When the going gets tough, the tough go to Washington.

That appears to be the case with many struggling competitive carriers, who say that Federal Communications Commission (FCC) Chairman Michael K. Powell is showing unusual favoritism toward incumbent carriers and doing little to help the struggling telecom industry.

Over the past six months, competitive carriers have complained that Powell has been too heavily influenced by the regional Bell operating companies (RBOCs). But Chairman Powell's recent comments that financial problems plaguing the telecom sector have been in part due to an overabundance of providers has ignited a firestorm among competitive carriers, who feel they are being outlobbied by the deep-pocketed RBOCs.

“We are concerned that they are moving forward with deregulation without establishing an efficient competitive market,” says Russell Frisby, president of the Competitive Telecommunications Association (CompTel), an industry association that includes many competitive carriers. “Obviously, there is a tremendous political battle being waged and Powell is being influenced. We are trying to counter that.”

Last week, the Wall Street Journal reported that Powell said he thinks the FCC may have made a mistake “by implicitly encouraging the formation of hundreds of Bell competitors without realizing how few of them would ultimately be able to survive.” At the height of the bubble, venture capitalists were throwing money into companies that were trying to quickly expand their networks. Since then, many have filed for bankruptcy, and many of those remaining teeter on the edge of it.

The article quotes Powell as saying, "We correctly believed these markets didn't need to be natural monopolies and they could be competitive, but I think we tended to over-exaggerate how quickly and how dramatically it could become competitive.”

Competitive carriers and their industry lobby groups were infuriated by the comments. In response, the Association for Local Telecommunications Services (ALTS) and CompTel blasted the Commission in a letter they jointly drafted and sent to the chairman’s office. In the letter, they called for the Commission to return to its original intention, calling for a freeze on three of its current proceedings, which they believe are pro-RBOC and will ultimately lead to more deregulation.

The FCC says it is still evaluating the letter and has not made any changes to its proceedings. As for charges of favoritism, an FCC spokesperson said that the FCC’s priority is simply to clear up regulatory uncertainty as quickly as possible.

In the last several months, the FCC initiated three main proceedings that review rules and definitions laid out in the Telecom Act of 1996 with regard to broadband.

The first is the Triennial Review of UnbundledNetwork Elements, a proceeding that will completely review the Commission’s rules determining which elements of a network should be considered for unbundling. The second, known as the Broadband Structural Notice of Proposed Rulemaking (NPRM), is a proceeding that is reviewing the classification of broadband traffic as either an information service or telecommunications service (see FCC Claims Authority on Cable Modem). The third proceeding is a review of whether or not RBOCs can be classified as dominant players in particular markets. This will determine which carriers will be subject to unbundling rules.

Comments have been solicited on each of these proceedings, with a second round of comments due last week. Formal decisions on these matters are expected from the FCC by the end of year, according to Powell’s office. But no official date has been set.

In the letter to Powell, the groups called for a suspension of all three of these proceedings. The groups are urging the Commission to first review barriers to competition before it considers changing some of its rules in the direction of deregulation.

“The chairman needs to go back to the basics and make sure there is competition, and once barriers are removed then he can look to deregulating the Bells. We think he is putting the cart before the horse.”

Competitive carriers were already skeptical of the Commission’s intentions when it first opened these proceedings, but recent comments by Powell and Commissioner Kathleen Abernathy in the face of the WorldCom Inc. (Nasdaq: WCOME) debacle has added fuel to the fire (see FCC Focuses on DSL Classification).

“It is becoming more and more evident through recent comments from Powell and Abernathy that there is a very pro-Bell agenda at work here,” says Jason Oxman, vice president of Covad Communications Inc. (OTC: COVD). “We are disappointed, because in a time of crisis for the industry, Powell has proposed eliminating all the safeguards for competition.”

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com