SBC Goes Trick-Or-Treating

Underestimating the RBOCs would be a tragic mistake. The CLECs learned this a short while back, and now many of them are out of business or about to be. Incumbent telcos have armies of lawyers and lobbyists and decades of experience in convincing politicians to do their bidding. This is why a Telecom Act in 1996 designed to allow competition was repealed in less than ten years. The undoing of this act has sealed the fate of many CLECs who have spent billions of dollars in aggregate infrastructure.

The one thorn in the side of the RBOCs of course has been AT&T who also has an army of lawyers and lobbyists and is for promoting open networks allowing competition. AT&T was a champion for competition. They had to be as their lives depended on it.

Now of course there is no AT&T. Well there is the AT&T name but it is carried by an RBOC — namely SBC. You cannot underestimate the loss of an independent AT&T as a political/lobbying power fighting for competition in the marketplace.

From a competitive point of view, losing AT&T is a terrible blow to competition for the VoIP market and IPTV and anything else you may use the Internet for.

Of course I have hinted at this for a long while and it is a sensitive topic so there probably isn’t as much discussion about these issues as there should be. The simple concern we should all have is what the few broadband providers left will do to block competition.

Last week at Internet Telephony Conference & Expo in Los Angeles , Commissioner Susan Kennedy from the California Public Utilities Commission had this to say in a charismatic speech to a breakfast-time audience:

Until Congress rewrites key portions of the 1996 Telecommunications Act, or until regulators and policymakers are overtaken by technological events, every aspect of Internet telephony will continue to be a battleground.

State regulators will continue to take incremental steps to impose price controls, taxes, fees and consumer protection rules on VoIP on the theory that "a duck is a duck," and believing that "parity" means regulating "up" – in other words, making sure that both the traditional phone service and the new generation of telecom services operate under the same yoke of regulation.

These sentiments were echoed throughout the event. In my opinion the VoIP industry needs to be worried as broadband competitors are shrinking and those companies controlling broadband connections are hinting that they will start to block competition on their pipes.

In an article this past weekend, had an interview with SBC CEO Ed Whitacre and within the article you will find some comments that should scare the living daylights out of any company that thinks the Internet should be open to competition. The question posed was:

How concerned are you about Internet upstarts like Google, MSN, Vonage, and others?

And the answer was as follows:

How do you think they’re going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I isn’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using. Why should they be allowed to use my pipes?

The Internet can’t be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! or Vonage or anybody to expect to use these pipes [for] free is nuts!

The irony here is the timing. While SBC openly admits the fact they could start restricting use to SBC broadband connections, the and state governments are bending over backwards to approve its request for approval of the AT&T purchase.

One would imagine that someone in Whitacre’s position would actually try to play nice while the regulators are deliberating for fear a regulator might actually read such an article and ask themselves if they are doing the right thing for consumers.

Amazingly this sort of talk comes within the same year the FCC, backed by the Supreme Court have done everything they can to eliminate CLEC competition. From there, they left MCI and AT&T as two of the strongest telecom competitors to the ILECs. These companies too are now gone — owned now by the very ILECs they used to compete with on some levels. This leaves only cable companies as real competitors. For all the talk of WiMAX and broadband over power lines or BPL these technologies don’t really show any promise for the immediate future — if at all.

I am sure SBC shareholders are thrilled to hear talk like this but what about the shareholders of, eBay, Google and others? What about VoIP providers? How about Apple? Is Whitacre telling us openly he plans on taxing the use of his pipes?

Statements like this are probably the reason why Michael Powell and Carly Fiorina who also keynoted last week’s Internet Telephony Conference & explained why the rules need to be overhauled. In Fiorina’s case she said we should have light touch regulation with some baseline coverage to protect consumers from fraud. Michael Powell agreed and implied that the telecom rules need to be rewritten. He also said that any attempt to do so will result and great deal of political wrangling.

In reality we may not see the rules overhauled any time soon. This is why I have been thinking long and hard about what Jim Pickrell of Brand X Internet said last week at Internet Telephony Conference & Expo at yet another breakfast keynote. Pickrell said he is concerned that ILECs are putting ATM connections in their networks so they can control the quality of these services they provide. If you put two and two together you see that what seems to be happening here is that broadband will start to come in two varieties… A connection with quality guarantees and one without.

Someone of course is going to have to pay for the quality connection and whether it is the consumer or an independent VoIP provider remains to be seen.

There can be no more scary a thought than this for any company that provides any service over the Internet and this sort of talk is probably why companies like Google are looking for alternative ways to reach consumers from BPL to WiFi.

What we all need to do is a keep a key an eye on the ILECs because they will likely start to do things that on the surface seem logical but behind the scenes make life difficult for competitors This statement from Whitacre is the scariest thing I have heard in the VoIP market in a long time and perhaps a day like Halloween is the ideal day for it to all to come out into the open. One thing is for certain. Unless the government decides to make sure there is real competition in the telecommunications markets, when Mr. Whitacre comes knocking on your door saying trick-or-treat, you better have some candy for him.

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