So Long Y2K, Hello Y2K1

What mountains of bureaucracy will ISP owners have to climb in the new year? The best way to determine the peaks and valleys of future ISP policy is to take stock of the past.

by Patricia Fusco
[December 28, 2000]

It's the time of the season when analysts review major developments over the past year and attempt to prognosticate on what the next 365 1/4 solar days will hold.

So how did this year impact ISP politics and policy—and more importantly, what does the first year of the new millennium hold for the ISP industry?

Three principal players
In January 2000, we profiled all of the presidential candidates. Two politicos remain in positions of power and will directly influence the way you operate your ISP business in 2001: President Elect George W. Bush and Senator John McCain.

George W. Bush
The Bush Administration will support policies designed to make the Internet a worldwide duty-free zone, which is good for e-commerce and eventually good for ISP operators.

Bush will also strengthen international initiatives to protect American technical-intellectual property on a global scale, which is good for independent software developers and Microsoft. Bush wants to make sure that HB1 Visa limits do not prohibit the nation's businesses from luring the Internet world's best and brightest to its shores.

For the most part, Bush will work to strengthen the dot-com sector because he has an aggressive tax cut to fund.

The former Texas Governor also created the second-largest government-operated telecom network in the nation. The state's Telecommunications Service Division provides discounted Internet access, video conferencing, and data communications services to schools, colleges, universities, libraries, hospitals, and telemedicine providers.

Bush will likely use the same approach to breaching the "Digital Divide" between those Americans that have Internet access, and those that do not. But it is unlikely that the federal government will actually compete with local ISPs. Expect a policy that subsidizes low-cost access for urban communities and extends tax credits to providers building-out networks in less profitable parts of the country. Although incumbents will benefit the most, smaller ISP operators will also be eligible to get a piece of the tax credit plan.

The USDA Rural Utilities Service already has a new $100 million loan program in place to support the construction and installation of broadband telecommunications services in rural areas. The one-year pilot program, provides loan funds, on an expedited basis, to communities with up to 20,000 inhabitants. Loans are available immediately and applications are processed and approved on a first-come, first served basis throughout fiscal 2001 until the appropriation is utilized in its entirety.

The President Elect will also have the opportunity to change the face of the FCC in June. All right, so Bush can only change two faces of the federal agency when Chairman William Kennard and Commissioner Harold Furchtgott-Roth depart. Who will President Bush will appoint to the Commission—proactive communications evangelist brother Jeb perhaps? Speculation aside, industry analysts believe that Commissioner Michael Powell is pegged to be the next FCC Chairman.

In a recent speech Powell gave in Washington DC he said the future of broadband is "balkanized by regulatory treatment of different technologies and industries that do not account for new technologies." Powell said the regulatory situation has become "cracked and unstable."

Powell recommended that the FCC could assist the "Digital Broadband Migration" by focusing on promoting competition through innovation—rather than price competition—and focusing on enforcement, rather than regulation.

John McCain
Senator McCain (R-AZ) will naturally support the Republican President, while he continues to press his own legislative agenda through the American legal system. But compromises for will abound in this 50/50 Democrat/Republican 107th term of Congress.

McCain might find success in streamlining the merger process for the telecom industry. Although the urge to merge has diminished with the demise of dot-com darlings on Wall Street, limiting the FCC's power to add conditions to mergers and acquisitions remains a hot topic for the Arizona Senator.

McCain favors limiting the FCC's ability to use competition as a crutch for beating restrictive business terms into merger approvals—especially when incumbent carriers are the subject of a proposed pact.

"Government sometimes confuses the notion of leveling the playing field, with restructuring the stadium," McCain said. "Instead of making sure that incumbent firms can't exercise the power to eliminate competition, government sometimes tries to deprive incumbent firms virtually of any advantage of incumbency."

McCain has managed to migrate filtering laws this year's budget bill, which was passed in mid-December. The legislation requires that schools and libraries receiving federal subsidies use porn filtering technology on computers used by children for to access the Internet.

McCain, who sponsored of an earlier version of the bill, stated in a release that "while schools and libraries across the country increasingly use the Internet as a learning tool, we need to ensure that pervasive obscene and violent material is screened out and that our children are protected."

The ACLU, which has successfully challenged other Internet censorship statutes and ordinances, promised to file a legal challenge to the measure. McCain will likely tote the same mixed-bag of success when it comes to crafting encryption laws that favor enforcement agencies.

McCain favors deregulation as the means to bridge the "Digital Divide." He will also support the extension of the Internet tax moratorium for three to five years, but he will stick with industry self-regulation when it comes to privacy policy.

Bill Clinton
The third player that will directly impact Internet services this year is currently packing his bags at the White House. President Bill Clinton's legacy will stand as the key to the making 3G wire-free broadband services a working reality.

President Clinton issued and austere memorandum in October ordering that federal departments and agencies work in harmony with industry leaders to build third-generation wireless systems nationwide by July 2001.

To this end, Clinton said, "Federal agencies and the private sector must work together to determine what spectrum could be made available for third generation wireless systems."

The official White House statement noted that the "United States and the rest of the world are on the verge of a new generation of personal mobile communications, as wireless phones become portable high-speed Internet connections."

The only problem is that the spectrum allocation system in the U.S. is a state of disarray. While the FCC struggles to free-up under-used spectrum, shift broadcast television to digital systems, and work around spectrum caps, the rest of the world is quickly moving to develop new technologies embracing 3G wireless broadband access.

Clinton's deadlines for FCC action may fall by the wayside if federal regulators fail to think outside of the box and make sweeping reforms of spectrum allocation. In the meantime, fixed wireless access—using junk spectrum—will reach new markets in 2001.

Fed-free broadband
If there is one glimmer of hope for independent ISP owners trying to make a buck on broadband access—it lies in fixed wireless technology.

For the most part, the systems are inexpensive to build and install, which means fixed wireless access is a profitable ISP business venture. But the real power is in an ISP owners ability to profit from providing broadband services free from meddlesome incumbent carriers and federal regulations.

Once again, the independent operator is in the driver's seat spurring the growth of Internet access across the nation—only this time it's high-speed access. Fixed wireless Internet services will bring a little boom back into the busted, but not broken broadband service industry in 2001.

Broadview on broadband
Increased fixed wireless service deployment naturally leads to another event that should not shock most ISP owners—DSL access will not be the broadband rival to cable modem systems that most analysts have purported. Data CLECs will survive the current crisis along with incumbents. Business clients still require leased-line security that shared cable networks can not afford.

So in 2001, you will find DSL providers playing in the business segment, cable pervading the residential portion of the market—and fixed wireless access filling in the broadband access gaps. That's how the "Digital Divide" will become a small "Abscess of Access" and misguided analysts will finally stop comparing coax and copper.

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