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Wed, Aug 08, 2001 - Page 24 News List

Bell firms blamed for slow start of fast Net

DSL CONNECTIONS The US' large Internet service providers are strangling smaller 'mom and pop' subsidiaries with a combination of high charges and slow service

By Katie Hafner  /  NY TIMES NEWS SERVICE , NEW YORK

Small Internet service providers that represent the last vestige of the Internet's original homespun character are struggling, and many of them blame regional telephone companies. For years, Jason Greene, who works from home in Boulder, Colorado, had no alternative to DSL service via a line owned by Qwest Communications.

PHOTO: NY TIMES

A year ago, Hossein Farmani, president of aNet Communications, a small Internet service provider in Los Angeles, catered to a loyal group of longtime customers. ANet was no AOL, but Farmani was content to preside over a small community of 5,000 or so users.

Yet customer loyalty proved to be highly elastic. Farmani discovered that providing competitively priced DSL service -- a form of high-speed Internet connection -- had become close to impossible. Lured by lower prices to Pacific Bell Internet, the big telephone company's own Internet unit, half of Farmani's customers had deserted aNet.

"In a year or so, we won't have any customers at all," Farmani said. He said he could not lower his prices to match Pacific Bell's because of the high fees the telephone company charged him to connect his DSL customers to the network. Unlike some rates that telephone companies charge, fees for DSL connections are typically not regulated.

Small Internet service providers like aNet represent the last vestige of the Internet's original homespun character. Yet the aNets of the world are struggling, and many of them blame the regional Bell operating companies for their endangered status.

If it were simply a matter of the giant telephone companies' using their greater economies of scale to provide better, more affordable high-speed Internet service, the issue might be nothing more than a poignant tale of a declining mom-and-pop industry. But many business and consumers complain that DSL remains too costly and too difficult to obtain simply to cede the field to the Bell companies.

So far, according to the Yankee Group, a research firm, fewer than 3 million American households have DSL, a fraction of the households with slower-speed Internet access.

"Being the local-loop carrier puts the Bells in a monopolistic situation," said Zeus Kerravala, a Yankee Group analyst. "They have deep pockets and strong market share and can wait out any economic downturn. So they make promises they have no intention of keeping."

Farmani, for his part, is one of hundreds of Internet service providers across the country who have become increasingly disgruntled with the regional Bells. The service providers say the big phone companies unfairly use their market dominance and control of the local phone networks to make it difficult for them to provide DSL, or digital subscriber line, service.

Although DSL signals travel over regular phone wires, the service requires installation of a special modem for the customer's computer and requires third-party providers to place special equipment at or near the phone company's central office -- or to buy such connections from the phone company.

The connection fees the phone companies charge service providers, as well as the degree of cooperation that phone companies extend to the providers, have a big impact on how effectively the outside providers can compete with the phone companies' own Internet services.

David vs. Goliath

Last month, a group of California Internet service providers that included aNet complained to state regulators that Pacific Bell was using its network dominance to create a monopoly in DSL service.

The group's grievance has not been the only one. In April, after a complaint by a local Internet company, the Kentucky Public Service Commission ordered BellSouth to lower its DSL rates to smaller Internet service providers. Dozens of similar complaints have found their way to regulators in other states and to the Federal Communications Commission.

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