Telecommunications: Technological and Regulatory Factors Affecting
Consumer Choice of Internet Providers (Letter Report, 10/12/2000,
GAO/GAO-01-93).

As the Internet becomes a growing force in daily life, the degree of
consumer choice among Internet providers has emerged as a key public
policy issue. Because laws and regulations devised to govern these
different networks were generally tailored to the specific services each
network originally supported, different types of communications
providers are held to different rules when providing physical transport
to the Internet. As a result of both technology and regulation,
consumers using the telephone network as a means of physical transport
to the Internet may have a choice of transport provider and generally
have significant choice of Internet service provider (ISP). Consumers
generally have broad access to Internet portals, applications, and
content, either from their ISP or directly from the Internet itself,
regardless of the transport provider or ISP they have chosen.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-93
     TITLE:  Telecommunications: Technological and Regulatory Factors
	     Affecting Consumer Choice of Internet Providers
      DATE:  10/12/2000
   SUBJECT:  Telecommunication
	     Computer networks
	     Telecommunication industry
	     Competition
	     Telephone
IDENTIFIER:  Internet

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GAO-01-93

A

Report to the Subcommittee on Antitrust, Business Rights and Competition,
Committee on the Judiciary, U. S. Senate

October 2000 TELECOMMUNICATIONS Technological and Regulatory Factors
Affecting Consumer Choice of Internet Providers

GAO- 01- 93

Letter 3 Appendixes Appendix I: Scope and Methodology 38

Appendix II: Definition of Internet Access Market Unclear 42 Appendix III:
Wireless Internet Access Technologies and

Regulations 46 Appendix IV: Telephone Laws and Regulations Promote

Consumer Choice of Internet Service Providers 49 Appendix V: Lack of Clarity
on Internet Services in Cable Laws

and Regulation Has Resulted in ?Open Access? Debate and Litigation 54

Appendix VI: GAO Contacts and Staff Acknowledgments 61 Glossary of

62 Communications Terms

Tables Table 1: Strengths and Weaknesses of Dial- Up Telephone, DSL
Telephone, and Cable Modem Services for Transport to the

Internet 18 Figures Figure 1: Representation of aTypical Portal Featuring

Applications and Links to Content 10 Figure 2: Distribution of Physical
Transport Modes Used by

Consumers From Their Homes 13 Figure 3: Star Configuration of theTelephone
Network 14 Figure 4: Tree and Branch Configuration of the Cable Television

Network 16

Abbreviations

AOL America Online BOC Bell Operating Company CMTS cable modem termination
system CRTC Canadian Radio- Television and Telecommunications

Commission DSL digital subscriber line DSLAM digital subscriber line access
multiplexer FCC Federal Communications Commission ISP Internet service
provider kbps kilobits per second LATA local access and transport area LMDS
local multipoint distribution service MMDS multichannel multipoint
distribution service NTIA National Telecommunications and Information
Administration PC personal computer RUS Rural Utilities Service TCP/ IP
Transmission Control Protocol/ Internet Protocol TELRIC total element long-
run incremental cost UNE unbundled network element

Letter

October 12, 2000 The Honorable Mike DeWine Chairman The Honorable Herb Kohl
Ranking Minority Member Subcommittee on Antitrust, Business Rights

and Competition Committee on the Judiciary United States Senate

Often described as a ?network of networks? that forms a worldwide
information infrastructure, the Internet is expected to become a primary
medium for communications, commerce, education, and entertainment in the
21st century. As the Internet becomes a growing force in daily life, the
degree of consumer choice among Internet providers has emerged as a key
public policy issue. For an American consumer today, gaining access to the
Internet usually involves obtaining service from two types of companies. The
first is a provider of physical transport- a telephone, cable television, or
wireless communications company- that supplies a physical connection over
which data are transmitted from the consumer?s home computer to the
provider?s facilities. Users typically already have such a connection for
phone or cable TV services. The second type of company is an Internet
service provider (e. g., America Online, Earthlink, Excite@ Home) that
provides a pathway or ?on- ramp? from a transport provider?s facilities to
the Internet. Although the majority of Americans currently access the
Internet over a telephone line and subscribe separately to an Internet
service provider, integrated Internet services offered by cable companies
are becoming increasingly prevalent, and various wireless methods of
Internet transport are also expected to become popular in the next few
years.

Because of your interest in the degree of choice consumers have among
communications companies providing physical transport to the Internet and
among Internet service providers, you asked us to report on (1) the current
distribution of transport modes among consumers and the key technological
differences among communications networks used for transport to the
Internet; (2) the legal and regulatory differences in how these providers
are governed; (3) whether these technological, legal, and regulatory
differences are affecting the development of consumer choice of
communications companies providing physical transport to the Internet and
Internet service providers, and if so, how; and (4) the extent to which
users have full access to and choice of portals (e. g., Yahoo, Lycos),
applications (e. g., e- mail), and content (i. e., information sources) and
whether this access or choice is affected by users? selection of physical
transport provider, Internet service provider, or other factors. You also
asked us to examine whether narrowband and broadband Internet access are in
separate economic markets and, if so, whether the cable industry dominates
the broadband market. 1 A discussion of this latter issue is in appendix II.
A discussion of wireless Internet access modes is provided in appendix III.

1 FCC defines services with a transmission speed of 200 kilobits per second
(kbps) in one direction as ?high speed.? It defines services capable of
delivering a speed of 200 kbps or more in both directions as ?advanced
services? or as having ?advanced telecommunications capability.? We use the
term ?broadband? to refer to services of both types.

To respond to your request, we interviewed a variety of experts, including
representatives of telephone companies, cable companies, wireless companies,
Internet service providers, portal providers, content providers,
communications equipment and software manufacturers, and industry trade
associations. We also interviewed experts from financial investment firms
and consulting firms, as well as academicians specializing in
communications. In addition, we interviewed officials of 10 municipal
franchising authorities, the Federal Communications Commission (FCC), the
National Telecommunications and Information Administration (NTIA), and the
Canadian Radio- Television and Telecommunications Commission. We also
contracted with a market research firm to survey a randomly selected group
of Internet users and ask questions about their Internet usage and their
selection of providers. 2 Finally, we reviewed relevant laws, FCC
proceedings, court decisions, and industry studies. See appendix I for more
detailed information on our research methodology, including a detailed
discussion of our survey of Internet users. A glossary of terms is included
at the end of this report.

Results in Brief Because the telephone networks and cable systems that
provide consumers with physical transport to the Internet were originally
designed

to provide different services- voice or video communications- they differ
technologically in several respects. Although U. S. households most often
use conventional telephone lines for Internet transport, these lines offer
relatively slow data transmission speeds. While the use of a new technology
over telephone networks can provide transport to the Internet at higher
speeds, at this time this technology generally can only serve consumers
living within a few miles of their telephone company?s facilities. Cable
television systems also can offer customers physical transport to the
Internet at high speeds, but the speed can degrade when many customers
simultaneously use the cable system for transport to the Internet. The
adoption of these high- speed transport technologies by Internet users has
grown rapidly over the past few years, as evidenced by our finding (based

2 The survey results in this report represent the responses from a panel of
Internet users intended to be representative of Internet users in the United
States who are at least 18 years old. However, because the panel consisted
of users who volunteered to be surveyed about their Internet use, it may
represent a set of users that is somewhat more sophisticated than the
general Internet user population. We will be publishing a more detailed
report on the results of our survey of Internet users in early 2001.

on our survey) that, as of May 2000, 12 percent of Internet users had a
broadband connection.

Laws and regulations devised to govern these different networks were
generally tailored to the specific services each network originally
supported. Hence, at this time, different types of communications providers
are held to different rules when providing physical transport to the
Internet. The public telephone networks are governed by a complex web of
regulations requiring them to provide nondiscriminatory access to their
networks at just and reasonable rates for telephone service and Internet
access. Cable companies are not covered by such obligations when providing
cable services, but considerable controversy exists over whether physical
transport to the Internet over the cable network should be defined as a
cable service or whether it should fall under a different regulatory
framework, such as that applied to the telephone network.

As a consequence of both technology and regulation, consumers who use the
telephone network as a means of physical transport to the Internet may have
a choice of transport provider and generally have significant choice of
Internet service provider (ISP). Conversely, consumers who use the cable
network (or perhaps wireless networks) for transport to the Internet
generally find themselves automatically connected to an ISP affiliated with
or chosen by the transport provider. In the next few years, consumers are
likely to have wider choice of communications companies providing physical
transport to the Internet, but the same may not be true for their choice of
ISP. As a growing number of Americans move to technologies that use
nontelephone networks to gain fast transport to the Internet, they may
automatically obtain ISP service from the particular ISP or ISPs chosen by
their transport provider.

Consumers generally have broad access to Internet portals, applications, and
content, either from their ISP or directly from the Internet itself,
regardless of the transport provider or ISP they have chosen. However, we
did find that ISPs can influence consumers? selection of content because
consumers can quickly and easily access content that ISPs prominently
display on their home pages. Our survey indicated that infrequent users of
the Internet were most likely to rely on ISP- provided features and
functions and, therefore, these users are most likely to be influenced by
their ISP?s selection and display of content.

As anticipated for some time, ?convergence? is occurring in the
telecommunications industry. Varied communications providers are

redesigning or upgrading their networks to provide Internet access- a
relatively new service- and ultimately many traditional communications
services will flow over the Internet. However, even with passage of the
Telecommunications Act of 1996, communications law retains a ?stovepiped?-
or compartmentalized- structure under which each traditional communications
service is governed by particular laws. Significant debate exists over what
laws and regulations apply to certain providers of Internet transport and
whether, when providing this service, all providers should be held to the
same rules despite fundamental differences in network technologies. These
issues highlight how the once sharp demarcations that defined types of
communications providers and the services they offered are fading. As these
distinctions continue to blur, additional complex issues surrounding the
governance of the communications industry are likely to arise.

We provided a draft of this report to FCC, NTIA, and the Department of
Justice for their review and comment. FCC and NTIA officials stated that
they were in general agreement with the facts presented in the report and
provided technical comments that were incorporated as appropriate. The
Department of Justice did not comment on the report.

Background The development of the Internet began in the late 1960s through
government- funded projects to demonstrate and perform ?remote access

data processing,? which enabled researchers to use off- site computers and
computer networks as if they were accessible locally. 3 Although these
networks were initially intended to support government and academic
research, when their public and commercial value was realized, they were
transformed into the medium known today as the Internet. 4 In addition to
the privatization of these networks and the construction of new networks,
advances in computing technology fostered the Internet?s growth. For
example, a ?hypertext? programming system, which automatically links
digitized text to other information sources, made possible the information
retrieval method known as the World Wide Web. Advancements in the processing
capability of personal computers and the development of ?browser? software
also greatly facilitated public use of the Internet. By the mid- 1990s, a
major surge occurred in Internet use that continues unabated today.
According to one research firm, the number of Internet users (both at home
and work) in the United States grew from 27 million in 1996 to over 86
million today. 5

The means by which American consumers gain access to the Internet from their
homes 6 is relatively simple, beginning first with the purchase of a desktop
computer, laptop, wireless device, or Internet appliance. 7 A consumer then
needs service from two types of providers: (1) a

3 The two most prominent of these projects were ARPANET, funded by the
Department of Defense?s Advanced Research Projects Agency, and NSFNET,
supported by the National Science Foundation. For further discussion of the
development of the Internet see our recent report, Department of Commerce:
Relationship With the Internet Corporation for Assigned Names and Numbers(
GAO/ OGC- 00- 33R, July 7, 2000).

4 The Internet employs a form of transmission known as ?packet switching,?
in which streams of digital data signals are split into separate pieces or
?packets,? routed over the most efficient available pathway, and reassembled
at their destination point. Because there is an open protocol known as TCP/
IP- or the Transmission Control Protocol/ Internet Protocol- which was
introduced in 1973 as the ARPANET was developing, all types of computers can
interconnect at many different points along the Internet.

5 MRI, CyberStats, Spring 2000. 6 This report focuses on residential
consumers? Internet use. As one expert we spoke with noted, the majority of
Internet traffic consists of business use. 7 An example of an Internet
appliance is a set- top device enabling a television set to be used to
access the Internet (such as WebTV) instead of a personal computer (PC). In
the future, many such non- PC devices for Internet access are expected to
come to market.

communications company providing a means of physical transport to the
Internet and (2) an ISP.

* A communications company providing physical transport to the Internet- for
example, a telephone or cable television company- provides a physical
connection from a computer at the consumer?s home to the provider?s network
(and, ultimately, to an ISP). The ?bandwidth,? or transmission capacity of
connections, varies: A ?narrowband? connection, such as that provided by a
conventional telephone line, offers limited transmission capacity, resulting
in relatively slow speed; a ?broadband? connection, such as that provided by
cable modem service or by a telephone technology known as digital subscriber
line (DSL), 8 has greater transmission capacity, giving the user higher
speeds and the ability to easily access more sophisticated forms of Internet
content, such as video and audio. * An ISP is the consumer?s link or ?on-
ramp? to the Internet. As the initial

destination of the physical transport provided to consumers by their
communication companies, ISPs have servers, routers, switches, and other
equipment necessary to transmit traffic to and from the long- haul networks-
known as the Internet ?backbone?- which connect the computer and
communications networks that are part of the Internet. ISPs differ in the
features and functions they offer to subscribers. While some only provide a
link to the Internet and an e- mail application, others have additional
applications and direct links to content on the ISP?s home page- the first
Web page that users see when they access the ISP.

In most cases today, consumers already subscribe to conventional voice
telephone service or cable television service, so the consumer does not need
to establish service with a separate company to gain physical transport to
the Internet. Most consumers then subscribe separately to an ISP. However,
transport and an ISP are sometimes sold as an integrated package by cable
television companies. Wireless providers are also expected to sell
integrated transport and ISP service in the near future.

8 Although there are many forms of DSL technology, all fall into two general
categories- symmetric (designed to provide the same maximum upstream and
downstream transmission speeds) and asymmetric (providing faster downstream
than upstream transmission speeds). Asymmetric DSL is the most common form
of DSL for the residential market.

consumer establishes a physical Content Applications Once a connection and
subscribes to an ISP, he or she may use a variety of features and functions-
portals,

applications, and content- provided either on the ISP?s home page or
available on the Internet. Figure 1 depicts a typical portal Web page that
includes links to various applications and content.

Figure 1: Representation of a Typical Portal Featuring Applications and
Links to Content

Search the Internet

Search

Shop Chat Email Games Win!

pretendportal. com - directory News

Entertainment Sports

* High hopes for peace talks movies, celebrities

baseball, soccer * Candidates debate tax

proposals

Education Money

* World Series begins K- 12, college stocks, investing

Health Automotive

Merchant sites

medicine, fitness, diets car buying, clubs

* cars * clothes

Technology Careers

* home/ garden computers, science

jobs, resumes * gifts * toys

Travel Society

* food air fares, destinations

hobbies, advice

* A ?portal? is a Web page that provides a search engine or subject
directory to enable users to search the Internet for desired Web pages and
content. Some portals also provide direct links to specific content and
applications, such as e- mail, or may be targeted for specialized uses. *
?Applications,? as used in this report, means tools designed to let

Internet users perform various online tasks. These applications include e-
mail, chat rooms (electronic communications among numerous

users), instant messaging (messages sent and received instantaneously
between two users), file transfer capabilities, andWeb page hosting
(enabling a user to build and maintain a personal Web page). Applications
are provided by most ISPs and are also available on many Web pages that
users can access over the Internet. * ?Content,? as used in this report,
refers to the information contained in

the over 1 billion Web pages posted on computer servers around the world and
to other resources users access when connected to the Internet. Some ISPs?
home pages and many other Web pages have direct links to popular content
such as news, weather, and sports information; research sources; and online
merchants.

Consumers? Use of Our survey of Internet users found that about 12 percent 9
of people who

Broadband Transport access the Internet do so over a broadband connection.
Given previous

estimates of Internet use, it appears that broadband access has grown Is
Increasing; Different

rapidly in the past couple of years. The traditional designs of the
telephone Networks Have Various

and cable networks are fundamentally very different: The telephone Strengths
and

network provides a dedicated line to each user?s home, while the cable
network provides a shared network to a set of users. Because of the

Weaknesses technological differences of these networks, they have particular
strengths

and weaknesses for providing transport to the Internet. (This report focuses
most closely on telephone and cable provision of Internet transport because
these methods are the most used today. App. III discusses wireless methods-
which are likely to become very important in the coming years.)

9 Unless otherwise indicated in the text, the sampling error for percentages
presented in this report is plus or minus no more than 5 percentage points.

Approximately 12 Percent According to our random survey of Internet users,
the conventional

of Internet Users Have telephone line is the most common method of transport
to the Internet,

Broadband Transport to the with about 88 percent of respondents using
conventional narrowband

Internet telephone transport. Twelve percent of the respondents have a
broadband

method of transport to the Internet- 9 percent using cable modem service,
and 3 percent using DSL telephone service. However, broadband transport
provided by both telephone and cable companies is becoming an increasingly
popular form of transport to the Internet. Two analysts? reports note that
as recently as 1998, only about 2 percent of users subscribed to a broadband
service. 10 This considerable difference suggests a recent substantial
increase in broadband subscribership. Figure 2 presents a distribution of
the current means of physical transport to the Internet based on our survey
results.

10 Merrill Lynch and Company, Internet/ e- Commerce: The Quarterly Handbook:
Q1 2000 (New York, N. Y.: 1999), p. 67, and Morgan Stanley Dean Witter and
Company, The Internet Data Services Report( New York, N. Y.: 1999), p. 20.
Variations in the results between these studies and our own may be
attributable to methodological differences. Our study examined only the
means of physical transport to the Internet from residences.

Figure 2: Distribution of PhysicalTransport Modes Used by Consumers From
Their Homes

9%

Cable modem

3%

DSL telephone

10% * * * *

* *

< .5%

Wireless

* * 88% Dial- up telephone

Source: GAO?s Random Survey of Internet Users as of April- May 2000. Notes:
The percentages total more than 100 percent because of rounding. The survey
results in this report represent the responses from a panel of Internet
users intended to be representative of Internet users in the United States
who are at least 18 years old. However, because the panel consisted of users
who volunteered to be surveyed about their Internet use, it may represent a
set of users that is somewhat more sophisticated- and thus possibly geared
more toward broadband- than the general Internet user population. The
following 95- percent confidence intervals apply to the percentages in the
figure: dial- up telephone (84.6- 90.4), cable modem (6.4- 11.4), DSL
telephone (1.7- 4.8), and wireless (0- 1.0).

Telephone and Cable The telephone network was originally designed in a star
configuration with

Networks Have each customer connected by a dedicated line- a twisted pair of
copper

wires- to a central office facility (see fig. 3). 11 This design was
considered Fundamentally Different

an efficient and secure means to enable all customers connected to the
Designs

telephone network to make voice calls to any other customer on the network.
The ubiquity of the telephone network throughout the United

11 As the telephone network is updated, some aspects of the network are
becoming ?shared.? In particular, telephone companies are deploying more
optical fiber from central offices to ?nodes? from which copper wires run to
individual customers. In this case, the optical fiber portion is a shared
medium.

States is illustrated by FCC?s estimation that 94 percent of U. S.
households had basic dialtone telephone service in 1999.

Figure 3: Star Configuration of the Telephone Network

Dial- up Dial- up

modem only ISP

Telephone Telephone

Dial- up network

only ISP Dial- up modem

switch Dial- up or

Telephone DSL ISP

splitter Central

office DSLAM

Internet backbone

DSL Data

modem network

Telephone Dial- up or

DSL ISP

Note: A switch is a piece of equipment in a telephone company?s central
office facility that routes telephone signals between users.

Using a conventional telephone line to obtain narrowband transport to the
Internet, a consumer connects the modem 12 in (or attached to) his or her
computer to the household telephone line and dials the number of an ISP from
the computer. The signals generated by the call travel over the customer?s
line to a telephone company?s central office facility, where they are routed
through the telephone network to a line serving the customer?s

12 A modem is an electronic device that allows computers to send and receive
data.

ISP. Once connected to the ISP, the customer will be able to use the ISP?s
services, including a link to the Internet. As with voice calls, the lines
and network resources that route the data from the customer?s computer to
the ISP remain dedicated for the duration of the call and cannot be used for
other calls.

To respond to users? demands for higher speed and an Internet connection
that is ?always on?- meaning there is no need to dial the ISP to establish
an Internet connection- telephone companies adapted an existing technology
known as DSL 13 to offer broadband services over existing telephone lines.
With DSL, data signals are transmitted over the high- frequency portion of
the copper telephone line- a portion of the line that is not needed for
transmitting voice signals. DSL technology thus allows telephone companies
to exploit this otherwise dormant capacity and provide both voice and data
signals simultaneously over the same telephone line. Because DSL requires
that telephone lines be in good condition, telephone companies must evaluate
each line to determine if imperfections could degrade DSL service and, if
so, make the necessary line upgrades. In addition, equipment must be
installed at both ends of the DSL line to support broadband transmissions.
At the customer?s premises, a splitter must be installed to separate the
voice and data signals, and a DSL modem must also be installed (or already
integrated within the user?s personal computer). At a telephone company
facility, a splitter and digital subscriber line access multiplexer (DSLAM)
must be installed to identify voice and data signals, route voice traffic to
the public telephone network, 14 and transmit data signals to the data
network from which the customer?s ISP takes traffic.

13 For a more detailed discussion on the development of DSL, see our recent
report, Telecommunications: Issues Related to Local Telephone Service( GAO/
RCED- 00- 237, Aug. 31, 2000). 14 Going downstream (toward the user), the
splitter combines the voice signal from the traditional telephone company
switch with the data signal from the DSLAM and sends the combined signal
over the copper wire to the customer.

The design of the cable network differs from that of the telephone network
largely because of its original purpose- the one- way transport of video
signals. As such, cable networks were designed in a ?tree and branch?
configuration with a single source transmitting video programming signals to
a dispersion of customers (see fig. 4). On a cable system, video signals
transmitted by satellites and broadcast television towers are received at a
cable company facility known as a headend. 15 These video signals are then
packaged together and sent simultaneously from the headend over coaxial
cables to subscribers? premises. Unlike the telephone network, the cable
network does not provide a dedicated line from the headend to each
customer?s premises. Rather, the tree and branch structure provides a shared
medium among subscribers in which a given amount of capacity is available to
a group of subscribers. In the context of Internet use, if certain
subscribers use very large amounts of bandwidth during an Internet session,
less bandwidth will be available to other subscribers at that time. This
shared usage requires the cable operator to expend resources managing the
capacity of its network.

Figure 4: Tree and Branch Configuration of the Cable Television Network

Cable modem Cable modem subscriber subscriber

Cable headend Cable- affiliated

Internet a

ISP backbone

CMTS Cable modem Cable modem subscriber subscriber

15 A headend is a facility that originates and distributes cable service in
a geographic area. Depending on the size of the geographic area the cable
company serves, the company could have several headend facilities within a
cable system.

a A CMTS, or ?cable modem termination system,? is a data- switching system
designed to route data between cable modem users and the Internet.

Many cable companies are upgrading their networks in a variety of ways to
offer subscribers a greater number of video channels as well as to provide
two- way services such as broadband Internet service. To provide Internet
service, cable companies must dedicate transmission capacity that would have
been used for one or more video channels. 16 At the customer?s premises, a
device known as a cable modem is attached to the cable wire and then to the
customer?s computer. Cable companies have also invested in certain ISPs-
such as Excite@ Home and Road Runner- and have integrated physical transport
with the ISP functions. Thus, cable modem subscribers purchase a ?bundled?
transport and ISP service. This contrasts with the telephone network, where
users generally purchase ISP service separately from their transport
service.

Different Networks According to the experts and industry officials we
interviewed, telephone

Providing Transport to the and cable networks have various strengths and
weaknesses when

Internet Have Various providing transport to the Internet because of the
differences in their

Strengths and Weaknesses technological designs (see table 1). For example,
the strengths of

narrowband telephone service for transport to the Internet include the
ubiquity of the public telephone network and the low incremental cost to
consumers for the service. 17 However, narrowband telephone service provides
limited capacity, so transport speeds are slow, and users must ?dial up?
their ISP each time they want to initiate an Internet session. By contrast,
both DSL and cable modem services offer higher speeds and provide an ?always
on? Internet connection (no dial- up is needed). However, DSL can at present
only serve users living within about 3 miles of a telephone company?s
central office facility, and cable modem service does not provide a
dedicated line, which results in degraded speeds when many customers are
simultaneously using the shared capacity.

16 Typically, one or two channels are assigned for downstream traffic
fromthe headend to the customer, and one channel is reserved for upstream
traffic from the customer to the headend. If a cable network providing
Internet access has not upgraded its facilities to allow two- way services,
a telephone line is used for upstream traffic.

17 Consumers using dial- up telephone service for transport to the Internet
can establish Internet service at no additional cost if they do not purchase
a second telephone line and if they select a free ISP. In our survey of
Internet users, 10 percent of dial- up users reported that they incurred no
incremental monthly cost to gain Internet transport and service. Almost half
of dial- up users reported spending $20 or less per month on these services.

Table 1: Strengths and Weaknesses of Dial- Up Telephone, DSL Telephone, and
Cable Modem Services for Transport to the Internet

Strengths Weaknesses

Dial- up telephone service Ubiquity of telephone network Slow speed

Low price Dial- up required for each session; connection

Dedicated line may not be possible at times

Ease of connecting the computer Unavailability of telephone line for voice
calls if

Reliability of the telephone network only one phone line is purchased

DSL telephone service High speed Requires close customer proximity to

Dedicated line telephone facilities

?Always- on? connection Higher price than dial- up telephone service,

Line can be used for simultaneous access to Internet and additional
installation fees

and voice calls Cable modem service High speed

Degraded speed as more users go online ?Always- on? connection

Security concerns about shared network Cable lines can be used for
simultaneous access to

Higher price than dial- up telephone service Internet and cable television
programming

Laws and Regulations The legal and regulatory differences in the treatment
of telephone and

Were Written When cable providers stem from the different communications
services- voice

and video, respectively- that these networks were originally designed to
Specific

provide. Voice and video services are treated separately under the
Communication

Communications Act of 1934; no separate title of the law addresses Internet
services. 18 Telephone carriers have long been treated as ?common Services
Aligned With

carriers? and required to provide nondiscriminatory access to their Specific
Networks

networks. When data services began to flow over the telephone network, this
common carrier approach was also applied to the transport of data. Cable
operators are not treated as common carriers when providing a cable service.
Considerable debate and confusion exists about whether cable modem service
is appropriately considered a cable service or should be considered some
other type of a service to which specific laws might be applicable. (See
apps. IV and V for more detailed discussions of the laws and regulations
governing the telephone and cable networks.)

18 However, section 706 of theTelecommunications Act of 1996 directs FCC and
relevant state commissions to encourage the deployment of ?advanced
telecommunications capability? to all Americans through several means,
including regulatory forbearance or ?regulating methods that remove barriers
to infrastructure investment.?

The Stovepiped Structure of The Communications Act of 1934 was originally
crafted by combining

the Communications Act of separate statutes regulating distinct services-
telephone voice service and

1934 radio broadcasting- and as such, the law was originally structured in a

?stovepiped?- or compartmentalized- fashion in which each traditional
communications service was governed under particular provisions of the law.
The Telecommunications Act of 1996 amended the 1934 act with the primary aim
of promoting competition in all communications sectors. Many analysts
envisioned that convergence in the industry would occur as different types
of carriers entered each others? traditional service markets. However, the
stovepiped regulatory structure, with separate titles governing telephone
(common carrier), cable, and radio (wireless) services, was largely left
intact. While telephone and cable companies have entered each others?
traditional service markets to some extent, a primary focus of competition
has turned out to be in the provision of Internet services- a relatively new
service market that is not governed by a separate title of the
Communications Act.

Telephone Laws and Even preceding the enactment of the Communications Act of
1934, the

Regulations nation?s telephone companies were treated as ?common carriers?
under the

law, being required to provide voice telephone service to customers on
request within their service areas on a nondiscriminatory basis at just and
reasonable rates. Nearly 40 years ago, as data signals began to flow over
the public telephone network, FCC began contemplating the regulatory
treatment of these data transmissions. The Commission determined that while
the physical transport of data over the telephone network should be
regulated under the same common carrier approach used for voice traffic, the
data- processing or computer- enhanced functions themselves should be left
unregulated. This distinction between ?telecommunications services? and
?information services? 19 was carried forward in various FCC rules and in
court proceedings and, according to FCC, was codified in the
Telecommunications Act of 1996. ISPs are generally only providers of
?information services? and thus not regulated by FCC.

As the first comprehensive amendment to the Communications Act of 1934, the
1996 act made further statutory changes that have become important to the
provision of Internet services. Specifically, in an effort to promote

19 FCC originally referred to telecommunications services as ?basic?
services and to information services as ?enhanced? services.

competition for local telephone service, the 1996 act and the implementing
rules issued by FCC require incumbent local telephone companies to resell
their service to competitors at wholesale rates and to sell unbundled
network elements (UNE)- designated piece parts of the telephone network- to
competitors. The new law and FCC rules have resulted in the emergence of
numerous competitive companies that have begun to offer consumers new
choices for providers of local telephone service- and, thus, choices also
for providers of physical transport to the Internet. Moreover, these rules
do not apply only to narrowband telephone services. FCC has ruled that the
high- frequency portion of the telephone line- the portion used to provide
DSL service- is a UNE and must be made available to competing telephone
companies.

Cable Laws and Regulations The federal laws and associated FCC regulations
governing cable systems differ substantially from those governing the
telephone industry. For example, the history of cable laws and regulations
is shorter, and primary authority is generally exercised in local
jurisdictions. The first federal law governing the provision of cable
services was enacted in 1984, explicitly bringing the cable industry under
the regulatory control of both FCC and local municipal franchising
authorities. 20 The law states that cable companies providing ?cable
services? are not to be treated as common carriers, and few limitations are
placed on cable companies? control over the video programming carried on
their systems. 21 However, under certain circumstances, FCC could promulgate
additional rules necessary to provide diversity of information sources. 22

20 Local franchising authorities grant cable franchises and allow cable
operators the rights to lay cable under city streets and use other public
rights- of- way. 21 Cable operators? control over content does have some
regulatory limitations. For example, the ?must carry? rules can require
cable systems to carry local broadcast stations, and the franchising
authority may demand a certain number of cable channels be set aside for
public access, educational, and government uses.

22 47 U. S. C. 532( g). In a recent notice of inquiry, the Commission is
asking whether these circumstances exist ( In the Matter of Annual
Assessment of the Status of Competition in Market for the Delivery of Video
Programming, CS Docket No. 00- 132, Notice of Inquiry,

FCC 00- 270 (released Aug. 1, 2000) at paragraph 8).

The question of whether data services provided over a cable system- such as
cable modem service- are governed by any existing laws and regulations
hinges on whether an existing legal service definition is applied. Much
debate exists over whether the definition of a ?cable service?- first
included in the 1984 Cable Act and later modified in the Telecommunications
Act of 1996- includes cable modem service. 23 The differing views over the
correct definition of cable modem service have been expressed primarily
within the context of the debate over ?open access.? An open access policy
would require that nondiscriminatory access to the cable network be provided
to ISPs that are not affiliated with the cable company, so that they can
offer their own Internet services to cable modem subscribers. Cable
operators have consistently argued against open access mandates. The debate
is highly contentious, with some parties claiming that the very nature of
the Internet lies at the heart of the dispute.

There has been disagreement both between and among proponents and opponents
of open access policies about what service definition should be applied to
cable modem service- that is, whether it is a ?cable service,? a
?telecommunications service,? or an ?information service.? Each definition
would apply a different regulatory framework to cable modem service. (See
app. V for a more detailed discussion of these definitions.) In addition to
disagreements over the proper service definition of cable modem service,
proponents and opponents of open access disagree over whether open access
mandates amount to ?regulating the Internet? and whether requiring open
access would stifle investment in cable system upgrades. Opponents of open
access mandates also point out that cable modem subscribers can already
access nonaffiliated ISPs through the affiliated ISP and over the Internet.
Proponents counter that this access is not equivalent in quality to that
given to affiliated ISPs and that this method forces consumers to pay twice
for an ISP.

FCC has noted that the appropriate service definition for cable modem
service is an unsettled issue and has stated that the 1996 act did not
provide a definitive answer to this question. However, a few municipal
franchise

23 ?Cable service? is defined by law as ?the one- way transmission to
subscribers of video programming or other programming service together with
subscriber interaction, if any, which is required for selection or useof
such programming? (emphasis added). The words ?or use? in the definition
were added by the 1996 act. Interpretations of the meaning and implications
of this change in the definition of a cable service vary. See app. V for a
further discussion of this issue.

authorities have mandated open access under the presumption that cable modem
service is a ?cable service? and is, therefore, subject to the control of
the franchise authority. Legal challenges to some of these decisions have
led to inconsistent rulings by various courts on the ability of franchise
authorities to regulate cable modem service and on whether cable modem
service is a cable service, a telecommunications service, or an information
service. The most definitive of these rulings to date came in June 2000,
when the U. S. Court of Appeals for the Ninth Circuit held that cable modem
service is not a cable service and further stated that it is a
telecommunications service. (See app. V for a more detailed discussion of
various court decisions.)

On September 28, 2000, FCC released a Notice of Inquiry to examine the
issues surrounding the regulatory treatment of cable modem services. 24 In
the notice, FCC seeks comment on the appropriate service classification of
cable modem service, on whether open access is a desirable policy goal, and
if so, what the most appropriate means are of achieving that goal. FCC also
asks whether uniform requirements should be adopted to govern all providers
of broadband Internet transport, such as wireless providers.

Consumers? Choices of Consumers? choice of companies providing transport to
the Internet over

Internet Providers Are the telephone network has been facilitated by the
design of the telephone

infrastructure as well as by the common carrier regulation of these Affected
by the

companies. For the same reasons, consumers using the telephone network
Technological and

for transport to the Internet have many ISPs from which to choose. On the
Regulatory Differences

cable network, consumers generally purchase both the transport and ISP
functions from the cable provider and must subscribe to a second ISP if

of the Transport they want to obtain particular content or applications from
an ISP not

Networks affiliated with their cable company. Consumers? choice of
communications

companies providing transport to the Internet is expected to increase in the
coming years as telephone, cable, and wireless providers roll out competing
broadband services across many areas of the United States. However, because
only telephone providers are required to offer nondiscriminatory access to
their network, consumers who choose another transport mode may find their
choice of ISPs limited.

24 In the Matter of Inquiry Concerning High- Speed Access to the Internet
Over Cable and Other Facilities, GN Docket No. 00- 185, Notice of Inquiry,
FCC 00- 355 (released Sept. 28, 2000).

Telephone Network The technology and regulations of the telephone industry
facilitate

Technology and Regulations consumers? choice of physical transport providers
over the telephone

Facilitate Consumers? infrastructure. As discussed earlier, the telephone
network resembles a star

Choice of Transport and configuration in which dedicated lines are routed
from a central point to

each customer. Recognizing that, from a technological standpoint, this
Internet Service Providers

configuration could enable more than one carrier to provide local telephone
service, FCC rules implementing the 1996 act- in an attempt to enhance
consumer choice- required incumbent telephone companies to allow competitors
to resell services, lease UNEs, or offer DSL service through line sharing.
25 Although modest progress overall has been made by competitive local
telephone companies in gaining market share for local voice telephone
service, 26 FCC has reported that these companies were providing 20 percent
of the total DSL lines in service as of February 2000.

The design features and ubiquity of the telephone network also have provided
consumers broad choice of ISPs. Because both individual customers and ISPs
are end- users of telephone service, data signals can be transported between
a multitude of ISPs and their customers through interconnected telephone
facilities. Just as a telephone customer can place a voice call to any other
telephone on the network, no matter how far the distance, the customer can
also place a data call from his or her computer to any ISP that is connected
to the telephone network. 27 In addition, many of the industry participants
and experts with whom we spoke told us that telephone laws and regulations
were fundamental in promoting the development and growth of the ISP
industry. The regulatory distinction between transport and data processing
functions, combined with FCC?s close regulation of telephone companies?
participation in the data processing layer, led to the creation of new
independent companies to

25 However, some of those we interviewed told us that laws and regulations,
such as line sharing and the restriction on the Bell Operating Companies?
provision of long- distance data services are actually impeding deployment
of DSL services.

26 We reported in January 2000 that competitive local telephone companies
serve 3 percent of local telephone lines. See Telecommunications:
Development of Competition in Local Telephone Markets( GAO/ RCED- 00- 38,
Jan. 25, 2000). Similarly, the Association for Local

Telecommunications Services reported in February 2000 that competitive local
telephone companies service about 5 percent of local lines. In fact, many
residential consumers today do not have a choice of local carriers. However,
trends show local telephone competition is growing.

27 To avoid per- minute long- distance charges while online, however, a
consumer is likely to use an ISP that has a presence within the local
calling area.

provide Internet services and also kept these ISPs largely free of
regulation. Moreover, the common carrier status of telephone companies,
which requires that they provide nondiscriminatory service at just and
reasonable rates, worked to give ISPs easy access to consumers through the
telephone network.

The Cable Network The nation?s cable systems, designed and built to provide
television

Facilitates Limited programming to residential consumers, generally do not
offer consumers a

Consumer Choice of choice of providers for transport to the Internet. Unlike
the telephone

Transport and Internet network, where dedicated lines emanate from a central
facility to each

customer, cable customers share capacity from a principal distribution
Service Providers

?trunk? in a cable system. Thus, potential competitors? ability to access
customer- specific parts of the infrastructure, such as the equivalent of
UNEs in the telephone network, is problematic. Moreover, there have been no
requirements placed on cable companies to open their networks to
competitors, as is the case in the telephone industry under the 1996 act.
Thus, unless a second franchise has been granted in an area to an
alternative cable company that offers cable modem Internet access service,
28 consumers will only have one choice of transport provider over a cable
system.

28 FCC reported in January 2000 that 210 communities across 28 states had
awarded franchises to competitive cable systems- a second cable firm within
a jurisdiction- from 1995 to 1999. One expert told us that, eventually, 25
to 35 percent of households might be passed by more than one cable system.
Several of these companies are currently providing or soon plan to offer
cable modem Internet services.

Cable systems also offer customers a limited choice of ISPs. Because cable
systems have generally been built in a manner that integrates affiliated
ISPs with cable access, nonaffiliated ISPs are not able to offer their
service directly to cable modem subscribers. Regardless, the shared nature
of the system would complicate the integration of multiple ISPs. That is,
just as the cable provider must monitor consumers? ?consumption? of the
shared capacity, so it would have to monitor how a set of ISPs use the
shared medium. 29 No federal requirements have thus far been placed on cable
companies to provide ISPs with nondiscriminatory access to the cable
platform. As such, a cable modem subscriber wishing to gain access to a
nonaffiliated ISP?s content and applications 30 must subscribe to a second
ISP service and ?click through? the cable system?s affiliated ISP to get to
the second ISP?s site. 31 We were told, however, that accessing an ISP in
this fashion may reduce functionality- in particular, speeds may be reduced
when accessing content through the second ISP- compared with accessing
content available from the affiliated ISP directly.

29 Since many of the wireless networks will provide Internet transport over
a shared network, the technical problems in providing access to multiple
ISPs may apply to these companies as well.

30 A consumer would not use a secondary ISP for the primary function that
ISPs perform- access to the Internet- since such a service would be
redundant. Hence, users would only subscribe to a second ISP to gain access
to value- added features such as content and applications provided by the
ISP.

31 Consumers may be able to click directly to an alternative ISP by placing
the ISP?s icon on their desktops. However, functionally, they are still
using the cable ISP to gain access to the Internet and are still accessing
the secondary ISP through the Internet.

Considerable controversy has arisen over the inability of nonaffiliated ISPs
to offer service to cable modem subscribers. In the past, FCC has stated
that requiring cable companies to allow nonaffiliated ISPs access to the
cable system to offer service is not necessary in this nascent stage of
broadband deployment. Rather, Commission staff have stated that market
forces should ultimately lead to a greater choice of ISPs for cable modem
subscribers. Cable companies have, in fact, moved toward opening cable
systems to multiple ISPs. The two largest cable operators, AT& T and Time
Warner Cable, 32 have both announced technical trials over selected cable
systems 33 to test the operation of multiple ISPs and to study such issues
as billing and bandwidth allotment. Both companies are currently tied to
their affiliated ISPs through exclusive contracts but have indicated that
they plan to start offering cable modem subscribers a choice of ISPs when
those exclusive contracts end. 34 However, such commitments have not averted
controversy over the current lack of access by nonaffiliated ISPs to cable
systems. 35 Moreover, litigation has ensued over various municipal franchise
authorities? decisions to mandate open access for their particular cable
systems. Decisions reached by various federal courts have so far generally
held that municipal franchise authorities do not have the authority to place
open access requirements on cable modem service, 36 but the courts have
differed on whether the legal definition of ?cable services? encompasses

32 America Online (AOL) has proposed purchasing Time Warner in an all- stock
transaction. The new company would be named AOL Time Warner, Inc. 33 AT& T
will test multiple ISPs in Boulder, Colorado, in late 2002; Time Warner
Cable?s technical trial is in Columbus, Ohio. Additionally, Time Warner has
agreed to allow Juno- an unaffiliated ISP participating in the Columbus
trial- to offer service throughout its cable systems beginning in late 2000.

34 AT& T?s exclusive contracts with Excite@ Home expire on June 30, 2002. In
a December 1999 letter to FCC Chairman William Kennard, AT& T expressed its
intention to allow multiple ISPs to negotiate access to their cable systems,
thus giving its customers some choice of ISPs. Time Warner?s exclusive
contracts with Road Runner expire on Dec. 31, 2001, although Time Warner has
stated that it will restructure its Road Runner venture and might end the
exclusive carriage arrangement prior to that date. A Memorandum of
Understanding was issued in February 2000 setting forth commitments of AOL
Time Warner to make multiple ISPs available to consumers on its cable
systems.

35 Nor have these promises averted controversy over whether the cable
operators? version of open access- allowing subscribers to select among a
few ISPs that have contracted with the cable operator- is true open access.
Some argue that open access must mean access to any ISP that wants on the
network, such as occurs in the telephone industry.

36 The district court in AT& T Corp. v. City of Portlandfound the municipal
franchising authority could mandate open access, but the court?s decision
was reversed on appeal.

cable modem Internet service. In September 2000, FCC opened a proceeding to
examine these unsettled issues. (See app. V for a more detailed discussion
of issues related to the open access debate.)

The complicated and as yet unsettled issue of open access largely stems from
the structure of communications law wherein applying a particular service
definition determines what laws and regulations apply to a communications
service. But the appropriate application of these definitions has become
fuzzy in the face of a converging industry. Other manifestations of this
problem within the communications marketplace are likely to arise in the
coming years. For example, FCC has noted that it is not yet ready to comment
on the legal status of IP telephony- the emerging provision of voice
services over the Internet. Still other potential issues will arise as
communications providers use their networks in new ways. Experts with whom
we spoke also noted that broadcasters may use part of the spectrum provided
to them for digital television to provide data services, and electric
companies may provide telecommunications services over their networks.

Consumers? Choice of The degree of consumers? choice of communications
companies providing

Communications transport to the Internet will likely increase over the next
few years,

Companies Providing particularly as broadband Internet transport modes
become increasingly

Transport to the Internet available. Our analysis suggests that consumers
are likely to adopt

broadband technologies relatively quickly. According to our survey of U. S.
Will Likely Increase in the

Internet users, demand for broadband transport appears to exceed its Coming
Years, but the

availability at this time. In particular, we found that 19 percent of Choice
of ISPs Could

narrowband Internet users had made some attempt to obtain a broadband
Decrease

technology but were unable to do so. Common reasons cited for the inability
to obtain broadband were the technical limitations of various broadband
technologies and the absence of certain broadband services in some areas.
Similarly, many experts and industry participants told us that consumers
will migrate quickly to broadband transport modes as their availability
increases.

In our survey, 55 percent of Internet users reported that they have at least
one broadband transport option available to them now. For many consumers,
the availability of competing forms of broadband Internet transport could
become a reality relatively soon. Both DSL and cable modem service are being
rolled out rapidly, according to current market data; numerous satellite
providers are planning to launch Internet transport services in the near
future; 37 and new wireless transport services are expected to begin
operation soon. Yet, it also appears that as transport choices become
increasingly available across the country, the choices available to any
given user will depend on the area in which he or she lives and the
economics of deploying those technologies in that area. For example, even
though several experts told us that DSL service could eventually be
available to 60 to 80 percent of American homes, that percentage will likely
be lower in rural areas where, on average, customers live farther from
telephone companies? central office facilities. 38 Despite the likely uneven
dispersion of broadband availability, most experts and industry
representatives that we spoke with told us that multiple forms of Internet
transport will be available to consumers in many areas and that no one
transport method will become so dominant that others will fail.

37 A one- way satellite Internet service is currently available (customers
must use a telephone connection for their return path), although our
Internet user survey suggests that a majority of consumers (71 percent) are
not familiar with this type of wireless service.

38 In the report Advanced Telecommunications in Rural Americaissued in April
2000, NTIA and the Rural Utilities Service (RUS) concluded that broadband
deployment in rural areas is occurring at a slower rate than in urban areas
and that deployment of broadband services is less likely to occur in remote
areas outside of rural towns than in such towns. NTIA and RUS attributed
these trends to the economics of serving rural areas, but they indicated
that DSL service, cable modem service, and emerging wireless Internet
services hold the promise of serving rural areas at higher rates in the
future.

Although consumers? choice of companies providing transport to the Internet
is expected to increase, consumers? choice of ISPs could simultaneously
diminish in the next few years. At present, there are approximately 7,000
ISPs in the United States. 39 One study issued in 1998 found that 92 percent
of American consumers had seven or more ISPs to chose from in their local
areas. 40 In large degree, the considerable consumer choice in the ISP
market is related to the fact that most consumers obtain physical transport
to the Internet over the telephone network. In the coming years, as
consumers make the transition to alternative transport modes- those that are
not readily designed to support multiple ISPs (such as cable and wireless
networks) and that are not required by law or regulation to do so- consumers
may find they have diminishing ISP choices. In particular, their choice may
be limited to an ISP affiliated with their transport provider or to the set
of ISPs that successfully negotiated a contract with the transport provider.
In fact, our survey found that one of the reasons broadband users commonly
cited for choosing an ISP was that, in effect, they had had no choice- the
ISP came bundled with the physical transport service.

39 Many of these serve only specific local or regional areas, so each
consumer?s choice of ISPs is actually much more limited, assuming the
consumer wants to obtain service from an ISP that maintains facilities in
the local area. One national ISP- America Online- has by far the largest
market share in the ISP market.

40 Tom Downes and Shane Greenstein, ?Do Commercial ISPs Provide Universal
Access?? in Competition, Regulation, and Convergence: Current Trends in
Telecommunications Policy Research, eds. Sharon Gillett and Ingo Vogelsang
(Mahwah, N. J.: Lawrence Erlbaum Associates, 1999), pp. 195- 212.

The experts and industry officials we interviewed differed over whether a
reduction in ISP choice- if it occurs- constitutes a public policy concern.
Some experts felt that a highly competitive ISP market was not very
important. In particular, several of these experts noted that the ISP market
itself was an artifact of telephone regulations- that is, no specific policy
was undertaken to promote the ISP market per se, but the market developed
because of the particular manner in which the telephone network was
structured and regulated. 41 Many of these experts stated that a reduction
of consumer choice at the ISP layer is not a concern as long as there is
adequate competition among companies providing physical transport to the
Internet. 42 Others, however, expressed concern about potential
concentration in the ISP market and suggested that consumers will be better
served by having choices among both Internet transport providers and
multiple ISPs. Several experts we spoke with also stated that ISP choice is
important, in part, because of the changing nature of that industry. In
particular, these experts noted that many ISPs are making a transition from
providing only a simple ?on- ramp? to the Internet to providing content and
applications. A potential ramification of this transition is greater control
by ISPs over what content is prominently displayed to consumers. Therefore,
greater consumer choice among these ?content aggregators? is seen by some as
important because it can enhance consumers? access to varied content. Thus,
these experts contend, if consumers dislike the content choices of
particular ISPs, it is important that they have the option of ?voting with
their feet? by switching to any of several other ISPs that may provide
alternative content choices.

41 Specifically, telephone companies have been required to provide
nondiscriminatory access to their network. Additionally, the Bell Operating
Companies (BOC) were initially prohibited from providing information
services under the 1982 AT& T consent decree. Although the BOCs are now
allowed to offer information services, they still may not transport data (or
voice) traffic across local access and transport area (LATA) boundaries
originating in their service regions without FCC approval.

42 FCC has stated in the past that no action was needed to promote open
access since multiple means of gaining access to the Internet will be
available to consumers.

Consumers Generally Despite the prospect for a decrease in consumers? choice
of ISPs in the

Have Substantial future, many market participants and industry experts we
spoke with told

us that consumers currently have, with few exceptions, full access to and
Choice of Portals,

broad choice of portals, applications, and content, both on the Internet
and, Applications, and

in many cases, as part of their ISP subscriptions. There was wide Content;
but Internet

consensus that ISPs generally have a strong competitive incentive to provide
extensive access to features, functions, and content. Generally no

Service Providers Can limitations on access to portals were described to us.
In terms of

Influence Those applications, some consumers may find they cannot use an
application

unless they register or pay a required fee and specific applications may
only Choices

be available to subscribers of a particular ISP. For example, some chat
rooms require users to register before participating in online
conversations. As for content, with over a billionWeb pages available on the
Internet, consumers have access to enormous amounts of content. 43 However,
consumers may not realistically be able to access certain ?bandwidth-
intensive? content, such as video materials, if they are using a form of
narrowband transport that would make downloading such content prohibitively
slow. Also, some consumers may actively choose to employ filtering
technology to block access to particular types of content (such as
pornographic material) or may be unable to access some content without first
paying a fee or registering with a Web site.

43 Industry data showed that, as of January 2000, approximately 72 million
host computers were connected to the Internet. A host is any computer that
has a unique Internet address and can provide information to visitors versus
solely receiving information from other computers.

Although portals, applications, and content are widely available, some
industry participants and experts told us that ISPs can influence consumers?
choices of these items. For example, we were told that an ISP may place a
particular portal, certain applications, and links to specific content on
its home page- the first page a subscriber encounters when beginning an
Internet session with the ISP- and that this placement may influence
consumer choice. Such placement makes the features easy to find and quick to
access because an ISP can employ a common technology known as a ?caching.?
An ISP ?caches? certain popular content by storing those files on its local
server. When users click to access cached content- which will typically
include items on the home page but also could include other content as well-
it is accessible directly and quickly from the ISP?s servers, and the user
need not download the pages over the Internet. 44

Some experts expressed concern about the ISPs? influence over consumers?
choices. They noted that such influence may be subtle- consumers may not
realize that they have come to prefer certain content as a result of its
faster accessibility. Our survey findings indicate that users who access the
Internet infrequently 45 may be the most influenced by the ISP?s content
placement. In particular, we found that these users spend a greater
percentage of their Internet time- 43 (plus or minus 7) percent on average
versus 26 (plus or minus 6) percent on average for frequent users- on their
ISP?s home page. 46 Some experts also noted that consumers? loyalty to their
ISPs might strengthen the ISPs? influence. In particular, we were told that
there are nonfinancial ?costs? to consumers when they switch ISPs. For
example, consumers? e- mail addresses change whenever they switch ISPs, and
they lose the familiar applications or specific content made available by
their former ISP. 47

44 Because consumers may come to prefer cached content, caching can also
have an effect on the content provider market. In particular, content
providers have an incentive to negotiate contracts to place their content on
ISPs? home pages.

45 We are defining an ?infrequent user? to be one whose household?s online
usage is less than 10 hours per week, while a frequent user is one whose
household?s online usage is 40 hours or more per week.

46 The Precursor Group recently reported that some industry sources have
stated that nearly three quarters of the content that users view had
appeared on their ISPs? home pages. 47 These problems may be mitigated for
consumers who do not use their ISP- provided e- mail service.

Other experts expressed little concern about the ISPs? influence on
consumers. We were told that users could easily customize a home page,
opting to not even use the ISP?s home page. 48 Similarly, as users move to
always- on connections, they will be less likely to begin a session on the
home page itself and more likely to begin with whatever page they ended
their previous session on. Moreover, a few experts noted that the ISPs?
influence is mitigated by the consumers? ability to switch their ISP
service. There is evidence to suggest that some consumers readily change
ISPs. For example, a recent study noted that each month, about 5 to 6
percent of all Internet users switch to a different ISP. 49 Generally, most
experts stated that notwithstanding the possible influence the ISPs may
have, subscribers are able to access the Internet through any ISP and
thereby reach the portals, applications, and content they desire.

Observations The Internet is governed by a common set of open computer
protocols- not by a body of laws and regulations. However, consumers obtain
physical

transport to the Internet over regulated communications networks. While
consumers use Internet features and functions in a similar manner regardless
of which communications network they use to access the Internet, the
relevant laws and regulations hold different communications networks to
different rules. The capability of several networks to provide consumers
with an identical service- physical transport to the Internet- has resulted
in a regulatory conundrum. Should the various communications providers be
held to the same rules when providing the same service?

48 However, the Precursor Group recently reported that some evidence
suggests that about two thirds of users never change the browser ?default?
from the home page. 49 Morgan Stanley Dean Witter and Company, The Internet
Data Services Report( New York, N. Y.: 1999), p. 24.

Because of the different rules that are currently applied to the different
communications networks, the prospect exists that, as consumers make the
transition to broadband transport methods over nontelephone networks, they
could lose the extensive choice of ISPs that they generally now enjoy. That
possibility has brought the open access issue to the forefront and has
elicited calls for regulatory intervention. But federal policymakers may
determine that there is no public policy need to promote competition in the
ISP market. Or policymakers could find that market forces would adequately
satisfy such a policy objective. If it is determined that a competitive ISP
market needs to be promoted and that the expected benefits of this policy
outweigh the cost of imposing it, 50 a general policy of ?openness? for
Internet/ data services could be extended to all communications providers of
Internet transport. However, in developing such a policy, the inherent
differences of the varied network designs need to be recognized. That is, it
may not be as easy to facilitate consumer choice of ISPs over all modes of
Internet transport as it has been over the telephone network.

Many industry observers believed that after the passage of the 1996
Telecommunications Act, the telecommunications industry would ?converge,?
with telephone companies using their networks to provide video services and
cable companies using their infrastructure to compete in the local telephone
market. Today, it appears that convergence is occurring, but mostly in the
context of different communications networks being redesigned to provide
Internet access- and ultimately, many traditional communications services
are expected to flow over the Internet. Yet the Communications Act remains a
stovepiped law that addresses each service- telephone (common carrier),
cable, and radio (wireless)- separately. As the lines between providers and
services continue to blur, policymakers may increasingly face challenges-
similar to that embodied in the open access debate- in how functionally
similar services are governed over different networks. For example, the
provision of voice service using Internet technology, or ?IP telephony,? is
on the horizon. What rules will apply to such a service? Similarly, Internet
services may roll out over the broadcast spectrum or the electric utility
network, and video services similar to traditional television may be
provided over the Internet. Thus, the fundamental issues underlying the open
access debate may

50 Administrative costs could be significant. See the discussion in app. V
of the Canadian experience in implementing an open access policy and the
discussion of the difficulties in determining appropriate UNE prices in the
United States.

portend a host of complex issues and disputes yet to arise in the converging
communications marketplace.

Matter for In light of the convergence occurring in the communications
market and

Congressional the disparate regulatory treatment of functionally equivalent
services

provided over different networks, the Congress may wish to consider
Consideration

whether statutory or regulatory action is needed at this time. For example,
the Congress may wish to consider

1. amending the Communications Act of 1934 to ensure that both existing and
emerging services provided over different networks are regulated in a
comparable manner, while also recognizing the historical, commercial, and
regulatory structure of the respective communications network sectors, and
each network?s technological capabilities; or

2. directing FCC to convene a public- private advisory committee or working
group to develop recommendations on the appropriate regulation of existing
and emerging services that are functionally similar but provided over
different networks.

Agency Comments We provided a draft of this report to the Federal
Communications Commission, the National Telecommunications and Information

Administration of the Department of Commerce, and the Department of Justice
for their review and comment. FCC and NTIA officials stated that they were
in general agreement with the facts presented in the report, and provided
technical comments that were incorporated as appropriate. The Department of
Justice did not comment on the report.

We conducted our review from October 1999 through September 2000 in
accordance with generally accepted government auditing standards.

As agreed with your offices, unless you publicly release its contents
earlier, we plan no further distribution of this report until 14 days after
the date of this letter. At that time we will provide copies to interested
congressional committees; the Honorable William E. Kennard, Chairman,
Federal Communications Commission; the Honorable Gregory Rohde, Assistant
Secretary of Commerce for Communications and Information, Department

of Commerce; A. Douglas Melamed, Acting Assistant Attorney General,
Antitrust, Department of Justice; and other interested parties. We will also
make copies available to others on request.

If you or your staffs have any questions about this report, please contact
me at (202) 512- 7631. Key contributors to this report are listed in
appendix VI.

Stanley J. Czerwinski Director, Physical Infrastructure

Appendi Appendi xes xI

Scope and Methodology To respond to the objectives of this report, we
gathered information from a variety of sources, including government
officials, industry participants, financial analysts, and academics familiar
with Internet policy issues. Much of our contact with these sources was in
the form of semi- structured interviews designed to elicit responses that
would directly address the objectives of the report, although we often
obtained relevant documents from these sources as well. We also designed and
conducted an online survey of Internet users to better incorporate the views
of consumers into our report.

We interviewed officials and obtained documents from the Federal
Communications Commission, the Department of Justice, and the National
Telecommunications and Information Administration of the Department of
Commerce. We also interviewed officials from the following industry trade
associations: the National Cable Television Association; the Satellite
Industry Association; the United StatesTelecom Association; the National
Association ofTelecommunications Officers and Advisors; the National
Association of Broadcasters; and the Edison Electric Institute. We
interviewed officials from two industry coalitions: the OpenNET Coalition
and Hands Off the Internet. Also, an interview was conducted with a
representative of the Media Access Project, a representative body for
consumer interests in media policy issues.

We completed 25 semi- structured interviews with market participants. Of
these, six were with Internet service providers (ISP), most of which also
provide a portal and two of which were affiliated with cable companies.
Twelve interviews were with Internet transport providersï¿½six telephone
companies, three cable companies, two wireless companies, and one satellite
company. We had two interviews with Internet content providers, one
interview with a portal provider, and three interviews with Internet
software or hardware providers. We also met with one company planning to
broadcast content to subscribers using a system described as an ?Internet
overlay.? Responses from all the market participants, as well as the
responses from the financial analysts and academics, were compared and
contrasted. General themes were extracted from all respondents or from
various subsets of respondents and are presented throughout the report.

To obtain more detailed information on the cable ?open access? issue, we
conducted separate semi- structured interviews with 10 municipal franchising
authorities. We selected franchising authorities that had already addressed
or were currently addressing the open access debate,

usually in the context of a license transfer proceeding accompanying the
sale of the franchised cable system. To balance our inquiry, we interviewed
both franchising authorities that had reached a final decision to impose an
open access condition and those that had reached a final decision not to
impose such a condition. We also interviewed a few franchising authorities
that were debating the issue and had not reached a final decision. The
semistructured interviews collected information on what considerations, such
as pricing structures or technical requirements, have been part of the open
access discussions and decisions, as well as on the franchise authorities?
findings on the market definition of broadband Internet access. Because open
access has been mandated and is being implemented in Canada, we also
interviewed officials of the Canadian Radio- Television and
Telecommunications Commission and the Canadian cable and ISP trade
associations.

In addition to the information collected through interviews, we conducted
technical, legal, and regulatory research on the provision of Internet
access, ISPs, portals, applications, and content available on the Internet.

We developed, and contracted for, a survey of Internet users to supplement
documentary and testimonial evidence. In the survey, we asked questions
about the method of Internet access that consumers use, why consumers
selected their method of Internet access, why they selected their ISPs, what
applications consumers believe are important, consumers? patterns of use of
the Internet, the cost consumers incur for Internet services, and the
availability and ease consumers encounter when attempting to purchase
broadband Internet access. This survey was conducted over the Internet.
Participants were notified about the survey and responded to the survey over
the Internet. We selected this approach, rather than a traditional mail or
telephone survey, because we sought information from current users of
Internet services.

To provide the sample frame, 1 draw the sample, and manage the survey
operations, we contracted with NPD Group, Inc., a survey research firm. NPD
maintains a panel of approximately 400, 000 Internet users that is intended
to be representative of the Internet population. The panel consists of
Internet users who have volunteered to respond to surveys NPD conducts for
its clients over the Internet. Factors influencing the degree to which the
panel is deemed representative include demographic

1 A sample frame is a list from which a sample can be drawn.

information and usage patterns. We did not evaluate whether NPD?s panel is
representative of the Internet population.

We used information from existing documentary evidence and preliminary
interviews to develop the survey instrument. The survey instrument was
pretested by 34 randomly selected members of NPD?s panel. The pretest
allowed us to identify the existence of unclear portions of the survey
instrument and potential biased questions. Additionally, the pretest was
conducted on NPD?s Internet- based application, thus allowing us to assess
whether the survey instrument performed in an acceptable manner on NPD?s
online application.

The survey was available to participants over an 18- day period (Apr. 21,
2000, through May 8, 2000) on NPD?s secure Web site. Participants were
notified by e- mail that a survey was available to be completed and could
complete it any time during the period. A total of 1,225 people were
notified. A total of 604 people responded to the survey (a 49.3- percent
response rate). Of the respondents, 97 were excluded because they were not
the households? primary decisionmakers regarding Internet access. This left
507 valid responses (41.4 percent of the sample).

The sample frame determines the population to which we can generalize the
survey results. For our survey of Internet users, the sample frame is
intended to be representative of the U. S. Internet user population. While
demographic and usage patterns for survey participants are intended to be
representative a specific U. S. Internet user population, some biases might
be present because participants are volunteers.

Because we used a sample to develop the estimates of Internet
characteristics presented throughout this report, each estimate has a
measurable precision, or sampling error, that may be expressed as a plus/
minus figure. A sampling error indicates how closely we can reproduce from a
sample the results that we would obtain if we were to take a complete count
of the population we are analyzing using the same measurement methods. By
adding the sampling error to and subtracting it from the estimate, we can
develop upper and lower bounds for each estimate. This range is called a
confidence interval. Sampling errors and confidence intervals are stated at
a certain confidence level- in this case, 95 percent. For example, a
confidence interval at the 95- percent confidence level means that in 95 out
of 100 instances, the sampling procedure used would produce a confidence
interval containing the universe value we are estimating.

We will publish a more detailed report on the findings of the Internet user
survey in early 2001.

Appendi xII

Definition of Internet Access Market Unclear This appendix provides
information on (1) whether narrowband and broadband Internet access are in
the same or different economic markets and (2) whether the cable industry is
dominating the broadband Internet market, if it is a distinct economic
market.

Views Differ on The issue of whether narrowband and broadband Internet
technologies are

Whether Broadband part of the same market or are in separate economic
markets has arisen

recently in two different contexts. The issue arose in theAT& T-MediaOne and
Narrowband

merger because of the combined company?s interests in both Excite@ Home
Internet Access Are

and Road Runner, the two largest cable modem ISPs. The Department of Part of
the Same

Justice argued that narrowband and broadband are different markets from a
content provider?s perspective. For a broadband content provider,

Market or Are Different narrowband is not a good substitute for broadband
because much of the

Markets broadband content will not be readily accessible or attractive to

narrowband customers. Broadband content providers therefore need access to
ISPs that provide service to customers with broadband connections. Since
narrowband and broadband access are not good substitutes from the content
provider?s perspective, the Department of Justice found these to be separate
economic markets for purposes of its analysis of the AT& T-MediaOne merger.

The market definition issue has also arisen in the open access controversy
discussed earlier in this report. In the open access controversy, however,
there is a consumer perspective to the market definition issue. The question
here is whether consumers consider narrowband and broadband technologies
good substitutes for one another. Some industry participants and experts
have suggested that cable firms should be required to make it possible for
multiple ISPs to serve cable modem customers because cable currently
dominates what may be a unique economic market- the broadband Internet
market. The concern is that, ultimately, this dominance could harm consumers
if competition is reduced in the vertically related ISP industry. This view
hinges on an assumption that the broadband market is a unique, or
?relevant,? economic market from a consumer?s perspective.

Determining whether broadband Internet technologies constitute a unique
economic market requires an evaluation of the relevant product market and
geographic market boundaries. In particular, this analysis would examine
whether a narrowband Internet connection would be considered a close enough
substitute for a broadband connection that some broadband consumers, if
faced with a measurable rise in the price of broadband, would choose to
switch to a narrowband connection. Factors that would

influence the outcome of the analysis include the attributes of the services
and the geographic area where the services are available. When an
alternative product is similar to a given product from the consumers?
perspectives and is available in reasonable proximity, the price of the
given product is likely to be constrained by the availability of the
substitute product. But when an alternative product is perceived as fairly
different or is not readily available in the same geographic area, prices
are less likely to be constrained by the available substitute.

Some market participants and experts with whom we spoke believe that
narrowband and broadband technologies constitute a single market. The
general perception among these individuals is that both broadband and
narrowband consumers are purchasing the same basic product- physical
transport to the Internet- and that these different types of connections
simply provide different speeds, or quality levels, of that transport.
Proponents of this view told us that the price of a narrowband connection
constrains the price of a broadband connection- that is, the availability of
narrowband service at a relatively low price prevents broadband providers,
such as cable companies, from charging prices considerably higher than the
cost of providing the service. This interrelatedness in pricing would imply
that consumers consider narrowband and broadband to be substitutable
services.

Other market participants and experts, as well as several municipal
officials, told us that narrowband and broadband technologies constitute
different markets. Some argued that once consumers have purchased a
broadband connection, most will be unwilling to return to narrowband- even
if the price of their broadband were to rise. According to some standard
techniques for determining the boundaries of a ?relevant? market, consumers?
unwillingness to return to narrowband after, for example, a 5percent or more
increase in the price of a broadband connection implies that broadband and
narrowband technologies are distinct services. In support of this view,
several of these experts stated that narrowband and broadband technologies
provide different types of services to consumers. For example, some argued
that services and applications available through broadband are not practical
through narrowband (e. g., video streaming). Thus, substitutability between
these two types of connections is reduced by the fundamental differences
between these services.

While views currently differ on whether narrowband and broadband access are
different markets, some of the experts we spoke with indicated that these
technologies could become more clearly different in the future.

Because of the limited broadband content and applications currently
available, consumers purchasing broadband are generally only getting
additional speed and the always- on capability that broadband offers.
However, several companies are developing content and applications
specifically for the broadband market. An example is the streaming video
that combines television- like features with data and interactive features
common to the Internet. Thus, the functionality of narrowband and broadband
will become increasingly different when new content and applications become
more widely available to broadband consumers.

Cable Is the Leading Whether the cable industry currently dominates the
Internet transport

Provider in the market depends on the definition of the relevant market. If
narrowband

and broadband constitute a single market, cable firms are not dominant. In
Broadband Market but

our survey of Internet users, we found that about 9 percent of the May Not
Dominate

respondents subscribe to cable modem Internet service, while the vast This
Market in the

majority- 88 percent- obtain a narrowband telephone connection to the
Internet. However, if broadband is a distinct market, cable firms do

Future currently hold a leading position in that market. In the same survey,

approximately 71 percent (plus or minus 12 percent) of consumers choosing a
broadband technology use cable modem service.

Even under the assumption that broadband is a unique market, cable will not
necessarily maintain a market lead in the future. Many experts noted that
the broadband market is nascent. While the cable industry has a considerable
lead at this early stage, digital subscriber line (DSL) service and various
forms of wireless transport modes are being deployed at a rapid pace.
Therefore, cable may not maintain its lead. In fact, most experts with whom
we spoke stated that no particular broadband technology would dominate the
market in the future. Similarly, several forecasts of future broadband
deployment predict that neither DSL nor cable modem service will dominate
the broadband market in the future.

Analyses examining broadband deployment often look at aggregate data across
the entire United States. In individual markets- for example, within a
particular city- markets can be more concentrated than is the case at the
national level. It is possible that even as DSL and wireless providers
deploy their services, cable modem service will maintain a leading position
in some local Internet transport markets. However, it is also possible that
cable may have no presence in some local market areas and DSL could be the
leading broadband provider in those areas. Thus, even though DSL and
wireless broadband technologies may become more prevalent over the

next few years, geographic areas may remain where a particular broadband
option dominates.

Wireless Internet Access Technologies and

Appendi xIII

Regulations This appendix provides information about certain wireless
technologies that will provide physical transport to the Internet.
Specifically, this appendix discusses (1) the technologies of various
wireless networks and (2) the regulatory framework governing wireless
technologies.

Wireless Internet A variety of wireless communications networks are expected
to provide

Access Technologies Internet transport, although most of these technologies
are just beginning

to be deployed. In wireless networks, information is transmitted over radio
frequencies, which can engender certain economic advantages over wireline
connections. Three basic types of wireless technologies are expected to be
used to provide Internet transport to consumers: satellite systems, fixed
wireless networks, and mobile wireless networks. A fourth type of wireless
network- the broadcast spectrum- may also be used in the future to provide
physical transport to the Internet.

* Satellite. Satellite systems can provide services to users by transmitting
information over radio frequencies between an orbital satellite and an earth
station reception dish. A wired connection transmits the signal from the
satellite reception dish to the home computer. Today, transport to the
Internet over a satellite system is available throughout the United States
over the DirecPC system, which provides one- way transmissions from the
satellite to the user, and a telephone line connection is used for the
return path. Several two- way satellite systems are being developed, some of
which will provide Internet transport directly to end users. We were told
that because satellites have a broad ?footprint?- in many cases, covering
the entire continental United States- these systems can be particularly
beneficial in bringing services to remote or rural areas that are unlikely
to obtain services from wireline providers. * Fixed wireless technologies.
Fixed wireless systems provide services

to users through the transmission of information between base station towers
and antennas that are affixed at particular locations (e. g., businesses and
residences). The limitations of this type of system are largely due to the
need for antennas to ?see? the transmitting tower- hills, foliage,
buildings, or other obstructions can block this necessary line of sight.
Various types of fixed wireless systems exist, but two systems using
different frequency bands are being designed and deployed to provide last-
mile Internet transport. * One fixed wireless system- multichannel
multipoint distribution

service (MMDS)- uses spectrum that was previously used for wireless cable
services. In 1998, FCC authorized these systems to

provide two- way services. MMDS spectrum can be used to transmit information
over fairly long distances- up to 35 miles. 1 MMDS for Internet access is
being rolled out mostly in large towns and small cities. * Another fixed
wireless system uses higher- frequency bands that have

shorter transmission ranges. One of these, local multipoint distribution
service (LMDS), has a transmission range of about 3 to 5 miles and is
expected to be deployed mostly in urban areas. * Mobile wireless
technologies. Mobile wireless technologies- such as

cellular telephones- enable subscribers to use communications services as
they move from one location to another. As with other wireless technologies,
information is carried over radio frequencies, in this case, between a
mobile handset and transmitting towers located throughout an area. In mobile
wireless systems, the connection from the handset will be ?handed off? to
the tower that is closest at any given time. Mobile telephone service- which
is at present narrowband- is being adapted to provide some limited Internet
capabilities. Future mobile wireless Internet transport methods are being
developed that may provide broadband functionality, and FCC is expected to
allocate and auction the necessary spectrum for these services. Many
industry representatives and experts suggest that accessing the Internet
over mobile wireless systems is likely to become extremely popular. *
Broadcast. With the conversion of over- the- air broadcast television

services from analog to digital, broadcasters will have expanded bandwidth
capabilities for transmission of data over the broadcast spectrum.
Currently, according to FCC, broadcasters are concentrating on high- end
one- way transmissions to some residential customers. Twoway services over
the broadcast spectrum are also possible in the future.

Regulation of Wireless FCC governs wireless providers in two principal ways:
control over the

Networks allocation of spectrum to service providers and control over what
types of

services may be transmitted over certain spectrum bands. In recent years,
FCC has allowed more flexibility in how allotted spectrum is used. This
general flexibility is apparent in the regulatory environment governing data
transmission by several types of wireless providers:

1 One technology expert we spoke with, however, noted that interactive MMDS
may only have a transmission range of 8 to 10 miles and that LMDS spectrum
used interactively may only have a transmission range of about 1 to 3 miles.

* Mobile wireless providers, such as those providing cellular telephone
service, can use their spectrum to provide data services without
restrictions. * MMDS and LMDS operators have obtained changes in FCC rules

enabling them to provide two- way data services and enjoy general flexible-
use rules on their transport of data. * Although satellite operators today
generally offer consumers

subscription video programming services, they do not fit the definition of
?cable? and are therefore not subject to title VI regulation. While these
providers are subject to some public interest programming obligations, 2
they are otherwise free to use their spectrum to provide a mix of services,
including data.

Broadcasters, as they make the transition to digital broadcasts, were given
the right by the Congress in the 1996 act to offer ?ancillary or
supplementary services? over their digital spectrum. FCC has stated that
such services could include, but are not limited to, computer software
distribution, data transmissions, teletext, and interactive services. FCC
has not imposed a requirement that the ancillary and supplementary services
be broadcast- related and has left the door open for broadcasters to offer
Internet- based applications.

2 Additionally, direct broadcast satellite providers offering local
broadcast stations will become subject to must- carry rules on Jan. 1, 2002.
Recently, these rules have been challenged in court.

Telephone Laws and Regulations Promote Consumer Choice of Internet Service

Appendi xIV

Providers This appendix provides more detailed information on the key laws
and regulations governing the use of the telephone network for the provision
of Internet access. In particular, this appendix discusses (1) the long
history and traditions of the laws and regulations governing the telephone
industry and (2) the effect of the telephone laws and regulations on the
development and rapid growth of the ISP industry.

Telephone Laws and Although the first federal law governing the nation?s
telephone industry

Regulations Have a was not enacted until more than 30 years after Alexander
Graham Bell?s

1876 landmark invention of the telephone, state and local governments
Lengthy History

began to adopt regulations governing various aspects of local telephone
service soon after the device was introduced to the market. But the
industry?s rapid growth prompted the Congress to enact the Mann- Elkins Act
of 1910, a law empowering the Interstate Commerce Commission to regulate
interstate telephone service. From that time forward, telephone companies
have been treated as ?common carriers,? which requires them to provide
service on request at just and reasonable rates without discrimination or
undue preference. Inherent in these principles was the need for
interconnection among telephone companies to provide a seamless and
ubiquitous infrastructure for voice services. These principles were codified
in the Communications Act of 1934 and preserved by the Telecommunications
Act of 1996- the two major telecommunications laws subsequently enacted in
the 20th century.

Because a single company- AT& T- dominated the local, long- distance, and
telephone equipment manufacturing markets for several decades, regulation
took the form of ensuring that services over AT& T?s network were available
at the lowest cost to a maximum number of consumers. Starting in the 1950s,
competitors began to challenge AT& T?s market dominance in several
submarkets of the telecommunications industry. The government?s regulatory
approach then began to evolve from one focused on oversight of a monopoly to
one that attempted to foster increased competition through broader
enforcement of common carrier requirements. For example, FCC ruled in 1968
that independently manufactured telephone equipment could be attached to a
telephone line at the customer?s premises as long as it did not impair the
network. 1 This regulatory approach was generally extended to the treatment
of data transmissions over the telephone network.

The Telecommunications Act of 1996 and its implementing rules imposed a
variety of conditions- many exclusively on incumbent telephone carriers-
aimed at promoting competition in the local telephone market. Some of the
key market- opening provisions include (1) interconnection- the requirement
that all telecommunications carriers interconnect their networks with those
of other telecommunications carriers; (2) resale- the requirement that all
local telephone companies offer their service for resale to competitors at
wholesale prices; and (3) unbundled network elements (UNE)- the requirement
that incumbent local telephone companies sell designated specific parts
(that is, ?elements?) of their networks to competitors at cost- based rates.
2 In addition, FCC determined that the highfrequency portion of incumbents?
lines are UNEs and thus must be shared with competitors who want to use that
portion to provide digital subscriber line (DSL) service.

1 FCC?s Carterfonedecision is viewed as key to the emergence of the Internet
because of the precedent it set. Specifically, because that decision allowed
end users to attach equipment not manufactured by the telephone company to
their telephones, it also allowed residential and business customers to
connect computer modems to their telephone lines.

2 Both the local telephone line connecting each customer to a central office
facility (known as the ?local loop?) and the high- frequency portion of the
line (used for high- speed DSL service) have been designated as UNEs. In AT&
T v. Iowa Utilities Board, 525 U. S. 366 (1999), the U. S. Supreme Court
found that FCC, in determining which network elements must be unbundled, had
not fully considered the 1996 act?s ?necessary and impair? standard. FCC
reissued rules consistent with the Court decision in September 1999 and
specified the UNEs that incumbents must offer for sale to competitors.

An increasing number of consumers can now choose among carriers for voice
service. Since a consumer?s telephone service provider can also be the
consumer?s provider of transport to the Internet, these market- opening
requirements may also create competition among Internet transport providers.
At this time, competition in the provision of Internet transport over the
telephone network is mostly occurring in the broadband segment of the
market. In particular, FCC reports that nearly 20 percent of DSL subscribers
purchase their DSL from a transport provider other than the incumbent local
telephone company.

Telephone Laws and Many of the industry participants and experts we spoke
with told us that

Regulations Are the laws and regulations governing telephone networks for
nearly three

quarters of a century are key to understanding the regulatory treatment of
Credited With the

Internet services over this medium. In particular, we were told that
Development of the

telephone laws and regulations were important to the development and ISP
Industry

rapid growth of the ISP industry. Several key regulatory, judicial, and
legislative actions taken over the past 30 years fostered the development of
a competitive market that today totals nearly 7,000 national, regional, and
local ISPs, offering a variety of applications and content. Key policy
actions that fostered the ISP industry?s growth include the following:

* Computer Inquiries. During the 1960s, policymakers began contemplating how
data transported over the telephone network should be regulated. In a series
of Computer Inquiryproceedings, FCC split the online world in two: a
physical transport layerthat is regulated under title II of the
Communications Act and a data processing layerthat is unregulated. 3 To help
ensure that the telephone companies could not discriminate against
competitors or cross- subsidize their own affiliate enterprises- which would
reduce competition in the data processing layer- FCC closely regulated the
ability of telephone companies to provide data processing services. 4 Today,
?data processing? services are generally referred to as ?information
services,? a category that includes the services of ISPs. As one expert
explained it, without these early limitations on telephone companies?
provision of information services,

3 FCC originally referred to the transport layer as ?basic services? and to
the data processing layer as ?enhanced services.? 4 Limitations on telephone
companies? provision of data processing (or information) services were first
established in a 1956 consent decree.

consumers today would likely call their local telephone provider to order
ISP service in the same way they now order Call Waiting or Caller ID.
Instead, new independent companies entered the market to provide information
services, leading to a highly competitive ISP market with many types and
sizes of ISPs available to consumers. * Treatment of the Bell Operating
Companies. The 1982 consent

decree that resulted in AT& T?s divestiture of the Bell Operating Companies
(BOCs) imposed prohibitions on the lines of business in which the newly
formed BOCs could engage. The BOCs were prohibited from providing long-
distance telephone service, manufacturing telephone equipment, and providing
information services. 5 The prohibition on information services was deemed
necessary because of the BOCs? incentive and ability to discriminate against
other information service providers. The information services ban was lifted
in 1991; however, the Telecommunications Act of 1996 required the BOCs to
form separate affiliates for the provision of information services- such as
ISP services- in certain cases. The requirement for separate affiliates
expired in 2000, but BOCs still must get permission to provide data services
across local access and transport area (LATA) boundaries within their
service regions.

5 The term ?information service? was defined by the court in U. S. v.
American Telephone and Telegraph Co., 552 F. Supp. 131, 179 (D. D. C. 1982)
but was later defined by the Congress in the Telecommunications Act of 1996
to mean ?the offering of a capability for generating, acquiring, storing,
transforming, processing, retrieving, utilizing, or making available
information via telecommunications, and includes electronic publishing, but
does not include any use of any such capability for the management, control,
or operation of a telecommunications system or the management of a
telecommunications service.?

* Treatment of ISPs under the access charge regime and the Universal Service
Program. Access charges are fees paid to local telephone companies for calls
that originate or terminate on their facilities. In a 1983 proceeding and
again in 1997, FCC chose not to impose access charges on ISPs, stating that
these per minute charges would have a deleterious effect on the Internet and
on e- commerce. Similarly, FCC has found that ISPs do not need to pay
directly into the ?universal service fund?- a fund that was established to
ensure the delivery of affordable telecommunications services to all
Americans. 6 The fact that ISPs pay no per minute access charges or direct
universal service fees has helped them keep their costs down and has been an
important factor underlying ISPs? flat- rate pricing plans.

6 Federal and state regulators have had a long tradition of subsidizing
basic residential telephone service with revenues gained by charging rates
that exceed cost for some users or some other telecommunications services.
The ubiquity and average low cost of basic telephone service- a result of
the long- standing policies to promote universal service- have made
narrowband dial- up telephone Internet access an option for nearly all
Americans. This concept of ?universal service? was maintained and expanded
by the Congress when it passed the 1996 act, and in several respects, the
policies underlying universal service have helped to promote the use of the
Internet. Although ISPs do not directly pay universal service fees, they do
so indirectly when they purchase underlying telecommunications services.

Lack of Clarity on Internet Services in Cable Laws and Regulation Has
Resulted in ?Open

Appendi xV

Access? Debate and Litigation This appendix provides more detailed
information on the key laws and regulations governing cable networks. In
particular, this appendix discusses (1) the relatively short history of the
laws and regulations governing the cable industry, (2) how the absence of a
determination of the legal treatment of Internet services over cable systems
has led to protracted debate and litigation over ?open access,? and (3) the
experience with ?open access? in Canada.

Laws and Regulations The federal laws and the associated FCC regulations
governing the cable

Governing the Cable industry are very different from those governing the
telephone industry.

The first explicit statutory grant of FCC authority over the cable industry
Industry Have a Short

was in the 1984 Cable Act, 1 which added title VI to the Communications
History

Act. This act, and the subsequent 1992 Cable Act, brought the cable industry
under the regulatory control of both FCC and local municipal franchising
authorities. These acts generally recognize that cable operators should have
significant control over the content carried on their systems- unlike
telephone carriers, which generally provide a simple transport function.
Title VI explicitly states that cable companies are not to be treated as
common carriers in their provision of cable services. 2 As long as the
service provided is defined to be a ?cable service,? cable companies are
free from the requirements that apply to telecommunications carriers under
title II of the act, such as the requirements for interconnection and the
sale of unbundled network elements to competitors.

Confusion Over the Whether the provision of cable modem service is governed
by any

Legal Treatment of particular laws and regulations hinges on what service
definition, if any, is

applicable. Considerable debate exists over whether the definition of a
Cable Modem Service

?cable service?- first included in the 1984 Cable Act and later modified in
Has Produced Disputes

the Telecommunications Act of 1996- is broad enough to include Internet Over
?Open Access?

access over a cable system. A ?cable service? is defined as ?the one- way
transmission to subscribers of video programming or other programming

Policies service together with subscriber interaction, if any, which is
required for

selection or useof such programming? (emphasis added). The words ?or 1 Prior
to the 1984 act, FCC regulated cable under its ancillary jurisdiction. 2
Under 47 U. S. C. 532( g), in certain circumstances, FCC might exercise more
control over cable companies. In a recent notice of inquiry, the Commission
is asking whether these circumstances exist.

use? in the definition were added by the 1996 act. Interpretations of the
meaning and implications of this change in the cable service definition
vary. These differing views have been expressed primarily within the context
of a policy debate known as ?open access?- the issue of whether cable
operators offering cable modem service should be required to allow multiple
nonaffiliated ISPs nondiscriminatory access to the cable system so they may
offer their own cable modem service to subscribers.

Proponents of open access- those who favor a requirement that cable
operators open their systems to multiple nonaffiliated ISPs- have split over
what service definition they believe should apply to cable modem service.
Some open access proponents, particularly some municipal franchise
authorities, argue that it is a ?cable service? and thus subject to any
local or federal open access mandates. Other open access proponents believe
the service to be more correctly defined as either an ?information service?
or a ?telecommunications service? because it is effectively the same as the
broadband transport and service provided over the telephone network.
According to those who believe cable modem service should be defined as a
telecommunications service, regulatory parity should be achieved by placing
nondiscriminatory interconnection requirements and obligations on cable
operators. In addition to their definitional arguments for open access,
proponents also contend that the Internet is based on open,
nondiscriminatory protocols and that the cable industry model of selling a
bundled ISP violates the inherent openness and competitiveness of the
Internet.

Opponents of open access- those who believe that market forces should
determine how the cable industry structures cable modem services- are also
split in their views on the applicable definition for cable modem service.
Many cable operators view cable modem service as a ?cable service? in which
they exercise considerable control over choice of content, as with video
programming. AT& T has stated that cable operators purchase rights to
programming (or produce it themselves) and then sell that programming to
subscribers, whether the programming ?is CNN, HBO, or an interactive online
cable service that includes Internet access.? 3 Also, some cable operators
and other open access opponents argue that the two words-? or use?- added to
the legal definition of ?cable service? in the

3 Reply Comments of AT& T Corp. and MediaOne Group, Inc., In the Matter of
Applications for Consent to the Transfer of Control of Licenses, MediaOne
Group, Inc., Transferor, to AT& T Corp., Transferee, CS Docket No. 99- 251,
filed Sept. 17, 1999, at 122.

1996 act were meant to expand that definition to include interactive
offerings such as cable modem service. In support of this argument, they
point to the 1996 act?s Conference Report, which states, ?The conferees
intend the amendment [of the definition of cable service] to reflect the
evolution of cable to include interactive services such as game channels and
information services made available to subscribers by the cable operator, as
well as enhanced services.? Open access opponents contend that cable modem
service is just such an ?interactive? and ?enhanced? service. However,
should cable modem service be defined as an ?information? or
?telecommunications? service, opponents of open access argue that local
franchise authorities clearly have no authority to mandate open access.

Besides the definitional issue, open access opponents argue against a
mandate for several other reasons. First, they argue that the federal
government should avoid any such requirement or risk stifling investment in
cable system upgrades and slowing the deployment of cable modem service.
Second, they note that there would be many costly administrative problems in
applying an open access regime. 4 Finally, they note that, as a practical
matter, cable modem subscribers are not denied access to alternative service
providers because they may simply ?click through? the affiliated ISP to
reach the content of a nonaffiliated ISP over the Internet.

Recently, several courts have addressed the issue of the service definition
of cable modem service and have reached different conclusions. Part of the
difficulty of defining the service is the fact that cable modem service is
not exactly analogous to Internet services provided over the telephone
network because cable combines two levels of services- transport and ISP-
that are provided separately on the telephone side. The reason this
definitional issue is so fervently debated is that application of a specific
definition may have significant ramifications as the following illustrates:

4 The most difficult administrative issue would probably be pricing. Many
experts we spoke with noted that the government would likely have to be
involved in developing and enforcing a pricing schedule for wholesale cable
modem service. This could be difficult, however. For example, the pricing of
UNEs for telephone services under the 1996 act has led to protracted legal
disputes. Most recently, the United States Court of Appeals for the Eighth
Circuit stated that FCC?s total element long- run incremental cost (TELRIC)
pricing model violates the 1996 act. Thus, nearly 5 years after the passage
of the act the appropriate pricing for UNEs is still unclear. Similarly, the
determination of wholesale rates for cable modem service in Canada was
highly contentious and took considerable time.

* Defining Internet access over a cable system to be a ?cable service?
subjects it to the regulatory treatment of existing cable services, such as
video programming or some interactive services offered over cable. Two
different federal district courts have said that cable modem service was a
?cable service,? yet these courts reached different conclusions about
whether a municipal franchising authority could mandate open access for
nonaffiliated ISPs. 5 One of these courts, in AT& T Corp. v. City of
Portland, was then overruled by the appeals court, which found cable modem
service not to be a ?cable service? at all. 6 * Defining Internet access
over a cable system to be a

?telecommunications service? subjects it to the regulatory treatment of the
transport function in the telephone industry. This would mean that title II
and common carriage obligations would apply, unless FCC decided to forbear
application of these rules under title I, section 10 of the Communications
Act. The appeals court in the Portlandcase, in overruling the lower court,
held that cable modem service is not a ?cable service.? The court went on to
say that cable modem service is a ?telecommunications service? because the
provider controlled all the transmission facilities between its subscribers
and the Internet. The decision currently leaves open the door for
unaffiliated ISPs to attempt to demand carriage onAT& T?s cable system under
common carrier rules. * Defining Internet access over a cable system as an
?information service?

aligns it with the treatment of ISPs under telephone laws and regulations-
where ISPs and other information services have remained unregulated by FCC.
However, if a cable company was found to be a telecommunications carrier for
some other reason (for example, if it was also offering local phone service)
then it might have to offer transport on a nondiscriminatory basis to other
unaffiliated information service providers because it is providing its own
affiliated information service. The Portlandappeals court said the ISP part
of cable modem service was an information service and indicated that this
portion of the service alone would not be subject to regulation. In another
court case that actually dealt with pole attachment regulations rather than
open access mandates, the U. S. Court of Appeals for the Eleventh Circuit
stated that cable modem service was not a ?cable service or a

5 AT& T Corp. v. City of Portland, 43 F. Supp. 2d 1146 (D. Or. 1999);
MediaOne Group v. County of Henrico, 97 F. Supp. 2d 712 (E. D. Va. 2000). 6
AT& T Corp. v. City of Portland, 216 F. 3d 871 (9th Cir. 2000).

telecommunications service? and implied it might be considered an
information service. 7

Until recently, FCC had chosen only to monitor the competitive environment
involving Internet transport services and the deployment of broadband,
preferring to let market forces determine how the nascent industry evolved.
FCC?s previous decision to not comment on the service definition may have
been motivated, in part, by its desire not to impose a regulatory regime on
this burgeoning broadband technology for the purpose of promoting
competition in the ISP market. Among its public pronouncements on the
matter, FCC has stated that it found evidence showing early competition
among Internet transport providers- telephone, cable, and wireless carriers-
and concluded that developing competition at the transport level indicated
that no action was needed to address competition at the ISP level. 8 In
deciding against open access in the licensetransfer proceeding of TCI and
AT& T, FCC relied on the assurances of the two companies that cable modem
subscribers could ?click through? their affiliated ISP to reach the services
of a competing ISP. In addition, FCC?s Cable Services Bureau has stated that
consumer choice of ISP on cable systems will likely come about without an
open access mandate because ?customer demand for choice ultimately will
compel cable operators to open their systems to unaffiliated ISPs.?

FCC released a notice of inquiry on September 28, 2000, seeking ?to create a
legal and policy framework for cable modem service and the cable modem
platform that will foster competitive deployment of new technologies and
services by all entities, including cable operators and Internet service
providers (ISPs) alike.? 9 In the notice, FCC seeks comment on the
appropriate service classification of cable modem service, on whether open
access is a desirable policy goal, and if so, what are the most appropriate
means of achieving that goal. FCC also stated that it may find regulatory
intervention to be unnecessary if market incentives continue to

7 Gulf Power Company v. FCC, 208 F. 3d 1263 (11th Cir. 2000). 8 In the
Matter of Inquiry Concerning the Deployment of AdvancedTelecommunications
Capability to All Americans in a Reasonable and Timely Fashion, and Possible
Steps to Accelerate Such Deployment Pursuant to Section 706 of the
Telecommunications Act of 1996, CC Docket No. 98- 146, Report, FCC 99- 5
(released Feb. 2, 1999) at paragraph 101.

9 In the Matter of Inquiry Concerning High- Speed Access to the Internet
Over Cable and Other Facilities, GN Docket No. 00- 185, Notice of Inquiry,
FCC 00- 355 (released Sept. 28, 2000) at paragraph 2 ( High- Speed Access
Inquiry).

work to foster a competitive environment. Alternatively, the Commission
stated, it may choose to initiate a rulemaking proceeding or forbear from
enforcing statutory and regulatory requirements. 10

Canadian Authorities As with cable modem service in the United States,
Canadian cable firms?

Have Imposed ?Open affiliated ISPs are integrated with the local transport
function. Concerned

about consumers? choice of ISPs on the cable network, the Canadian Access?
Requirement

Radio- Television and Telecommunications Commission (CRTC) issued a key
decision in 1996 determining that broadcast carriers? (i. e., cable
companies) nonprogramming services- such as cable modem service- constitute
?telecommunications services? under Canadian law. Over the course of the
next 2 years, CRTC developed and ultimately issued a further decision
prescribing a regulatory approach to govern cable modem Internet access and
to require cable providers to facilitate access by multiple ISPs. At the
direction of CRTC in this decision, the Canadian Cable Television
Association initiated a technical trial to facilitate third- party Internet
access to cable systems. Although CRTC refrained from imposing some
requirements on rates and terms of service, the Commission determined that
it would be appropriate to set tariffs- or the price- of high- speed
Internet services- cable modem and DSL services- once a carrier has the
ability to provide competitive ISPs with access to facilities. 11 In 1999,
CRTC called on the large cable companies to develop cost studies and file
proposed tariffs for the use of cable facilities by nonaffiliated ISPs.

At the time of our first meetings with Canadian stakeholders in April 2000,
the Canadian Cable Television Association technical trial was still in
progress. As to the number of ISPs that can technically gain access to cable
systems, we were given conflicting information. On one hand, we were told
that the objective of the CRTC decision was for an unlimited number of ISPs
to be able to offer service over the cable platform; on the other hand, we
were told that a cable system can facilitate at most six to seven
nonaffiliated ISPs. Another disputed issue involved the tariffs cable
companies would likely propose for third- party ISP access to the cable

10 High- Speed Access Inquiryat paragraph 50. 11 Because CRTC found that the
Internet services at the retail level were competitive, it forbore from
exercising much of its authority on the rates and terms on cable companies?
provision of retail Internet services despite the technical infeasibility of
immediate access of nonaffiliated ISPs to cable systems. CRTC set interim
rates and, in a separate decision, permitted the resale of cable modem
Internet access services.

platform. In particular, the Canadian cable companies and the Canadian ISP
industry appeared to have very different views on the appropriate wholesale
price of access to the cable system. These differences stemmed, in part,
from varying views on the appropriate costs that cable companies should be
allowed to recoup through their rates. As evidence of the difficulty of
rate- setting, we were told that the interim rates for the resale of cable
modem service were set too high to enable ISPs to make a profit when serving
cable modem customers. As a result, no ISPs have chosen to resell cable
modem service.

In subsequent contacts we made with the same Canadian stakeholders in
September 2000, we were told that no technical impediments had been found in
the technical trial to allow third- party ISP interconnection to the cable
modem platform. The next technical phase, which has already commenced, is a
live field trial of third- party ISP service over the cable modem platform
that involves the participation of one large cable company, one third- party
ISP, and 10 customers. We were also told that CRTC had finalized its
decision on tariffs for the wholesale rates charged by the large cable
companies and for associated terms and conditions. The wholesale rates set
by CRTC were approximately 50 percent less than the rates proposed by each
affected cable company. However, decisions on additional charges for third-
party ISPs? access to the cable modem platform, such as installation and
interconnection charges, are still to be decided along with various
operational matters. A representative of the Canadian ISP industry told us
that third- party ISP service over the cable platform could be delayed
further if the CRTC tariff decision is challenged or if access rates are set
too high. Thus, 4 years after the Canadian government?s initial open access
decision, Canadian consumers still have no choice of ISP when subscribing to
cable modem service.

Appendi xVI

GAO Contacts and Staff Acknowledgments GAO Contacts Stanley J. Czerwinski,
(202) 512- 7631 Amy D. Abramowitz, (202) 512- 4936 Dennis J. Amari, (202)
512- 2512

Acknowledgments In addition to those named above, Carol Bray, Harold Brumm,
Venkareddy Chennareddy, Michael Clements, Faye Morrison, Luann Moy, Edward

Warner, and Mindi Weisenbloom made key contributions to this report.

Glossary of Communications Terms The definitions in this glossary are drawn
from several sources, including ; ; the Glossary of PC and Internet
Terminology at ; and the Glossary of Telecommunication Terms at .

Always On A connection feature of two- way broadband Internet access
technologies. ?Always on? means that a user need only turn on his or her
computer to be connected to the Internet. This is unlike narrowband
telephone Internet access, which requires the user to ?dial up? and
establish a connection with their ISP for each online session.

Application With regard to the Internet, a program or service that users can
access online, such as a chat room, e- mail, shopping, or interactive
gaming.

Backbone Very high- speed, long- haul networks that connect to ISPs and to
other backbone providers.

Bandwidth A measure of the capacity of a communications system. Greater
bandwidth indicates faster data transfer capabilities.

Bell Operating Company The local telephone service companies created by the
court- ordered

(BOC) divestiture of AT& T.

Broadband A high- speed, high- capacity transmission channel. Broadband
connections can be used to send different types of signals simultaneously,
such as video, voice, and data.

Browser A computer program used to access and display pages on theWorld Wide
Web. Netscape Navigator and Microsoft Internet Explorer are two

examples of Web browsers. Bundling Combining goods or services into a single
package, often for a discounted

price.

Cable Modem A communication device connected to a coaxial cable television
system to offer customers access to the Internet at speeds 50 to 100 times
faster than

a traditional telephone connection. Cache Storing the content or part of the
content of a frequently viewed Web site

on an ISP?s server, thus enabling quicker access to the information than
when retrieving it from the source Web site.

Central Office A telecommunications facility where local loops are
terminated and calls are switched.

Chat Room An application, often hosted on a Web site, that allows users to
take part in an online discussion on a particular subject or with a
particular group. Users type their messages and then have them instantly
posted for others to read and reply to.

Circuit- Switched A method of opening communications lines, as through the
telephone system, creating a physical link between the initiating and
receiving parties. In circuit switching, the connection is made at a
switching center, which physically connects the two parties and maintains an
open line between them for as long as needed.

Coaxial Cable A transmission line with an inner wire to conduct signals and
an outer aluminum coating to act as a ground. The two metal layers are
separated by insulation and may be wrapped in a protective plastic
sheathing. This is the type of wire typically used by cable companies.

Common Carrier A communications provider, such as a telephone company, that
offers its services to all members of the public for a set fee or tariff.
Common carriers are regulated by federal and state agencies and exercise no
control over the content of the messages they carry.

Content Information contained in a Web site, including the structure in
which it is presented.

Dial- Up Connection A temporary connection between two computers, or to the
Internet, using a standard telephone line and a modem. The user establishes
a connection by

dialing the telephone number of his or her ISP. This is currently the most
popular form of Internet connection for a home user.

Digital The use of binary digits (zeros and ones) to represent data such as
text, audio, and video.

Digital Subscriber Line A high- speed method of accessing the Internet using
a traditional telephone

(DSL) line that has been ?conditioned? to handle DSL technology. DSL allows
the

same telephone line to be used simultaneously for voice calls and data
transmissions.

Download To transfer a file or Web page from another computer. Downstream A
flow of signals from a communications provider to a customer. E- commerce
Conducting business or shopping online. E- commerce entails both

business- to- consumer and business- to- business transactions. E- mail
Electronically transmitted messages that Internet users can send to one

another using a common addressing system. E- mail is the most popular use of
the Internet today.

Facilities- Based Provider A company offering a communications service
through its own network and equipment, rather than through the resale of
services over the network of another provider.

Franchising Authority A governmental body (city, county, or state)
responsible for awarding and overseeing local cable franchises.

Headend A facility that originates and distributes cable service in a given
geographic area.

Home Page The first or ?front? page on a Web site that serves as the
starting point for navigation through that particular site.

Hypertext A system of displaying text that allows it to contain links to
related documents or Web pages. When users ?click? on the link, they are

automatically taken to another Web page or document, or to a different
section of the current Web page.

Instant Messaging An application that allows two Internet users to have a
written conversation through messages sent back and forth instantly.

Interconnection The linking of two or more communications networks or
communications providers.

Internet A global system of linked computer networks supporting research,
education, information, and commercial services.

Internet Service Provider A company that provides Internet Protocol access
(a computer connection)

(ISP) to the Internet. An ISP has the servers, routers, switches and other

equipment necessary to either provide the subscriber with the ISP?s own
content or, if the subscriber is seeking a specific Web site, to transfer
the call onto the Internet backbone and route it to the requested Web page.

Internet Transport Provider A company providing the physical transport of
data signals from the customer?s computer to the customer?s ISP.

Last Mile Refers to the last segment of the connection between a
communication provider and the customer?s premises.

Local Access and Transport A geographical area within which a Bell Operating
Company is permitted to

Area (LATA) offer local exchange telecommunications services.

Local Loop The physical connection between the telephone company?s central
office and a subscriber?s premises.

Local Multipoint A broadband digital microwave (wireless) technology used to
deliver

Distribution Service (LMDS) multiple service offerings (voice, video, and
data) in a localized area. LMDS

operates in the higher frequencies, limiting the distance the signal can
travel.

Modem An electronic device that allows users to connect computers and other
equipment to a network for the purpose of sending or receiving data. The
word is derived from the term modulator- demodulator.

Multichannel Multipoint A broadband microwave (wireless) technology.
Originally built as ?wireless

Distribution Service cable? systems for video delivery, MMDS technology can
be upgraded to

(MMDS) digital, making high- speed Internet access possible. MMDS requires
clear

line of sight between transmitters and receiving antennas. Narrowband A low-
speed, low- capacity transmission channel. Narrowband Internet

access works best when the user accesses content that is not ?bandwidth
intensive,? such as simple text pages.

Nodes A connection point in a cable system, often where optical fiber enters
the neighborhood and connects to coaxial cables.

Online The state of being connected to the Internet. Open Access A term used
to refer to mandates that cable companies allow unaffiliated

ISPs access to their cable system so they may offer competing cable modem
service.

Optical Fiber A method of transmitting a light beam along optical fibers,
usually made of glass or other transparent material, in which the beam is
modulated to

carry information. A single fiber optic channel can carry significantly more
information than most other means of information transmission.

Packet- Switched The method used to move data around efficiently on the
Internet. Data are broken into pieces, or ?packets,? with each piece
including the address of where it is going. Each piece travels the best
route currently available between the source and the destination. The pieces
are then reassembled at the destination.

Portal Web sites that serve as starting points to other destinations or
activities on the Web- a door to the Internet. Portals commonly provide an
array of services, such as e- mail, search engines, and news stories, as
well as links to popular content.

Router A device that forwards data packets from one network to another
network based on routing tables and routing protocols.

Search Engine Used to locate desired information on the Internet by
searching a database of Internet content for key words that the user has
specified. Search engines usually work by maintaining indices of Web
resources.

Server A host computer on a network that holds information (e. g., a Web
site) and responds to requests for information.

Streaming Media (or When audio or video is sent in a continuous stream and
played as it arrives.

Streaming Video) Streaming avoids waiting for a large file to download
before playing it, but

it does require the users to have ?player? software installed on their
computers.

Surf To browse through and look at information on the World Wide Web.

Transmission Control A standard set of protocols that governs the basic
workings of the Internet.

Protocol/ Internet Protocol TCP ensures that data are transmitted correctly,
while IP controls how the

(TCP/ IP) data packets move from one point to another.

Unbundled Network Pieces of an incumbent telephone company?s network that
must be leased

Element (UNE) to competitors on request to facilitate local phone service
competition.

Unbundling When services that are packaged together are split apart and
offered separately, often by government mandate. Unbundling often addresses
antitrust concerns when a company with market power in one service packages
it together with another service in which it does not have market power.

Universal Service The concept of making basic local telephone service (and,
in some cases, certain other telecommunication and information services)
available at an affordable price throughout the United States.

Upstream A flow of signals from the customer to the communications provider.
Web Page A single ?file? on the World Wide Web, usually containing text,
audio, or

video content. Web Site A location on the Web usually made up of multiple
Web pages. World Wide Web (WWW or

The global collection ofWeb sites that are connected by the Internet. The
the Web)

Web is a popular part of the Internet because it is easy to navigate and
use.

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GAO United States General Accounting Office

Page 1 GAO- 01- 93 Consumer Choice of Internet Providers

Contents

Contents Page 2 GAO- 01- 93 Consumer Choice of Internet Providers

Page 3 GAO- 01- 93 Consumer Choice of Internet Providers United States
General Accounting Office

Washington, D. C. 20548 Page 3 GAO- 01- 93 Consumer Choice of Internet
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Appendix I

Appendix I Scope and Methodology

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Appendix I Scope and Methodology

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Appendix I Scope and Methodology

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Appendix II

Appendix II Definition of Internet Access Market Unclear

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Appendix II Definition of Internet Access Market Unclear

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Appendix II Definition of Internet Access Market Unclear

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Appendix III

Appendix III Wireless Internet Access Technologies and Regulations

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Appendix III Wireless Internet Access Technologies and Regulations

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Appendix IV

Appendix IV Telephone Laws and Regulations Promote Consumer Choice of
Internet Service Providers

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Appendix IV Telephone Laws and Regulations Promote Consumer Choice of
Internet Service Providers

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Appendix IV Telephone Laws and Regulations Promote Consumer Choice of
Internet Service Providers

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Appendix IV Telephone Laws and Regulations Promote Consumer Choice of
Internet Service Providers

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Appendix V

Appendix V Lack of Clarity on Internet Services in Cable Laws and Regulation
Has Resulted in ?Open Access? Debate and Litigation

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Appendix V Lack of Clarity on Internet Services in Cable Laws and Regulation
Has Resulted in ?Open Access? Debate and Litigation

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Appendix V Lack of Clarity on Internet Services in Cable Laws and Regulation
Has Resulted in ?Open Access? Debate and Litigation

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Appendix V Lack of Clarity on Internet Services in Cable Laws and Regulation
Has Resulted in ?Open Access? Debate and Litigation

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Appendix V Lack of Clarity on Internet Services in Cable Laws and Regulation
Has Resulted in ?Open Access? Debate and Litigation

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Appendix V Lack of Clarity on Internet Services in Cable Laws and Regulation
Has Resulted in ?Open Access? Debate and Litigation

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Appendix VI

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