A ruling by the Federal Communications Commission's (FCC) on Feb. 20 is likely to create regional monopolies that could stifle innovation and growth of open broadband telecommunications, according to Alan McAdams, professor of economics in the Johnson Graduate School of Management at Cornell University. Broadband networks will be more costly, less flexible and less versatile than the technology encourages and open, competitive offerings would guarantee, the economist predicts.

The FCC ruled that incumbent local exchange carriers (ILECs) will not be required to "unbundle," or share with competitors, their future fiber optic lines connecting to homes and businesses. McAdams says this could give each ILEC a monopoly on broadband service in its region.

While the debate at the FCC was supposedly about who will provide local voice telephone service and digital subscriber line (DSL) Internet access service, the real battle, McAdams says, is about the future of Ethernet networks operating over optical fiber infrastructures capable of supporting gigabit (billions of bits) speeds. McAdams calls these systems "AFN" (for Advanced Fiber Networks).

McAdams, a senior member of the Institute of Electrical and Electronic Engineers (IEEE), is immediate past chair of the IEEE-USA Committee on Communications and Information Policy. In June 2002 he led a team that convened a workshop, jointly sponsored by the IEEE-USA and Cornell, to plan for more rapid deployment of broadband networks in the United States. The IEEE-USA has issued a position statement, "Accelerating Advanced Broadband Deployment in the U.S.," based on the draft report of that workshop. It essentially recommends that AFN be "included in the debate" on accelerating broadband deployment in the U.S. and lays out its virtues. "That position statement could not be more timely, " McAdams says.Because AFN deployment is proceeding rapidly outside the U.S., "blocking or undermining it by permitting it to emerge only in monopolized form in the U.S. would come at great cost to U.S. international competitiveness and domestic economic growth," he says.

AFN systems provide so much bandwidth that once the infrastructure is built, the "marginal cost" (the cost to add more activity) is zero. As a result, McAdams says, if the telephone company builds fiber all the way to the home or business, under the new rules it would acquire an instant monopoly. Since the cost of serving that user is zero, he explains, no potential competitor could hope to undercut the incumbent company's price and unlock that user.

Ideally, McAdams says, these networks would be owned and controlled by their end users, rather than by the ILECs. In contrast to the current "vertically integrated" cable and telephone operators, user-owned systems would be open to many competitive content providers. End users would be able to choose from a variety of providers of Internet, telephone and video services, and the competition among service providers would bring prices down.

"On the other hand, if the telcos can monopolize the fiber to the home, then they would determine what content, applications and services can and cannot reach you at your home, and at what price," McAdams warns.

He still sees a future in which major corporations, school systems and municipalities could go against the regional, unregulated monopolies. Once the infrastructure is in place for those users, with fiber lines crisscrossing the community, it will be easy and relatively inexpensive for small businesses and eventually private homes to connect. Rural areas not now served by cable and DSL also are likely places to install AFN networks, since they are even less likely to be served with fiber by regional, unregulated monopoly ILECs.

A parallel FCC action, opposed by Republican FCC chair Michael Powell but championed by Republican commissioner Kevin Martin, applies to the "copper plant" of the ILECs -- the existing wiring to homes and businesses. Martin, joined by the two Democrats on the commission, was successful in ensuring that such regulation be reserved to the states. "Kevin Martin's disagreement with Powell has had the unintended consequence of protecting the nation from a return to fully ironclad monopolization by incumbent local exchange carriers, " McAdams says.

Previously, under the Telecom Act of 1996, local telephone companies were required to make their physical networks available to competing service providers. Those conditions remain in force except as modified by state regulators, but only for the existing ILECs' copper plant.