Administration's Broadband Policy Would Strangle ISPs, Destroy Competitive Internet Marketplace

--Study Shows Historical Lessons Support Continuation of Open Communication Networks --

Washington, D.C.- July 1, 2002: A study released today by the Consumer Federation of America and the Texas Office of Public Utility Counsel demonstrates that the Federal Communications Commission's (FCC's) broadband proposals threaten to wipe out independent Internet Service Providers (ISPs) and destroy the dynamic environment for innovation the Internet has provided.

"This report demonstrates that independent ISPs and their customers are being driven from the marketplace, not by competition but by a ruthless and deliberate denial of competition," said Dr. Mark Cooper, CFA's Research Director, and author of the report. Internet service providers representing the largest state ISP Associations, the Texas ISP Association, the California ISP Association and EarthLink, joined CFA.

"Independent ISPs brought the Internet to the public and played a key role in the successful commercialization of the Internet. It can be argued that ISPs were the killer application for the PC," said David Robertson, Vice President, Texas ISP Association and President of San Antonio based ISP, STIC.NET.

The study, "The Role of ISPs in the Growth of the Commercial Internet " shows the importance of ISPs using open communications networks to propel the growth of the Internet. The CFA report concludes that the Administration's current approach will allow dominant cable and telephone companies to deny access to advanced telecommunications networks and will do considerable harm to the interests of consumers.

The study demonstrates the devastating impact of foreclosure on the high-speed Internet access market by pointing out that in the open environment where the Internet was born:

  • There have been over 15 ISPs for every 100,000 subscribers while on the broadband Internet, because network owners exclude and impede unaffiliated ISPS, there are fewer than 2 per 100,000 subscribers.
  • Cable and telephone companies have only about 5 percent of the narrowband market, where they have to compete. While they have captured about 95 percent of the broadband market, where they leverage control of their wires.

The report points out that in foreclosing their networks from independent ISPs, the cable companies preclude 99.9 percent of all ISPs from offering Internet access to consumers. It documents a host of anticompetitive network design decisions and business practices of both cable and telephone companies that undermine the ability of consumers to use independent ISPs for broadband Internet access.

The report concludes that lacking competition, the performance of the broadband marketplace has become an increasing source of concern.

  • Prices have risen in recent years, in spite of declining costs, a sure sign of monopoly power.
  • In contrast to the narrowband Internet, which saw a constant stream of innovations adapted for mass markets, there have been few if any innovations to exploit the unique functionality of high-speed service.
  • Telephone and cable companies have created artificial bandwidth shortages and designed their networks to prevent competition from their core monopoly services.

"If the FCC goes through with its plans and deregulates the high-speed Internet access market, cable companies and the Bells will quickly establish a monopoly on broadband service over their own networks," said David Baker, Vice President, EarthLink. "Consumers accustomed to hundreds of competing ISPs to choose from for dial-up service will be left with just a handful of options for broadband service."

"We would never consider allowing private companies to determine who gets access to highways because those infrastructures are clearly essential to the public's well being. Yet this Administration seems content to let telephone and cable monopolies decide who gets high-speed Internet access and thus full participation in government, society and the economy," noted Dane Jasper, President of the California ISP Association and President of Santa Rosa based ISP, Sonic.net.

"These important decisions about who has access to the major means of communication in the 21st century are being made in a closed policymaking process with only the most well funded voices being heard," said Dr. Mark Cooper, CFA's Research Director, and author of the report. "The White House hosted a high-tech summit earlier this month inviting only high-tech CEOs of manufacturers and equipment makers, but service providers and consumers were excluded from the process."

The full text of the study including Executive Summary can be found online at: http://www.consumerfed.org/pdfs/ispstudy070102.pdf.