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w a s h i n g t o n   w a t c h

The Coming Internet Wars

Michael C. Maibach

There's a very real danger that for the first time both the PC and the Internet will be 
regulated and taxed. The PC industry policy landscape has never been so dynamic, as 
telecom deregulation and technology convergence take hold. Being on the cutting edge of 
technology places us at the leading edge of public policy. Here's what's coming.

In Washington
A group of U.S. long-distance resellers has petitioned the Federal Communications 
Commission to outlaw (yes, outlaw) Internet telephony software. Their view is that the 
unregulated Net should not compete with regulated carriers. The PC industry's position is 
that the FCC doesn't have the authority to outlaw this or any software. A much more 
significant threat is a possible RBOC petition asking the FCC to levy access charges on 
all "enhanced services," such as the Internet. They seem to object to ISPs moving data, 
e-mail, graphics and calls outside of the current "universal service" monopoly established 
by the 1934 Communications Act.

The PC industry's number one telecom goal is competition in the local loop. Such 
competition should drive more bandwidth at a lower cost. Only the Net offers a 
modicum of competition to local service. If the FCC pulls the Net into the archaic 
telecom regulatory system, access charges could chill use of the most important telecom 
medium in the world.

The FCC must also set advanced digital TV broadcast standards. As TVs move into the 
digital PC world, let's make sure that broadcast signals over public airwaves are both 
PC- and TV-compatible.

And speaking of consumer electronics, digital videodiscs (DVDs), with 10 times the 
capacity of a CD-ROM and studio-quality output, are on the way. The motion picture 
and consumer electronics industries drafted legislation to protect content while enabling 
this new market. Unfortunately, their bill would inadvertently outlaw PCs as illegal copy 
devices! PC hardware and software makers have a vested interest in the success of 
DVD technology because it allows the copying of data and images. We, perhaps more 
than any other industry, want DVD technology to advance. But legal protections and 
private standards must make this a technology as open to PC users as it is to movie 
buffs.

Finally, Washington is considering measures to strengthen copyright protection of 
material moved on the Internet, require closed captioning on PCs that pick up TV 
broadcast signals and forbid software exports that have strong encryption protections in 
the name of national security. An industry that has grown up with private standard-setting 
in an open, unregulated environment now faces the kind of intense regulatory pressures 
one is accustomed to seeing in the railroad or drug industries. This is spurred on by the 
convergence of FCC-regulated industries with PC markets, products and technologies.

In State Capitals
Action in many U.S. state capitals reflects themes developing in Washington. 
Long-distance resellers have asked state public utility commissions (PUCs) to outlaw 
Internet telephony software, for example. Florida and California are considering taxing 
"digital commerce" they fear may bypass state sales tax regimes. And a few RBOCs 
have actually petitioned state PUCs to allow increases in ISDN installation and usage 
fees. Members of the PC industry, working with consumer groups and Internet warriors, 
have successfully challenged such rate hikes. Lower ISDN prices and easier hookup 
should drive huge volume increases in this market, benefiting local phone companies and 
PC users.

Around the World
So far, activity abroad is less robust than in the U.S., but it's just a matter of time. The 
European Union recently reclassified PCs with CD-ROM drives as "consumer 
electronics devices," tripling their import tariffs. Moreover, Europe is considering a "TV 
without borders" policy that would impose domestic content requirements on TV 
programming. Since movies are a type of software, will proposals to limit the sale of 
"foreign" PC software follow? And governments in Europe, Canada and Australia are 
considering a "bit tax" on digital commerce.

The old world of analog TV and telecom regulation must not spill over into the new 
world of competitive, open and digital markets. Governments must adopt the PC model 
of innovation and govern accordingly. In the U.S., the FCC must evolve into a Federal 
Competition Commission, and Congress should carefully guard digital commerce 
technologies that are changing the way we work, learn, consume and communicate.

Michael C. Maibach is vice president for government affairs at Intel Corp. in 
Washington, D.C.
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