SAN JOSE MERCURY NEWS
FIGHT OVER PHONE LINES
HIGH-SPEED NET ACCESS: OUTCOME OF PAC BELL'S BATTLE WITH START-UP MAY DETERMINE PRICE,
AVAILABILITY FOR CONSUMERS.
PAC BELL BALKS AT SHARING WITH START-UP
DATE: Thursday, December 17, 1998
Section: SECTION: Business
Page: 1C
BY JON HEALEY, Mercury News Staff Writer
If you surf the Web a lot, you probably wish those new super-fast telephone links to
the Internet weren't so expensive.
Now, a San Jose start-up wants to deliver high-speed, low-cost access to the Internet by
piggybacking on existing phone wires. But there's a catch -- Pacific Bell doesn't want to
share its phone lines. At stake in the fight between PDO Communications and Pac Bell is
more than just who controls copper wires. The outcome could also determine the price and
availability of high-speed Internet connections for home computer users throughout
California.
The battle focuses on a relatively new technology, known as digital subscriber line
service, that transfers data at high speeds over an ordinary copper phone line. The
technology allows a line to be used for phone calls and Web browsing simultaneously, as
the data is transmitted at a frequency high enough not to interfere with voice signals.
PDO says that within a few months of getting access to the lines, it could sell computer
users a $99 modem and provide an Internet connection up to 20 times as fast as the
speediest dial-up modem for less than $50 a month. That's about 80 percent cheaper than
similar services sold right now to businesses.
But instead of sharing its phone lines with PDO, Pac Bell wants consumers to wait for some
other high-speed option -- such as the $50 to $60 a month high-speed service it plans to
introduce next year.
The clash between the two companies has escalated, with a state judge siding with Pac Bell
and several high-ranking state and federal officials backing PDO's cause.
A top Pac Bell official argues that if the start-up prevails, companies will have no
incentive to build the phone networks that are the foundation of any high-speed service.
Officials at PDO and other Pac Bell competitors respond that if Pac Bell prevails,
consumers may be left with only one choice for high-speed service over phone lines -- the
dominant local phone company.
Pac Bell and a cadre of upstart companies -- most notably Covad Communications Co. of
Santa Clara, NorthPoint Communications of San Franciscoand Rhythms NetConnections Inc. of
Englewood, Colo. -- have all used the latest technology to launch high-speed Internet
access for businesses.
Their prices -- which run from $89 to nearly $400 a month -- are out of reach of ordinary
consumers. A major reason, the upstarts say, is Pac Bell's requirement that they lease
spare copper lines to each customer's premises -- or install new ones -- rather than
running their data service over lines customers are already using.
High price for high speed
Cable TV and wireless companies also have started selling high-speed Internet service
in the Bay Area. But the wireless services generally are priced well above the average
consumer's budget, and the more affordable ''cable modem'' services are not yet available
in most South Bay and Silicon Valley communities.
As a result, most consumers are still waiting for a way to eliminate the irritating delays
associated with Web browsing.
PDO officials believe they have a way to bring high-speed service quickly to much of the
Bay Area. Instead of leasing fresh copper lines from Pac Bell and passing the costs along
to consumers, the company wants to run its data service on top of Pac Bell's voice phone
service, using the same lines.
It proposes to pay Pac Bell virtually nothing for this privilege, arguing that Pac Bell
already is covering the cost of the line through the monthly fees for basic voice phone
service. It would, however, pay Pac Bell to install PDO's data routing equipment in Pac
Bell's offices.
The company also would cut costs by having consumers install the high-speed modems
themselves, rather than sending its employees out to do the installation. The specially
designed modem developed by PDO can be plugged in and set up as easily as if it were a
printer, said Dean E. Tucker, vice president of sales and marketing.
The cost of sharing
Dan Jacobsen, executive director for regulatory affairs at Pac Bell, said sharing the
wires would impose significant costs on Pac Bell, and could put the quality of Pac Bell's
phone service at the mercy of its competitor. ''It really wouldn't lead to fairer
competition if these carriers were allowed to ride for free,'' Jacobsen said.
Allowing competitors to sell high-speed data services without contributing to the cost of
building and maintaining the underlying lines would not only discourage investment in the
network, Jacobsen said, but also make it harder for Pac Bell and other big local phone
companies to stay in business.
The competitors would run off with the profitable data services, he added, leaving the
dominant phone company with the more costly job of providing basic phone service.
But PDO's Tucker said that his firm wants to do nothing more than what Pac Bell does. When
someone orders high-speed data service from Pac Bell, that service generally is provided
over the same line Pac Bell uses to provide phone service. And Pac Bell's prices for data
service, which are a little below its competitors' charges, include only a small amount
for the cost of the underlying line, Jacobsen acknowledged.
With technology enabling a phone line to be used for voice and data service
simultaneously, it is now possible for consumers to open their phone lines to multiple
providers of data services.
Ruling expected in '99
Federal regulators are exploring whether Pac Bell and other dominant local phone
companies should be required to share their customers' phone lines with other providers of
data service; a ruling on that issue is expected early next year.
Allowing line-sharing would enable the upstart high-speed data companies to roll out
service at consumer prices in a hurry, said Jeff Blumenfeld, general counsel for Rhythms.
''We are in the residential neighborhoods anyway,'' he said.
Citing the ongoing federal inquiry and earlier rules, a California administrative law
judge arbitrating the dispute between Pac Bell and PDO ruled that the state did not have
the authority to require Pac Bell to share its phone lines.
Backed by a coalition of Internet and high-speed data companies, PDO has urged the
California Public Utilities Commission to set aside the arbitrator's recommendation and
order Pac Bell to share its lines.
The state commission has postponed action until next month. How it resolves the dispute
could become a model for other states, as PDO officials say they are the first company in
the country to press for the right to share another company's phone lines. |
