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fcc review may affect broadband competition

Grant Gross, IDG News Service\Washington Bureau
February 18, 2003, 14:10

From IDG

The U.S. Federal Communications Commission (FCC) will soon decide on new rules governing the sharing of local telephone networks, but the decision may have an impact on the roll-out of broadband Internet services across the United States as well.

The FCC is scheduled, pending the Washington area successfully digging out of a huge winter storm, to make a decision on Thursday on what network elements the regional Bell operating companies (RBOCs) should share with their competitors. Among the questions for the FCC: whether the regional Bells must share access to high-speed lines they build in the future.

Right now, the regional Bells must share their lines with other DSL (Digital Subscriber Line) providers, but it's unclear whether the Bells would have to share the lines from any "advanced services," such as cable modem lines or next-generation broadband Internet services faster than DSL, said Allison Hift, director of the telecom practice at Becker & Poliakoff P.A., a law firm based in Fort Lauderdale, Florida.

The question over what broadband network elements the RBOCs will have to share "really reaches to the heart of the matter," Hift said.

The main question for the FCC, in its so-called triennial review, is whether the four regional Bells should have to share some pieces of their local networks with competitors at discounted prices, the renting of the last mile, so to speak. The RBOCs, including Verizon Communications Inc. and SBC Communications Inc., argue that the network-sharing plan discourages investment, by themselves and their competitors, in new telecommunications facilities, and it has contributed to the slump in the telecommunications industry by allowing too many competitors to get into an artificial marketplace pumped up by government regulations.

On the other side are companies like WorldCom Inc. and AT&T Corp., collectively called competitive local exchange carriers (CLECs), who argue that the Telecommunications Act of 1996's line-sharing plan is working. The CLECs and several consumer groups say competition for local phone service has sprung up in many areas of the U.S., and the price of local phone service has generally dropped since the law passed.

Few FCC observers will speculate on what exactly might happen when the FCC meets Thursday. The commissioners are under a tight deadline -- Thursday is the day a U.S. Court of Appeals ruling goes into effect, vacating the current network unbundling rules.

Some observers suggest that the FCC may reach a compromise between Chairman Michael Powell, who wants to free the regional Bells from the current unbundled network element (UNE) regulations, and Commissioner Kevin Martin, who wants the power to set unbundling rates to rest with state public utility commissions.

It's likely that the FCC will keep some line-sharing regulations in place in rural areas and in the home and small-business local phone service markets, while ending the line-sharing requirements in the urban, large-business market, a couple of FCC observers predicted. "What I see is that there may be some type of compromise on a geographical perspective," said Hift, the Florida telecom lawyer. "The Bells wouldn't be required to provide access to switches in large urban areas, where these competitors already have their own facilities in place."

Hift and other proponents of the current system argue that the regional Bells received a huge competitive advantage when they were granted the local phone networks after the U.S. Department of Justice broke up the AT&T phone service monopoly in the early 1980s.

"In my opinion, I still think we need these types of regulations in place to ensure that the smaller providers can provide the services they need to without having to make the capital expenditures in rolling out their own networks," she said. "We need to give the marketplace a chance to work, and in my opinion, we need to see these types of rules in place for it to work. Competition needs to be boosted, and I think we need these rules to do that."

Representatives of Verizon and SBC did not return phone calls seeking comment, and representatives of the Washington-based United States Telecom Association (USTA), representing the regional Bells, were unavailable Tuesday because of the winter storm. But the USTA has argued that the wireline telephone industry is "laboring under antiquated regulations," and a new UNE policy would "create jobs, boost investment and restore stability to the telecom industry."

Greg Blonder, a former chief technical advisor to AT&T and currently a general partner at Morgenthaler Ventures, based in Menlo Park, California, agrees that the rules need to be changed, but he suggests the regional Bells should have to give something back in return. A ruling favoring the regional Bells, he argued, would spur overall investment in broadband and new technologies. Few people will invest in the depressed telecom industry if the regulatory future is uncertain, and allowing the 50 states to set their own rules won't bring enough stability to the industry, he said.

Blonder compared the telecom rules to "asking Southwest to carry United customers on their planes at a discount."

"The reality is that there is simply not enough profitability in the industry to support multiple players going after the same market in the same way," he added.

The "last-mile" of phone service into people's homes and businesses may be a natural monopoly, Blonder suggested, but if the regional Bells are granted that monopoly, they should have to provide a level playing field for all services that run on top of the network, such as voice mail. That compromise would be a more workable solution than what's being considered at the FCC, he said, because Powell's proposal "only addresses half the problem" by not demanding anything back for the RBOCs' unfettered use of their networks, and Martin's proposal "abdicates responsibility" by leaving the decision with the states.

"You can imagine a world where you have, reasonably speaking, three serious providers of raw bandwidth, cable companies, wireless companies, and RBOCs," Blonder added, "and hundreds of people providing services on top, and that could work."

But James Bradford Ramsay, general counsel for the National Association of Regulatory Utility Commissioners, argued that the state utilities commissions are the best place to monitor local phone service competition.

"The crucial issue involves upholding the authority of state officials to craft solutions best tailored for their own states," added Peter Arnold, spokesman for the Voices for Choices coalition of CLECs and consumer groups. "This is no time for federal regulators in the cozy confines of Washington, D.C., to tell regulators in Wyoming or Rhode Island or Texas how to manage their own networks."

Right now, the FCC sets general guidelines and states have some latitude in setting their own UNE rates, Arnold noted. Ramsay's group argued that the appeals court ruling was critical of a "uniform national rule."

It doesn't make sense for the regional Bells to set their own rates, as Powell's plan advocates, Arnold argued. "What will probably happen is the FCC will potentially say to the Bells, 'you are under no obligation to lease your networks,'" he said. "'If you choose to do so, you can set the rates at $2, or you can set the rates at $500.'"

The impact to consumers could be disastrous, Arnold said. "Who is best served by letting the Bells set their own rates?" he asked. "The Bells."

Contact Greg Blonder by email here - Modified Genuine Ideas, LLC.