This was on the front page of Friday's Wall Street Journal. At the end
of the article it says that George W. bush may urge the FCC to deregulate
future investment that the baby bells, such as SBC, Ameritech, Verizon,
and Bell South make. For all the pains taken to avoid taking a position
on Tauzin-Dingell, the administration may in a certain way end up doing
so.
Kelly
The Wall Street Journal
January 18, 2002
Tech Industry Lobbyists Seek Windfall From White House Broadband Strategy
By YOCHI DREAZEN and JIM VANDEHEI
Staff Reporters of THE WALL STREET JOURNAL
WASHINGTON -- For months, the high-tech industry has been working behind
the scenes here to push its remedy for the nation's economic ills: a
national policy to promote high-speed Internet access.
Now the lobbying is paying off. Both President Bush and Senate Majority
Leader Tom Daschle are preparing ambitious programs to give more
Americans fast Web connections -- raising the prospect of a
government-supported gusher of sales for computer and telecom companies.
But the programs also raise questions about how the spoils will be
divided, and whether the government can revive a sector that has already
failed key tests in the market.
Earlier this month, Mr. Daschle declared that one of his top economic
priorities will be making "broadband service as universal tomorrow as
telephone access is today." Mr. Daschle wants a mix of government
grants, loans and tax credits devoted to spreading the technology. And
President Bush, who agrees with Mr. Daschle on little else these days,
will outline his own plans to boost broadband in coming weeks, in what
aides are touting as the most significant high-tech policy announcement
of his administration.
Cultivating Relations
White House officials are still debating details of the broadband
strategy. But the fact that the administration is developing one at all
reflects the enormous lobbying push by high-tech companies and trade
groups. They have taken great pains to cultivate relations with the Bush
administration, which early on seemed to show little interest in
high-tech issues.
Some conservatives wish the White House would keep the lobbyists at
arm's length. "There's no question that there's some risk," says Thomas
Hazlett, a senior fellow at the Manhattan Institute and former chief
economist of the Federal Communications Commission. "If your policy
moves end up leaving one technology -- like wireless -- out of the mix,
you can end up shooting yourself in the foot and doing a lot more harm
than good."
It's hard to imagine the broadband sector getting much worse. Investors
have lost billions of dollars since the mid-1990s on companies promising
ultrafast access to the Internet. Plagued by technical problems and
consumer indifference, many of the largest providers have gone out of
business, including Excite At Home Corp., which filed for bankruptcy
last September and is set to shut down next month.
Broadband is now largely controlled by two oligopolies: the cable
industry, which delivers service through cable modems; and the Baby
Bells, which use digital subscriber lines, otherwise known as DSL. With
their smaller competitors failing, both boosted their prices sharply
last summer to around $50 a month from around $40, further slowing the
pace of new subscriptions. Today, fewer than 10 million American
households and businesses have high-speed Internet access.
'Dark' Cable
The slow rollout, in turn, has rippled throughout the technology
business, curbing sales growth for everyone from Cisco Systems Inc., a
maker of networking equipment, to Dell Computer Corp., the
personal-computer manufacturer. Millions of miles of fiber-optic cable
lay "dark" and unused across the U.S., hurting the prospects of fiber
concerns such as Corning Inc. Also suffering from pokey Internet
connections are a slew of content providers, including purveyors of
online movies, music and video games.
Last February, TechNet, a Silicon Valley trade group of high-tech chief
executives such as Intel Corp.'s Craig Barrett and 3Com Corp.'s Eric
Benhamou, voted to make broadband its top priority. The
Telecommunications Industry Association, a Virginia-based group
representing the manufacturers of communications and
information-technology equipment, followed five months later. By the
fall, both groups were drafting policy papers and dispatching lobbyists
and executives to Capitol Hill and the White House. On Tuesday, TechNet
called for the administration to set the ambitious goal of bringing
ultrafast Internet access to 100 million American homes and businesses
by the end of 2010.
But high-tech and telecommunications firms have differed sharply on how
to bring about an increase in broadband deployment. For the Bells, the
broadband strategy has become entangled in an extremely controversial
effort to roll back provisions of the landmark 1996 Telecommunications
Act. That law allows the Bells to sell long-distance phone and data
service, but only after they've opened their local markets -- the
so-called "last mile" of phone service -- to competition. The FCC has
used the act to try to force the Bells to allow competitors to rent
access to their facilities and equipment at heavily discounted rates.
A new proposal, known as the Tauzin-Dingell bill, would allow the Bells
to carry the voice and data traffic without having to prove that their
local markets are open to competition. The bill is ardently opposed by
the cable industry, long-distance companies such as AT&T Corp., and the
Bells' few remaining local competitors. These local players believe that
bill would allow the Bells to cement their dominance over the DSL market
while quashing any chance of competition in the local phone market.
Ads for and against the legislation have blanketed Washington's airwaves
and dominated discussions on Capitol Hill for months, and many tech
groups have tried to avoid being drawn into the battle.
For the White House, the pressure has been intense. High-tech and
telecommunications firms have devoted enormous amounts of time and money
to winning Mr. Bush's attention. Mr. Bush's campaign received nearly
$1.2 million from high-tech companies and their executives, including
Microsoft Corp., Dell Computer and Cisco, according to the Center for
Responsive Politics, a watchdog group. All told, high-tech companies
contributed some $40 million to congressional and presidential
candidates in the 2000 election, with most of the money going to
Republicans, according to the center.
Republican political operatives see a new broadband push as an effective
fund-raising tool. National Republican Congressional Committee Chairman
Tom Davis of Virginia argues his party could benefit if Mr. Bush took
the lead on broadband, the industry's biggest remaining priority. In
meetings with tech lobbyists, Karl Rove, the president's top political
adviser, has begun stressing Mr. Bush's commitment to the issue.
Avoiding 'Food Fights'
Within the administration, a high-level "tech team" has held more than
100 meetings on broadband with industry executives and lobbyists, as it
tries to figure out a way to endorse specific policy initiatives without
being dragged into the Tauzin-Dingell debate. "We're trying to stay out
of the food fights," says one administration official.
Many of Mr. Bush's senior advisers on the issue come from the technology
industry. At the Commerce Department, Bruce Mehlman, assistant secretary
of Commerce for technology policy and an advocate of the broadband push,
worked as a top lobbyist for Cisco before joining the administration.
Phil Bond, the undersecretary of Commerce for technology, had been a
lobbyist for Hewlett-Packard Co. Lezlee Westine, the president's liaison
to the high-tech community, was lured away from her post as the co-CEO
of TechNet.
In October, Grant Seiffert, the vice president of external affairs and
global policy at the TIA, met with Mr. Bush's main economic adviser,
Lawrence Lindsey, and the director of the White House's Office of
Management and Budget, Mitchell Daniels, to push TIA's suggestions for
speeding broadband deployment.
Mr. Seiffert urged the administration to modify existing FCC rules so
that Bells wouldn't have to give competitors access to their new
high-speed lines. He also tried to persuade the officials to sign off on
tax credits for companies willing to bring broadband connections to poor
and rural areas. The issue had been a priority for the TIA since the
summer of 2000, when then-Senator Daniel Patrick Moynihan, a New York
Democrat, began crafting tax-credit legislation. The bill is now
sponsored by Sen. Jay Rockefeller, a West Virginia Democrat. But Mr.
Seiffert says he didn't get any promises.
Mr. Lindsey declined to comment on the TIA meeting, or about the debate
over broadband tax credits. "There are a number of regulatory and
public-policy questions that need to be addressed," he says.
In part, such reticence reflected a deep policy split among Mr. Bush's
advisers. In closed-door meetings at the White House, one group of
tech-savvy administration staffers argued in favor of the tax credits,
which they said would help bridge the so-called digital divide while
also giving the entire industry a boost. But Mr. Lindsey and other key
economic advisers opposed the idea of subsidizing a rapidly growing and
young industry.
For now, Mr. Lindsey's arguments appear to have carried the day. A top
Bush adviser says the president favors changing the tax laws to allow
companies to depreciate 30% of the cost of a capital expenditure in the
first year it was purchased. The change would allow companies to
depreciate more of their investments sooner. This would
disproportionately help the tech and telecom industries because the
equipment they buy tends to last fewer years than a new factory, and
also because the bulk of most companies' capital spending is on
computers and other high-tech equipment.
A $20 Billion Tax Break?
Telecommunications companies led the corporate push for the new tax
break, which could be worth as much as $20 billion to the high-tech
industry, analysts say. "Spurring our increased investment in
telecommunications equipment would be a tremendous boost to one of our
hardest-hit manufacturing sectors," Verizon Communications Corp.
Chairman Chuck Lee wrote to Treasury Secretary Paul O'Neill in early
October.
Exactly what President Bush will propose remains uncertain. The first
drafts of the policy principles being considered by the administration
include: modest new funds to help spread the technology to rural areas;
a statement urging cities and states to adopt more uniform regulations
on broadband taxation and rights-of-way access for companies trying to
dig up streets to lay new fiber-optic cables; and a call for adopting a
national spectrum policy to free up more airwaves for existing and
so-called third generation wireless broadband service.
The administration may also urge the FCC to deregulate future Bell
investments in new high-speed lines, officials say. The move would mark
one of the first times in recent memory that an administration has
explicitly urged the agency to adopt a specific policy, in this case one
that would be a huge boost for the Bells.
-- John D. McKinnon contributed to this article.
Write to Yochi Dreazen at
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and Jim VandeHei at
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