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WASHINGTON--The selection of small ISPs may soon shrink, say independent DSL providers, who fear regional telephone companies will be less willing to economically share their networks if they don't have to.

That path was paved by the Federal Communications Commission, which has relaxed rules that regional Bell operating companies (RBOCs) no longer must provide "line-sharing" portion of their DSL networks to competitors at discounted prices. The FCC ruling, still not published in its final form, lets the regional Bells gradually raise their prices over a three-year period. The ruling affects competitors who rely on the telcos' telephone/DSL loops into residences.

The FCC's rationale: The price regulations are no longer needed because significant competition exists in the residential broadband market. That competition, from cable modem services to multiple DSL providers, will keep prices low.

More Change to Come?

Many independent ISPs consider the FCC's ruling a blow to their businesses, but they may be more worried about another pending FCC decision: a proposal to reclassify DSL as a less-regulated "information service" instead of a "telecommunications service." Under the Telecommunications Act of 1996, telecommunications services are more heavily regulated than information services, with more requirements on how network owners share their services with competitors.

The FCC's notice of proposed rulemaking outlines its rationale. The commissioners advocate treating DSL consistently with cable-modem service. Broadband services should exist in a "minimal regulatory environment that promotes investment and innovation," according to the FCC notice.

Industry-watchers expect the FCC's decision on DSL classification to occur late this spring or early in summer.

The regional Bells favor regulating DSL similarly to its closest competitor, cable-modem service, where the owner of the cable line doesn't have to share it. Unnecessary regulation hampers DSL adoption, which has only about half the market share of cable-modem service, the Bells argue.

"There's no reason we should be subsidizing our competitors, just as cable companies don't," says Bill McCloskey, BellSouth director of media relations.

The FCC needs to provide "clarity and certainty" for the struggling telecommunications industry, but the current policy giving different regulations for cable-modem service and DSL does not, says Link Hoewing, Verizon vice president for Internet and technology policy.

"This service competes directly with cable," Hoewing adds. "How can you justify treating it differently?"

ISPs Fear Extinction

The small ISPs worry that a reclassification would remove any last price controls for DSL lines. They expect independents will be driven out of the DSL business, and consequently out of the ISP business altogether.

Sue Ashdown, executive director of the American ISP Association, says the pending FCC action would let regional Bells jack up prices to the point that they charge a competitor more for access to the line than they charge their own direct DSL customers.

"That's a big disaster," Ashdown says of the reclassification. "I don't see them as overnight flipping the switch, but I see them as having a free hand to discriminate."

The reclassification, combined with last month's FCC decision, could leave customers with fewer choices of DSL providers, said Dan Gregoire, co-founder of IgLou Internet Services in Louisville, Kentucky.

With dial-up service, the Bells aren't "wedged between" customers and the ISP, because a customer can choose a new provider simply by dialing a new phone number, Gregoire said. "In the case of DSL, the phone companies have created an environment where they have permanently wedged themselves between that ISP and the customer, and have prevented ISPs from getting the infrastructure needed to provide DSL by any other means than buying it from the phone companies," he added.

Ashdown and Gregoire claim some regional Bells are already raising the prices they charge ISPs, but Verizon's Hoewing is doubtful.

"It could be an issue where they just stop deployment to ISPs completely," Gregoire says. "'We are no longer required to do this, it's been nice doing business with you guys, have a nice day.' That may not be the case with all the carriers."

Reading the Regulators

BellSouth's McCloskey denies the Bells will jack up prices to outrageous levels and doesn't expect ISPs to be cut off.

"We are, for the most part, happy to have other people sharing our lines, as long as we can get a reasonable rate out of it," he adds.

Verizon expects to keep sharing its DSL networks, Hoewing says. He expects the FCC may retain some DSL regulations, such as requiring Bells to share the lines, but not setting the prices. The FCC could also require the Bells to offer independent ISPs prices similar to what they charge other DSL providers, such as the price Verizon charges its own online division.

"I would think the FCC would be watching those kinds of developments," Hoewing adds. "I would think that if they said we'll be open, they'd make sure the pricing that's done and the offerings made to ISPs wouldn't be unduly discriminatory."

Some observers suggest the FCC may not completely shift DSL away from being a telecommunications service. The FCC may classify DSL coupled with Internet service as an information service, while still regulating the price Bell competitors pay for raw DSL.

The line-sharing decision in February caught some ISPs by surprise. Gregoire calls the wait for the next FCC decision "a real murky time right now" for the 3000-plus independent ISPs in the U.S.

"The switch is going to be potentially turned off for these guys," Gregoire said. "Going forward, if you don't have access to DSL long-term, it's questionable what your role is going to be."

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