CONTROVERSIAL BROADBAND FOR WOLVERINES

Senior Associate Editor Steven Cherry today takes a look at a plan that would put a telecommunications carrier in a privileged position to deliver home entertainment in the future, starting in the state of Michigan.


Steven Cherry


There's

href="http://www.midwestbusiness.com/news/viewnews.asp?newsletterID=16084" target="resource window">an interesting story about broadband this week coming out of Michigan:


AT&T Michigan to Invest $620 Million, Hire 2000 Workers if Bill Passes

LANSING, Mich. — AT&T Michigan on Thursday announced a three-year plan to invest $620 million in upgraded technology and hire 2000 employees across Michigan. AT&T expects about 1200 of these jobs to be in place by the end of 2007.

There's just one catch: a controversial bill would have to pass in order for the cash to flow freely. AT&T cited House Bill 6456 as the catalyst for the commitment. The bill, which passed the Michigan House on November 14, 2006 in a lame-duck session, addresses cable and video franchising in the state.

First, let's ask ourselves what AT&T is doing up in Michigan: It's the incumbent phone company for the state. When the original AT&T monolith was broken up in 1984-85, one of the seven "Baby Bells" was

Ameritech, which itself was composed of the individual telephone companies of Ohio, Indiana, Illinois, Michigan, and Wisconsin.

Another was Southwestern Bell (Texas and some other states). (

href="http://www.oligopolywatch.com/2003/12/13.html" target="resource window">Oligopoly

Watch has a good set of charts delineating all this.)

In 1998, SBC and Ameritech merged. Meanwhile, AT&T faltered, with a boom-and-bust roller-coaster ride up and down the dot-com bubble.

In 2004, SBC bought out the remaining hulk of a company and promptly took on its name and logo, a bit like the wolf knocking off the sheep mainly to don its clothing. With the shift from dial-tone service to broadband, AT&T is now ready to offer cable-like video services across its various regions.

The aforementioned "controversial bill" is one that would relieve

AT&T from an obligation to get separate approvals from all 1100 localities that franchise cable services in Michigan. There's a bunch of stuff that a franchisee is allowed do, such as tear up the streets, tap into electric outlets on streetlight poles, and so forth—not much of a concern for AT&T, since they can already do that as the incumbent telephone carrier. Then there are the obligations—things like having to carry local programming, which was a big deal in the early days of cable and still is in many places. When I lived in Wayne, N.J., the local public-service channel was the best source of information about school closings and showed tapings of the high-school musical or a talent show at a nearby nursing home. In some places, local programming includes high-school sports, making it a pretty popular thing.

Finally, there's the money. A franchisee is usually required to pay fees, which can support a public-service programming production facility, go toward the school budget, or anything else a municipality can justify to itself. AT&T would be willing to pay a statewide set of monies to be divided among the localities. The cynical perspective is that in the long run, a single statewide pot can be easily whittled down via one of AT&T's core strengths, its ability to lobby state legislators.

More than fees, AT&T is concerned with time and expenses—the several years and thousands of attorney billing-hours it might take to get 1100 approvals. That's a reasonable concern, except that the cable companies had to do it, so there's a fairness issue, and then the cable companies will want to be relieved of their obligations as franchisees, and surely that's a legitimate fairness issue for them.

The 2000 jobs that AT&T is dangling in front of the Michigan state legislature is somewhat real. If they get the approvals, a lot of manpower will have to be mustered to bring DSL service up to a point where it can deliver video. Specifically, the company will need more of those grey-green access point boxes you see on sidewalks, and it has to lay in fiber-optic cable from the central office to those boxes. The shorter the final copper run to the house is, the higher your data rate can be. In places like Japan and France, the newest versions of DSL deliver data at 50 and even 100 Mb/s. Surely, it's better to pay linemen than lawyers.

In short, the 2000 jobs will be essentially devoted to improving AT&T's broadband service. Which leads to the final part of the puzzle facing the state legislature. Activists are insisting that if AT&T is to be relieved of many of the franchising burdens, it has to promise that its broadband service will adhere to the principles of "net neutrality." Net neutrality is a complicated issue that doesn't admit of a simple definition, but it essentially means that the company can't favor one information provider over another, especially any that offer a service (such as video-on-demand or Internet-based telephony) that competes with its own.

The problem with net neutrality in this context is that even if the activists get what they want, there won't be true neutrality in the network. After all, if AT&T builds 50 Mb/s pipes into Michigan homes, 30-40 Mb/s of that will be dedicated to AT&T's own video services. True net neutrality would give a competing video service access to the whole 50 Mb/s, and not just the 10-15 Mb/s that will be left for broadband. I wrote about this whole business in May ("A Broadband

Utopia"), in the context of Utah's Utopia fiber-optic network, where a 100 Mb/s broadband service is being built in a way that gives service and information providers access to the entire 100 Mb/s. We have another article coming out in January that looks at an innovative way the British have come up with to build net neutrality right into the fabric of the network.

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