Telecom Act is silent on fiber innovation

STEPHEN N. BROWN

Proponents of lightwave technology will search in vain for any reference to fiber-optic technology in the Telecommunications Act of 1996. The Act does not specifically mandate fiber`s deployment and tilts heavily toward wireless technology. Broadband markets may lose their fair share of telecommuni cations growth unless fiber`s proponents become innovative marketers. A counter argument can be made that the law creates a more competitive market, which in turn, stimulates deployment of all technologies, just as a rising tide lifts all boats stranded on the beach.

Bell Atlantic`s Chief Executive Raymond Smith alluded to this in a recent speech: "The real significance of telecommunications reform legislation is that we will finally have the freedom and the flexibility to capitalize on the margin and profit potential of the digital information revolution." A significant way to capitalize on the law is through rapid deployment of fiber-to-the-curb architecture. But in that design, the optical unit is linked to the home or business either by the telephone company`s existing copper twisted-pair cable or by coaxial cable. Thus, fiber technology will continue to lack a tangible connection with the consumer, a connection that has resulted in explosive growth in the wireless market.

Wireless technology has highly visible end users and end products that have captured the public`s imagination. If Horace Greeley were alive today, he might say, "Go wireless, young man!" This opportunity is denied to fiber-optic technology because it has not reached homes and small businesses. Until people have direct contact with fiber optics, it will remain an institutional technology, and the public will think of fiber in the same way as it does roads, sewers, water mains and gas mains. Is there anyone in the fiber optics business who has thought about the fiber-optic products that could be sold in a chain of retail stores with a name like "Totally Optic"? This strategy is already being applied in the wireless market and is the exact kind of innovation needed for broadband products to keep pace with the wireless market in the U.S.

No retail market for fiber

The chain-store concept suggests a couple of things about the new law and the relative investment-attractiveness of fiber-optic technology, compared to wireless technology. Because it constrains local authority, the new law is instrumental in developing a standardized national retail market for wireless products, highlighting important distinctions between the fiber and the wireless markets. The wireless market has a major and growing retail component, but the fiber market does not. The wireless market is characterized by sales to a great number of small businesses and consumers, few of whom are governed by centralized purchasing decisions. The fiber market depends on sales to institutional users such as telephone and cable industries, all of whom are governed by centralized purchasing control. In February, more than 250 press stories and announcements were written about the wireless market, while fewer than a dozen appeared on the fiber market. The wireless market is thought to be "personal" despite the fact that conversations and data carried over its medium are notoriously insecure and unreliable. The fiber market is highly secure and reliable.

These differences in technological capability are not recognized in the Telecommunications Act. It is massive, containing more than 50,000 words, not one of which is "fiber" or "optics." The law is specific about state and federal governments` oversight powers regarding industry and the limits of that power, but that specificity fades when the lawmakers confront technology issues in the law. The descriptive terms for these issues are limited to four basic words in the law`s text: "Wireline" appears 10 times, "wireless" appears 13 times, "radio" appears 34 times and "technology" appears 42 times. The law uses "technology" so broadly that the term could have been replaced with "methods" or "activities" without changing any meaning.

Bias toward wireless

Despite the descriptive weakness of the terms, the new law contains a clear bias toward wireless technology: Title VII comprises full-speed-ahead language for personal communications services, the advanced and soon-to-be fully digital and wireless successor to cellular technology. The law defines such services as "commercial mobile services, unlicensed wireless services and common-carrier wireless exchange access services." The third category of services is aimed at the provision of ordinary telephone service through radio frequencies instead of the ordinary telephone line reaching into every home and businesses. That provision by itself biases the law and the telecommunications markets toward wireless technology. The law`s strong preemptive language sweeps away barriers to personal communications services. Title VII, Section 704, includes a "National Wireless Telecommunications Siting Policy" virtually guaranteeing that personal service providers can place their equipment wherever and as soon as they want.

Local and state governments can do little more than rubber-stamp construction requests by such providers. Section 704 states: "The regulation of the placement, construction and modification of personal wireless service facilities by any state or local government...shall not unreasonably discriminate among providers of functionally equivalent services; and shall not prohibit or have the effect of prohibiting the provision of personal wireless services." The new law clearly extends protection to a specific communications technology rather than to a broad group of technologies. If this specificity were applied to certain groups of people or to a group of corporations rather than a technology, the law would be immediately challenged. The challenge would likely be based on the equal protection principle of jurisprudence, where laws are supposed to apply equally to people and legal entities like corporations. Technologies do not have rights; they are only the embodiment of mental constructs refined over time. But if that is true, why would Congress be so specific about personal communications?

Environmental concerns

In fact, the preemptive language is a gigantic flag waving in a strong wind, pointing toward the easiest course to sail. It tells investors what to look for and assures them there will be no delays from the local authorities or the environmentalists who worry about the long-term effect of low-level radio emissions on the public health. Local authorities--zoning and city councils--that issue permits are restrained by Section 704`s additional language: "A state or local government shall act on any request...to construct personal wireless service facilities within a reasonable period of time after the request is duly filed. ...Any decision by a state or local government...to deny a request shall be in writing and supported by substantial evidence contained in a written record." The boom in wireless services will cause a huge increase in the amount of low-level radio emissions literally passing through the body politic. However, any local public health issue is overridden by the new law: "No state or local government may regulate the...construction of personal wireless service facilities on the basis of the environmental effects of radio-frequency emissions to the extent that such facilities comply with the [Federal Communications] Commission`s regulations concerning such emissions." That may seem reasonable at first, but it is not because the FCC is an economic agency rather than a health agency. In fact, the "National Wireless Telecommunications Siting Policy" gives more than a gentle nudge to anything local that stands in the way of personal communications services.

The investment community understands the new law`s tilt. Perhaps the best example is George Naddaff, an entrepreneur and former chairman and chief executive of Boston Chicken, one of the most successful business ventures in the early 1990s. Naddaff has purchased substantial equity in a company known as Totally Wireless, which bills itself as the only retail chain dedicated exclusively to wireless products and services. The company will be a franchise operation, like a fast-food restaurant, where a customer can go to any store in the nation and know what to expect.

Forecast for fiber

Do these developments forecast a rough road ahead for the growth of fiber investment? Yes and no. Long-term developments depend on infrastructure strategies in the U.S. and abroad. For example, countries that never had much of a wireline network favor rapid deployment of cellular. Much of Eastern Europe is one example, and another is Beirut, Lebanon, whose tele communications infra structure was completely destroyed in 20 years of war. In 1992, a reconstruction program commenced primarily with French and German companies whose chosen technology was wireless. The mature economies of North America, Western Europe and Japan will continue to invest in and install long-lived physical plant, which means continued fiber investment. But the growth rate will probably not match that of wireless investments.

In the U.S., personal communications services is AT&T`s favorite weapon to bypass the local exchange companies and is the sole reason for the company`s purchase of McCaw Cellular three years ago. Through that purchase and other efforts, AT&T`s personal communications services will be capable of reaching 200 million people in the U.S., and the company will offer so-called "fixed wireless" services, where home or business telephones use radio frequencies to skip around the local telephone company`s loop.

Wireless technology may also bypass established cable systems. Direct satellite broadcasts and wireless cable service, known as Multichannel Multipoint Distribution System, are options for new providers to skirt the established companies` wireline networks. Put this information together with Title VII of the new telecommunications law and George Naddaff`s holdings in the Totally Wireless retail chain and the pattern is clear. The new law was created and shaped to meet the current state of telecommunications investment strategy. That is the meaning of statements like "the law has finally caught up with technology."

Stephen N. Brown specializes in market research and public policy toward new technology in the telecommunications industry. Tel: (615) 399-1239.

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