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The debate over open access to new cablebroadband networks marks the first significantentry of Internet service providers (ISPs) into thegreat game of using the regulatory process toescape market realities. Quite simply, a legalrequirement opening local cable networks toISPs allows ISPs to avoid investing in alternativenetworks. It is tempting for businesses in thisposition to take a regulatory shortcut, askinglawmakers to force existing networks to let thempiggyback on others’ investments.It remains to be seen how proprietary net-works that bundle content and delivery will com-pete with voluntary open-access business mod-els. Networks built on either model are extreme-ly risky, and the consequences of regulatoryinterference with market incentives here could bedevastating.In addition, mandatory access regulation rais-es troubling First Amendment issues. TheInternet is rapidly emerging as an importantmember of the press. The decision of the city of Portland, Oregon, to force an open-access modelon @Home’s cable broadband network was ini-tially approved by a judge who did not take@Home’s First Amendment arguments serious-ly. The Ninth Circuit Court of Appeals did notreach First Amendment questions in ruling thatopen access to cable systems was a matter for theFederal Communications Commission, not localgovernments. In either forum, allowing govern-ment to determine what speech the networksmust carry is a dangerous precedent. This analy-sis shows future policymakers the conflictbetween the First Amendment and mandatoryopen access.
Open Access, Private Interests, and the Emerging Broadband Market 
by William E. Lee
_____________________________________________________________________________________________________
William E. Lee is a professor in the Department of Telecommunications of the Henry W. Grady College of  Journalism and Mass Communication, University of Georgia.
Executive Summary
No. 379August 29, 2000
 
Introduction
It was a surreal scene. In 1998 AmericaOnline initiated an expensive campaign toconvince lawmakers that the cable industrywas about to monopolize high-speed connec-tions to the Internet.
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Many other Internetservice providers (ISPs) joined in through theopenNET Coalition. They claimed that allISPs should be legally entitled to use cablesystems on the same terms as ISPs affiliatedwith cable companies, a policy AOL and itsallies labeled “open access.”
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But on January10, 2000, AOL announced that it was becom-ing part of the cable industry by mergingwith Time Warner, the nation’s second-largest cable operator.
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AOL’s Steve Case andTime Warner’s Gerald Levin described theproposed merger. Levin stated, “We are goingto take the open-access issue out of Washington, out of City Hall and put it inthe marketplace.”
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Case then secondedLevin’s aversion to government-mandatedopen access, adding, “We need to take it off the table.”
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But the issue that AOL intro-duced to the debate will not be so easily dis-missed. The interests of an array of commu-nications companies are affected by cable-Internet service and those companies vow tocontinue fighting for open-access laws.
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Simply stated, a cable modem is a devicethat enables users to gain high-speed accessto the Internet. Deployment of cable modemservice, however, has triggered an intense pol-icy debate. Should cable companies offeringhigh-speed Internet access be required toopen their networks to unaffiliated ISPs?Should the government enact anticipatoryregulations for emerging communicationsmarkets? What role should antitrust law playas the Internet becomes increasingly com-mercialized? And what level of FirstAmendment protection should exist fornascent communications services?This policy debate was triggered byAT&T’s June 1998 announcement of itsacquisition of TCI, one of the nation’s largestcable companies.
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AT&T’s acquisition of TCIwas designed to facilitate AT&T’s entry intolocal telephone service. AT&T offers or willoffer consumers, either à la carte or bundled,services such as local and long-distance tele-phony, high-speed Internet access, and cabletelevision programming. Initially, high-speedInternet access is offered exclusively through@Home, a company in which AT&T inherit-ed a large stake when it acquired TCI; AT&Talso inherited TCI’s contract-making@Home, its exclusive ISP through June2002.
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Unlike the cable industry, whose ini-tial forays into local telephone and Internetaccess markets have been sporadic and notvery successful,
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AT&T announced that itwill spend billions of dollars to rapidlyupgrade TCI’s cable systems to accommo-date those new services.To many makers of communications pol-icy in Washington, AT&T’s strategy was thefirst significant step toward competition inthe local telephone market, a central goal of the Telecommunications Act of 1996.
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AndAT&T’s strategy also promises to intensifycompetition in the Internet-service market;the prospect of AT&T’s offering high-speedcable modem service has increased the effortsof local telephone companies to deploy theirown high-speed means of Internet access.
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But AT&T’s May 1999 announcement that itwould also acquire MediaOne’s cable sys-tems,
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giving AT&T an ownership interest incable systems serving 51 percent of cable sub-scribers, intensified AOL’s efforts on behalf of open access. Despite AOL’s current domi-nance of the Internet access market, the com-pany feared that it would be confined to slownarrowband forms of access while AT&T andother cable companies controlled the high-speed broadband market, and smaller ISPs’weaker positions augmented similar con-cerns on their part. Those concerns wereheightened by the facts that most cable sys-tems do not face head-to-head competitionfrom other cable systems and that the largestcable companies have exclusive contractswith ISPs such as @Home or Road Runner.This analysis outlines the current state of the broadband market, explores policy deci-
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The interests of an array of com-munications com-panies are affect-ed by cable-Internet serviceand those compa-nies vow to con-tinue fighting foropen-access laws.
 
sions made by the Federal CommunicationsCommission and local franchising authori-ties, and examines the claim that cablemodem service is an essential facility. Finally,I show that, even when subjected to content-neutral scrutiny, open access violates theFirst Amendment rights of cable operators.
The Market for InternetAccess Services
In 1998 approximately 30 millionAmerican households accessed the Internetthrough narrowband connections.
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Those“dial-up” connections, provided by ISPs,offer access through traditional telephonelines at speeds of between 28 and 56 kilobitsper second (Kbps). Consumers use modemsattached to twisted-pair copper telephonelines to connect their computers to the ISP’sserver, which then connects to the Internet.That service typically costs $20 a month forrelatively unlimited usage,
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although severalcompanies have started offering free servicesupported by advertising revenue.
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SomeISPs, such as AOL and Prodigy, package con-tent along with Internet access and are alsoknown as online service providers. OtherISPs, of which there are literally thousands,offer primarily access to the Internet and ser-vices such as e-mail.
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Ninety percent of Americans have access to several ISPs via alocal phone call.
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The narrowband markethas experienced explosive growth in recentyears: 10.2 million households signed up forInternet service for the first time in 1998, andAOL alone signed up more than 5 millionnew subscribers from July 1998 to June1999.
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The broadband market offers connec-tions at 200 Kbps or higher through a varietyof transmission media. The residentialbroadband market began in late 1996,
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andcurrently the most popular service is via acable modem offered by cable companies. Acable modem connects a subscriber’s com-puter to the cable network, which in turn isconnected to the cable modem serviceprovider, such as @Home or Road Runner.For a monthly fee of between $40 and $60,subscribers gain high-speed access to theInternet and the proprietary content of thecable modem service provider.
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Typically,cable systems contract with only one cablemodem service provider, and the currentleading service is @Home, which recentlymerged with Excite, one of the leadingInternet portal sites. An aspect of cablemodem service that has created controversyis the start page, or first screen, that usersencounter. For example, early @Home userssaw a start page containing local and region-al information provided by the cable opera-tor and national information provided by@Home.
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A broadband version of Excite waslaunched in March 2000 as the start page for@Home users unless they configure theircomputers to go to a different Web portal.
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Cable modem service allows users todownload information at much faster speedsthan are available with narrowband service;the service is always on—eliminating theprocess of dialing in—and it doesn’t tie upthe household’s telephone line.
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However,because of cable system architecture, cablemodem users share the local network, andthe transmission speed varies depending onthe number of simultaneous users.
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In 1998,19.5 million homes were “passed by” (i.e., thecable ran past the residences) by cable sys-tems upgraded to offer cable modem ser-vice.
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The largest cable operators, AT&T,Time Warner, Cablevision, Cox, andComcast, are now aggressively upgrading sys-tems and by the end of 2000 plan to makecable modem service available to 61 millionhouseholds.
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Although the number of households now choosing to subscribe tocable modem service is small compared tothe number of users of narrowband connec-tions, both @Home and Road Runner haverecently reported rapid growth. For example,in January 1999 the FCC estimated that350,000 households used cable modems; atthe end of 1999 @Home had surpassed theone million subscriber mark and RoadRunner had 551,000 subscribers.
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The narrowbandmarket has expe-rienced explosivegrowth in recentyears: 10.2 mil-lion householdssigned up forInternet servicefor the first timein 1998.
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