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Good for Cable, Bad for America

By Catherine Yang In a landmark decision on June 27, the Supreme Court has handed the keys to America's broadband future to the cable giants, which provide high-speed Internet access to two-thirds of U.S. households with broadband. Now that the court has paved the way, federal regulators are expected to follow suit and cut a second set of keys for the big Bell companies that provide high-speed Web access to the other third.

But what's good for Comcast (CMCSA) and Verizon (VZ), among other cable and phone companies, isn't necessarily good for the nation. Ranked No. 16 in the world in consumer broadband penetration -- down from No. 3 five years ago -- the U.S. has followed policies in direct contrast to higher-ranking countries, such as Japan, Korea, and Sweden. Instead of fostering stiff competition that leads to the low prices and innovation that lure consumers, the U.S. is allowing the huge cable and phone companies to shut out competitors that provide services -- Internet, phone, or TV -- delivered via those broadband networks.

"The U.S. puts incumbent business interests first," claims Martin Thunman, CEO of PacketFront, a fiber network company in Stockholm. "Europe puts the end user first." Thunman's company is starting to sell fiber-optic technology to U.S. municipalities and other potential broadband competitors of the Bells and cable companies.

WIDE APPLICATION? U.S. policymakers say they just want to unburden the cable and phone networks from regulations to spur deployment of broadband pipes across the nation. The Supreme Court's ruling in National Cable & Telecommunications Assn. v. Brand X, for example, relieves cable-modem services from old Ma Bell-type "common carrier" rules, where phone companies had to provide nondiscriminatory open access to any network.

Soon, the Federal Communications Commission may move to deregulate the Bells' broadband networks from those same obligations. "This decision provides...a framework for broadband that can be applied to all providers," says FCC Chairman Kevin J. Martin in a statement.

The result, however, may hinder the very growth in broadband that the policies seek. In theory, cable providers could keep consumers from buying competitors' Net access, telephony, and video services -- and lock them into the services offered by the local cable operator. Time Warner Cable (TWX) , for example, could push its own Internet service provider business instead of independent ISP Earthlink's or its own VoIP (voice over Internet protocol) service instead of independent Vonage's. Though cable operators claim they won't discriminate against competitors, the likes of Earthlink and Vonage face a bleak future if the cable guys forget their promise.

STARVED FOR CHOICES. That could also easily stifle the unexpected Next Big Thing from the random startup. And those are the innovations -- such as VoIP popularized by Vonage in the U.S. -- that give consumers compelling reasons to adopt broadband. Instead of the vibrant choice of offerings available to residents of Vasteras, Sweden, 50 kilometers from Stockholm -- who get 60 different Web access, phone, and TV services from 20 different providers over the local utility's high-speed network -- U.S. consumers may end up with only the menus offered by their local phone and cable companies.

And that's hardly the rich feast needed to catapult the U.S. back into the ranks of the world's broadband leaders. Yang is a correspondent in BusinessWeek's Washington bureau

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