Why cable networks will be forced to open access - Industry Trend or Event

CommunicationsWeek International, Nov 15, 1999 by Margaret Hopkins

Open access to cable networks is a hot topic in the United States. Narrowband ISPs, led by AOL, are lobbying to prevent AT&T from taking over cable TV licenses, unless it provides open access to cable modem users for ISPs. They are alarmed that they may have no future without broadband, although in the low-margin Internet access business, ISPs with fewer than 300,000 customers are unlikely to survive, even with open access.

Incumbent local exchange carriers (ILECs), alarmed by AT&T acquiring a local network, are supporting them. AT&T is fighting a rearguard action as local regulators tend to support their local ISPs and ILECs, and the Federal Communications Commission says the broadband IP access business is too new for regulation.

This is not underdog ISPs fighting the corporate might of AT&T but a battle of corporate vested interests. Furthermore, it is not just a U.S. issue, since cable modem services are being rolled out on a sole ISP basis in Europe and parts of Asia and Latin America. The policy objective has to be to make the benefits of high-speed Internet access available to the widest possible geographical area at the lowest possible prices.

Competition in the United States between cable operators, data CLECs--competitive local exchange carriers that provide data services-- and ILECs is already bringing prices for high-speed Internet access down to levels where it is hard for increased competition to lower prices further. In Europe, where competition between cable modems and ADSL is only just beginning, cable modem service is becoming available at prices a little higher than those in the United States.

Upgrading cable networks is a substantial investment, and there has to be a reasonable business case. The cost is around $250-$500 per home passed to upgrade a tree-and-branch coax network to support digital interactive TV, cable modems and cable phone services.

Calculations are complicated by the range of services, but in simple terms assume an extra $30 a month from 20% of those customers in year one, giving $360 towards an investment of between $1,250 and $2,500--and there are running costs. There is a real risk that cable operators will stop investing, or upgrade to a lower standard, if forced to share these revenues, resulting in reduced geographical coverage.

Most cable operators have no expertise in IP networks. They are looking to franchise organizations such as @home or Road Runner in the United States, or Chello in Europe, for expert support for a difficult process. It is possible to provide access for other ISPs but it makes this difficult process more difficult.

The sole ISP model being used by cable networks in the United States and Europe may be the best way to ensure the deployment of a new technology in difficult circumstances. But it has its risks, and @home's attempt to be vertically integrated from content to connectivity looks hard to sustain.

In the longer term, open access for many service providers will ensure that services continue to be innovative--larger ISPs are partnering data CLECs and ILECs to use their DSL networks, thus ensuring competition. This approach may prove to be more robust than @home's attempt to dominate. In that case, consumers will switch to DSL and cable networks will be forced by the market to provide open access. Intervention is not needed.

Margaret Hopkins is a principal consultant at Analysys Ltd., Cambridge, England. She is lead-author of IP Local Loop: Accessing the Next Generation Network published by Analysys in October 1999.