SBC Plays Hardball With DSL Providers

WASHINGTON (06/05/2000) - In response to the frustratingly slow rollout of high-speed Internet access, SBC Communications Inc. has laid out a $6 billion plan called "Project Pronto" that would bring digital-subscriber-line service to its 77 million customers.

While this sounds like good news, there's a catch: The project's design would effectively shut out rival DSL providers. The Federal Communications Commission is now reviewing some of the knotty issues that the project raises.

It's also trying to find a way to balance the desire of SBC and other local telcos to upgrade against competitors who need to use the Bell networks to reach customers. There's no easy fix. "You are pitting the fastest and most efficient broadband rollout versus monopolization of DSL and the loss of innovation," says Paul Glenchur, an analyst at Schwab Washington Research Group. "This could be a real struggle."

FCC officials are aware of the tension. The requires major carriers to give competitors use of their networks, but it also calls on the FCC to speed broadband deployment. "If you look at Project Pronto in a vacuum, this is fabulous for broadband," says Staci Pies, deputy chief of the FCC's common carrier bureau. "The problem is that it moves the bottleneck from the central office out closer to the customer, and it's a lot easier [for competitors] to co-locate in the central office." Normally, local phone companies run copper wire from the homes and businesses of customers into hundreds of local central offices. With Project Pronto, those wires instead would terminate in thousands of neighborhood cabinets connected to central offices by fiber.

The configuration would make DSL available to many more people than with the more typical network architecture. Complicating matters is that Project Pronto appears to violate a previous SBC deal with the FCC. Last October, to win approval of its acquisition of Ameritech, SBC agreed to offer DSL through a separate affiliate that would be treated no differently than other DSL providers. By February, SBC realized that Project Pronto's prebuilt cabinets that integrate DSL equipment with old-fashioned phone service capabilities might violate the merger conditions. So SBC asked the FCC to let it own the cabinets and lease access to DSL providers, including its affiliate.

The problem is, rival DSL carriers now compete with SBC using their own equipment located in central offices and must connect to customers over unbroken copper connections. Project Pronto's thousands of prebuilt cabinets break the direct copper connection and have no room for additional equipment from other carriers. Dhruv Khanna, cofounder and general counsel of Covad Communications, says SBC's plan is illegal. "SBC is doing its usual foot-dragging," Khanna says. "The question is whether the law is the law, or whether the law is what SBC wants it to be to suit its purpose." SBC contends that its rivals have at least two options. They can lease access to the complete DSL capability contained in the new cabinets, or build their own neighborhood networks.

Project Pronto would allow DSL connections for customers who live out of range of current offerings, SBC executives said. Marian Dyer, a Washington lobbyist for SBC, contends that forcing the company to create an open platform for competitors' equipment in the cabinets would drive up costs and delay the program for years. "If you are truly going to get advanced services for all Americans like the Telecom Act requires, the only effective and cost-efficient way is a shared platform," Dyer says. "We are behind in this marketplace. We're in catch-up mode with cable modems, and they are unregulated." It all adds up to a long, hot summer for the FCC. Says analyst Glenchur: "It's going to be quite a fight."

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