report, Dec. 15, 1998).

30. See id. (citing various analyst reports from the Yankee Group).

31. See AT&T and TCI complete merger (visited Apr. 9, 1999) <http://www.att.com/press/item/0,1193,382,00.html>.

32. See Scott Bernard Nelson, Life on the Internet Fast Lane, KIPLINGER'S PERS. FIN. MAG., Jan. 1999, at 117.

33. See, e.g., Douglas N. Knisley, et al., cdma2000: A Third Generation Radio Transmission Technology, BELL LABS TECH. J., July/Sept. 1998, at 65 (noting that the current generation CDMA technology-a radio transmission standard for PCS service-can provide data speed transmission of under 14.4 kb/s at best).

34. See ABE, supra note , at 343.

35. See id. at 347 (noting that in Los Angeles, a single MMDS antenna can reach upward of 4 million households, making the infrastructure investment less than $20 per residence in the coverage area).

36. See id. at 344.

37. See, e.g., In re Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, FCC CS Docket 98-102, para. 81 (Dec. 23, 1998) (discussing line-of-sight problems) [hereinafter Annual Assessment of the Status of Competition]; ABE, supra note , at 346 (noting MMDS is limited by line-of-sight considerations); Speta, supra note , at 31 (citing Scott Seidel, Broadband Wireless Services: In the Line of Sight, Bellcore Exchange, Spring 1997, at 21-22) (noting that rain can affect LMDS service quality at certain spectrums).

38. See Annual Assessment of the Status of Competition, supra note , para. 83.

39. See, e.g., Daniel Sweeney, LMDS: Finally Ready for Prime Time?, AMERICA'S NETWORK, Aug. 1, 1998, at 22.

40. See, e.g., Howard Shelanski, Video Competition and the Public Interest Debate, in TELEPHONY, THE INTERNET, AND THE MEDIA 91, 100 (Jeffrey K. MacKie-Mason & David Waterman eds., 1998).

41. See Les Freed & Frank J. Derfler, Jr., Hughes Network Systems' Direct PC Internet access via satellite, PC MAGAZINE, Apr. 20, 1999, at 160.

42. See Annual Assessment of the Status of Competition, supra note , para. 62.

43. See State of the Internet: USIC's Report on Use and Threats in 1999 (visited Apr. 16, 1999) <http://www.usic.org/usic_state_of_net99.htm>.

44. See generally Robert Kieschnick & Bruce McCullough, Federal Communications Commission, Do People Not Subscribe to Cable Television Because They Can Not Afford the Service? A Review of the Evidence (Aug. 1998) (unpublished manuscript, on file with author).

45. See PROGRESSIVE POL'Y INST., THE NEW ECONOMY INDEX: UNDERSTANDING AMERICA'S ECONOMIC TRANSFORMATION 31 (1998).

46. See Pew Research Center for the People and the Press, Online Newcomers More Middle-Brow, Less Work-Oriented: The Internet Audience Goes Ordinary (Jan. 14, 1999) <http://www.people-press.org/tech98sum.htm>; Bob Tedeschi, European Union Advances E-Commerce Policies, N.Y. TIMES ON THE WEB (Apr. 27, 1999) <http://www.nytimes.com/library/tech/99/04/cyber/articles/26commerce.html> (citing Yankee Group estimate of $13 billion).

47. See id.

48. See, e.g., Sharon Linstedt, Santa Shops on the Web; $3.5 Billion in Online Sales Set This Season, THE BUFFALO NEWS, Dec. 20, 1998, at 14C.

49. See Mark E. Plotkin, How Traditional Companies Can Navigate the Web, LEGAL TIMES, Mar. 1, 1998, at S32.

50. See U.S. GOV'T WORKING GROUP ON ELECTRONIC COMMERCE, FIRST ANNUAL REPORT 25 (Nov. 1998).

51. See id.

52. See id.

53. See id.

54. See PROGRESSIVE POL'Y INST., supra note , at 30.

55. See id.

56. See id.

57. See id.

58. See Bob Tedeschi, Can Shopping Networks Survive a Crowded Market?, N.Y. TIMES ON THE WEB, (Jan. 19, 1999) <http://www.nytimes.com/ library/tech/99/01/cyber/commerce/19commerce.html> (citing various analyst comments and predictions).

59. See Gordon Bass, Warp-Speed Web Surfing, PC COMPUTING, Nov. 1998, at 128 (evaluating the performance of one accelerator program).

60. Examples are Yahoo's shopping area, 911gifts.com, and CyberShop. See, e.g., Tedeschi, supra note .

61. See George F. Colony, My View: Killer Clicks (visited Mar. 2, 1999) <http://www.forrester.com/ER/Marketing/0,1053,61,00.html>.

62. See THE YANKEE GROUP, TVS, PCS, AND BEYOND: CONVERGENCE OR CONFUSION? (Dec. 1998).

63. See PROGRESSIVE POL'Y INST., supra note , at 31.

64. See Pew Research Center, supra note .

65. Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (codified as amended in scattered sections of 47 U.S.C.).

66. In re Deployment of Wireline Services Offering Advanced Telecommunications Capability, FCC CC Docket No. 98-147 para. 1 (Aug. 6, 1998) [hereinafter Advanced Services Notice].

67. Id. para. 14.

68. See generally U.S. v. AT&T, 552 F.Supp 131 (D.D.C. 1982), aff'd 460 U.S. 1001 (1983).

69. See U. S. Telephone Ass'n, USTA Fact Sheet (visited Apr. 5, 1999) <http://www.usta.org/ustafact.html>.

70. See 47 U.S.C. 253 (Supp. II 1994).

71. Interconnection means exchange of traffic between networks. If a new company entered the market, but its customers could not call, or be called by, customers of the established local company (e.g., Pacific Bell), then no one would subscribe to the new company. Interconnection allows the new entrant to provide the same network benefit as the incumbent.

72. See 47 U.S.C. 251 (Supp. II 1994).

73. The customer loop is the most important network element, and the one that is most difficult for a new entrant to construct for itself.

74. As discussed above, DSL technology uses special modems to transmit digital information over existing copper lines. "Collocation" allows competitors to place switching or other electronic equipment used to provide service over that loop in the Incumbent's central office.

75. See Advanced Services Notice, supra note , at para. 11.

76. See id.

77. See id.

78. See id.

79. Comments of US West Communications, Inc., in FCC CC Docket No. 98-147, at 16 (Sept. 25, 1998), available at <https://gullfoss.fcc.gov/cgi-bin/ws.exe/prod/ecfs/comsrch.hts>.

80. See, e.g., id. at 16 ("The existence of extensive circuit-switched facilities will permit economies of scope in the roll-out of packet-switched technologies...").

81. Advanced Services Notice, supra note , para. 4.

82. Id. para. 14.

83. Id. para. 3.

84. 47 U.S.C. 153(43) (Supp. II 1994).

85. For an excellent discussion of the Act's definitional categories for regulation in the digital environment, see Jonathan Weinberg, The Internet and "Telecommunications Services," Access Charges, Universal Service Mechanisms and Other Flotsam of the Regulatory System, YALE J. ON REG. (forthcoming Spring 1999), available at <http://www.msen.com/~weinberg/FLOTSAM.htm>.

86. Id. 522(6).

87. See id. 541(c).

88. Id. 522(6).

89. See Speta, supra note , at 52-55 (analyzing the statutory language and legislative history surrounding the definition of cable service).

90. See 47 U.S.C. 706(a) (Supp. II 1994).

91. Id. 706(c)(1).

92. See generally id. 401.

93. See id. 401(a)(1).

94. See id.

95. An additional hurdle is section 401(d), which prevents the Commission from forbearing until a carrier has "fully implemented" the Act's unbundling and interconnection requirements. See id. 401(d).

96. SBC contends that more than half the costs of structural separation (amounting to some $200 million) is attributable to the affiliate's "[p]urchasing separate loops for data use only without the proper authorization (certification) ... that would allow the affiliate to provide voice service as well as data service." Ex Parte Presentation of SBC Communications Inc., in CC Docket No. 98-147, at 1 (Nov. 20, 1998) (on file with author). In other words, the principal cost of separation, in SBC's view, stems from the fact that the affiliate cannot immediately offer voice and data services on an integrated basis.

97. It is also far from clear that competitors would be unable to survive in the event the incumbents exploited scale economies. This is especially so in the business services market, where product differentiation, an increased range of consumer options, and a different demand structure are likely to keep the market competitive.

98. See generally COUNCIL OF ECONOMIC ADVISORS, ECONOMIC REPORT OF THE PRESIDENT 171-218 (Feb. 1999) (discussing the affects of regulation on innovation).

99. Broadband regulation is at present asymmetric. Unlike incumbent telephone companies, cable companies do not have market-opening obligations under the 1996 Act, and the FCC has so far declined to consider separate "open access" requirements for cable companies that enter the broadband services market. See Federal Communications Commission, Citing Pro-Competitive Benefits to Consumers, Commission Approves AT&T-TCI Merger, CS 99-2 (Feb. 17, 1999). There is intuitive appeal to the argument that if providers of one major broadband technology (cable modem) are not regulated, nor should the providers of the competing (DSL) technology be. For an argument supporting disparate regulation of cable and telephone systems in the broadband market, see Speta, supra note , at 58-80. Whether asymmetric regulation is warranted depends on a variety of factors, including the costs of regulation and the extent to which the disparately regulated carriers compete with each other.