Feds Slowed DSL by Forcing “Open Access”

Here is the background.  From the earliest days of broadband service, controversy raged over whether the physical networks used to transport data should be allowed to control content.  Thus open access rules, which forced telcos to allow broadband company rivals to use their networks at regulated rates.  Cable TV systems, meanwhile, also provided Internet connections via cable modems, but without any obligation to share their facilities.  If an independent Internet Service Provider (ISP) like Covad or Earthlink wanted to connect customers via Comcast’s lines, they could negotiate a deal but had no legal club — as they did under open access.

There was a vigorous campaign to mandate open access on cable similar to DSL; regulators under both Presidents Clinton and Bush refused.  The inevitable litigation ensued; but the Supreme Court set the matter to rest in FCC v. Brand X (2005).  Its 6-3 decision upheld the FCC’s classification of cable broadband as an "information service," placing it beyond the scope of common carrier regulation.

For a number of years, therefore, DSL service was subject to open access while cable was not.  Unsurprisingly, DSL providers were blown away early in the race for market share.  By the end of 2002, cable-modem subscribers numbered 11 million and DSL just 6.1 million, according to Leichtman Research.

Then DSL began its deregulatory trek.  The first critical reform was a surprise FCC decision in February 2003 to end "line sharing" rules.  This dramatically raised the prices which ISPs would have to pay to use phone company facilities to provide retail DSL service, dealing a severe blow to companies like Covad.  Echoing conventional wisdom, the New York Times news story forecast a consumer defeat: "High-Speed Service May Cost More."

It hasn’t.  Average DSL rates, according to Kagan Research, dropped from $39.51 per month in 2002 to $34.72 in 2003.  Telcos also expanded the scope, capacity and quality of advanced networks, even improving its endemic customer relations problems.

Consumers responded.  DSL, holding just 35% market share in 2002, pulled even with cable among new subscribers in 2004.  Leichtman Research reports that "DSL providers have added more broadband subscribers than cable providers in each of the last six quarters," and that overall, "the first quarter of 2006 was the best ever for both DSL and cable broadband providers."  Unleashed from open access, DSL is attracting customers like never before — and the overall growth of broadband subscribers (DSL and cable) is notably higher.


For the full commentary, see:

THOMAS W. HAZLETT.  "RULE OF LAW; Broadbandits."  Wall Street Journal  (Sat., August 12, 2006):  A9.

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