The Internet is the fastest growing communications technology in history, far outpacing the adoption rates seen for the telephone, or even television. Today it already represents a major publishing outlet for news, information and many forms of entertainment. In the future it will reach millions of home users as well as businesses and it will continue to influence and profoundly impact not only the lives and lifestyles of an unprecedented number of people but also the paradigms used for doing local as well as global business. Therefore it is crucial that the Internet access and services markets develop in ways that are most beneficial to the consuming public. Consumers are best served when prices are affordable and competitive, and when there are a variety of quality products and/or services from which to choose that are readily available. Currently the market for providing broadband access technology, which is the next generation of Internet access technology, is developing quickly, and is wildly dynamic in terms of mergers and legal activities. However, it is unclear if the industry's current structure and competitive forces will provide and serve the public in the most beneficial manner as described above.

Currently, there are two primary methods competing to provide broadband Internet access to the home Digital Subscriber Line (DSL) technology, offered by the telecommunications industry, and the Internet-over-cable technology, offered by the cable television industry. However, currently the two industries operate under very different conditions due to the Telecommunication Act of 1996, which forced local telecom monopolies to open their infrastructures to competition but, to date, gave no such directive to the cable industry. However, that does not mean the cable industry will not be further scrutinized in the near future to determine whether or not the Telecommunications Act applies to it as well. In fact, the cable industry today very much resembles the telecom industry in the days leading up to the Telecom Act. Like the local telcos pre 1996, today's local cable operators enjoy regional monopolies and control infrastructure over the last mile of cable into homes and businesses. Also like the pre-Act telcos, the cable companies are facing pressures from consumer groups and potential competitors, especially Internet Service Providers, such as AOL, to provide access to their cable infrastructure. The concern is that the local cable monopolies, if not forced to open up, will control all aspects of last mile Internet cable access to the home in the near future. Of course, these potential competitors, who are currently locked out of the cable access industry, would gain substantially if the cable companies were forced to allow them access to their cable network. The question is whether the public would also gain.

In 1996, Congress passed the Telecommunications Act to resolve many of these issues for the telecom industry. Should Congress mandate something similar for the cable industry? To decide which course of action should be taken with the cable industry, one should consider the impact the Telecommunications Act had on the telecom industry since there is a remarkable parallelism between the pre-Act telecom industry of yesterday and the cable industry of today.

Consequently we will begin our study with an analysis of the telecommunications industry and the Telecommunications Act of 1996. We will then examine the cable industry, its similarities to the telecom industry, and the current dynamics that will influence the future decisions. Then, finally, we synthesize these analyses by introducing an economic model as a basis for comparison between the two industries.

Before A.T.&T. was dismantled, the telecommunications industry was basically a heavily regulated monopoly that owned, operated, and maintained the entire telecommunications infrastructure. The government forced A.T.&T. to split itself up into several regional "baby bells," also known as Regional Bell Operating Companies (RBOCs), and one long-distance carrier. The RBOCs inherited the infrastructure that connects the homes with the neighborhood central offices, and as a result controlled the local calling market. Competition appeared in the long distance market with the emergence of Sprint and MCI, but since the RBOCs controlled the last mile of infrastructure, they were able to maintain local monopolies. As one might expect from such an arrangement, the RBOCs, in the absence of competition, were slow moving organizations with little market driven innovation and a history of questionable customer service.

Meanwhile, from 1989 to 1996, the market for Internet access from the home doubled every year. At this time, as is still the case today, the majority of home users were using dial-up modems connected to a standard telephone line to access the Internet. Because the RBOCs owned this infrastructure, they were positioned to control Internet access just as they had been controlling local telephone access. At this point they could dictate how, through whom, and at what price customers would access the Internet.

In an attempt to de-monopolize the RBOCs, in 1996 Congress passed the Telecommunications Act, the first major overhaul of the telecommunication laws in almost 62 years. The goal of the Telecommunications Act was to allow free market entry into any communications business in order to promote competition, reduce regulation, secure lower prices and higher quality services, and to encourage the rapid deployment of new telecommunications technologies. In particular, the Act addressed the critical dearth of local competition by directing the regional telecommunications monopolies to open their infrastructure and unbundle their services for resale to competitors at, as the Act stipulated, "reasonable prices."

After the Telecommunications Act was passed, new competitors began entering the market. These new entrants, who became known as Competitive Local Exchange Carriers (CLECs), leased infrastructure from the RBOCs, who, post Act, came to be known as Incumbent Local Exchange Carriers, or ILECs. The CLECs used the infrastructure they leased from the ILECs to provide Local Exchange Carrier (LEC) services to telecommunications consumers, often at cheaper rates than those offered by the ILECs. Examples of CLECs include all of the 10-123 prefix companies that currently advertise so extensively.

During the time after the passage of the Telecom Act, demand for Internet access continued to gain momentum. The ILECs met this burgeoning demand by providing high speed, expensive solutions -- TI, T3 and ISDN -- at high margins to businesses, while home users continued to access the Internet via the slower dial-up modems. Asynchronous Digital Subscriber Line (ADSL) technology was available at this time and offered comparable downstream speeds at lower costs over the same infrastructure as TI and ISDN, and therefore would have better met the needs of the ILECs' home access customers. However, the ILECs chose not to deploy ADSL for fear that it would erode the high margins they received from the aforementioned business solutions.

Some of the CLECs took advantage of this reticence on the part of the ILECs and began implementing ADSL services to homes and businesses. However, in order to implement ADSL, the CLECs had to aggressively pursue their rights under the Telecom Act to collocate equipment in the ILECs' central offices. The CLECs that went this route and began to collocate their own infrastructure alongside that of the ILECs emerged as a new breed of competitor, called data CLECs (also known as "facilities based competitors"). Because of the collocation provision, data CLECs only had to rely on the ILECs infrastructure for access to the last mile, which, as discussed above, was also opened by the Telecom Act. Therefore, companies today, such as Covad Communications Company, which is a data CLEC, are deploying ADSL and are effectively competing with the ILEC’s in the home and business Internet access market. Rather than sit still and watch their share of the broadband Internet access market erode from under them, the ILECs have responded with uncharacteristic speed by offering ADSL themselves. Here, then, is one clear and successful instance in which the Telecommunications Act was instrumental in producing its intended result; because the Act fostered competition, the once complacent, lethargic ILECs were spurred into action to the benefit of their consumers.

Thus far we have concentrated on those companies supplying the underlying infrastructure that provides the last mile connectivity to the end users. But this is not the whole picture. We have yet to discuss Internet Service Providers (ISPs), i.e. the well-known firms such as AOL, Worldnet, Compuserve, etc., that sit between the local infrastructure providers and the Internet backbone. ISPs bundle content and other value-added services such as data caching, web servers, and email facilities and offer them to their customers at competitive prices. ISPs have traditionally been customers of the ILECs, since there are several business telephone lines installed at every ISP facility. The dial-up modems of the ISP customers connect to the ISP’s modems via these telephones lines. The ISP modems then connect to switches that route the signals to the Internet backbone.

ISPs are important because they control so much of how the end user experiences the Internet. For instance the ISPs control what information content their customers see first, and how the billing is done. Before the Telecom Act, RBOCs were positioned to control many of these functions by bundling their own ISP services with their infrastructure. The Telecom Act changed this by mandating that the local infrastructure companies, the ILECs and data CLECs, offer a selection of ISPs to their customers. Furthermore, the ILECs and data CLECs were forbidden to use their infrastructure positions to give their own ISPs an advantage over competing ISPs. This openly competitive environment spurred the entry into the market of numerous ISPs, who now offer ADSL service through ILECs and data CLECs, but who still rely on customers dialing up through modems for the vast majority of their business.