FCC Denies Verizon's Rate Request

'Tis the Christmas season, and, in the holiday spirit, the Federal Communications Commission (FCC) has ruled that Verizon Communications Inc. (NYSE: VZ) must maintain its selfless generosity towards CLECs and other carriers that lease the incumbent's lines in certain markets.

The FCC decided late yesterday that Verizon is still required to give smaller carriers access to its network at discounted rates, so to increase competition in certain markets. The decision affects six U.S. cities: New York; Boston; Philadelphia; Pittsburgh; Providence, R.I.; and Virginia Beach, Va.

Verizon had asked the FCC to remove this requirement more than a year ago, arguing that it's facing increased competition already from cable, wireless, and VOIP operators. (See Verizon Asks FCC to Undo Unbundling.) That competition has resulted in the carrier's recent loss of traditional access lines.

But the FCC agreed with the little guys that they could very well have gone out of business in this fiercely competitive market, were it not for the reduced rates.

Companies like Broadview Networks Holdings Inc. , Covad Communications Inc. , EarthLink Inc. (Nasdaq: ELNK), and XO Communications Inc. use Verizon's lines for at least parts of their networks.

Broadview, which recently filed for an IPO, has had no problem increasing revenues, but its losses have gone up, too. Broadview arguably could have been crippled if Verizon were allowed to charge much higher rates. (See IPO Alert: Broadview Files Its S-1.)

While legislators applauded the FCC's decision, Verizon said the FCC was actually inhibiting competition.

"If the FCC had approved these petitions, it would have permitted Verizon to provide network facilities at commercial rates," Verizon executive vice president Tom Tauke said in a statement. "Instead, the Commission missed an opportunity to promote and encourage facilities-based competition by continuing to require one of the network providers in these markets to sell unbundled facilities at government-mandated, subsidized prices."

On top of trying to force CLECs to pay higher rates, Verizon has also inhibited them by cutting the copper loop from homes in which it installs FiOS. This makes it impossible for a CLEC to provide service to that specific home. (See Got FiOS? Say Goodbye to DSL.) Verizon says its policy is to leave the copper in place if the customer requests it.

— Raymond McConville, Reporter, Light Reading

Kreskin 12/5/2012 | 2:57:45 PM
re: FCC Denies Verizon's Rate Request

Obviously nothing.

Expect VZ to take them to court on this and win.

The FCC has never won in court against the ILECs when they argue interpretations of the Comm Act of 1996. NEVER.

Here is what will happen. They go to Court, the FCC is ordered to grant the forbearance. The FCC has now lost what little teeth they had left. The ILECs definition of modal infrastructure competition stands. You can almost hear the argument to the court: Cable Companies are taking share from us, so are CLECs, so is satellite, so are ISPs and so is wireless. Cable companies by law do not have to provide access but we do. Forbearance will be granted.

Remember Mike Powell ... ILECs sent him packing.

The time for negotiation and compromise was before a vote. When the court orders this ... all hell breaks loose for non-infrastructure owning CLECs. Deservingly so. They need to stop depending on the ILEC.

I'm Kreskin and you heard it here first.
fgoldstein 12/5/2012 | 2:57:43 PM
re: FCC Denies Verizon's Rate Request Kreskin, your analysis is preposterous. You're just dreaming of a windfall for your Verizon shares.

First off, the FCC clobbered the ILECs in the biggest court case of all, 1998's Iowa Utilities Board case. Of course that was the Kennard FCC, which was pro-competitive. The Supremes blessed the FCC's TELRIC standard as well as their requirement that practically everything be unbundled, combined at will. That decision opened up UNE Platform.

The Supremes have not ruled on a major FCC case since then. The DC Circuit, dominated by Helms judges, has been quite pro-ILEC. But they usually require some pretense.

In the instant case, Verizon set out to completely undercut Sections 251 and 271 of the Telecom Act. Those rules describe how an ILEC is supposed to deal with competitors. Forbearance is a vague process designed to get rid of rules that are obviously unnecessary. The ILECs are abusing it to create massive rewrites of fundamental rules.

Verizon's case is basically that they have enough competitors, so they should be able to cut off a whole lot of others. "Enough" consists of the cable company, full stop. Yes, cable is taking a big share of residential subs. But didn't the ILECs complain for years that they lost money on residential subs? They should be happy that cable is taking that business off their hands. Unless, of course, they're talking out of both sides of their mouths.

Forbearance as asked here would have literally cut off every single DSL competitor. That would have resulted in a pure duopoly at best, ILEC vs. cable, with literally zero options for most business locations, since cable doesn't often go into business sites. Only a very small percentage of buildings (big downtown towers, major industrial parks) have competitive loop providers (CAPs). Most loops are a natural monopoly, so the ILEC loop is the only way to get there.

Press articles about "discount" rates are a lie. There is no discount in UNEs. They are priced at TELRIC, which is a standard for fair rate regulation intended to cover all costs and a rate of return, and even a share of common costs. There is no "market" rate for unbundled loops -- ILECs never provide them willingly. ILECs only provide lit "services" priced on "value of service" principles, which means monopoly rents.

Had the FCC not blocked the forbearance, they would have gotten their arses reamed in court, and in Congress, since Congress is finally performing its duty of oversight, and they don't like what they see.
gzkom 12/5/2012 | 2:57:42 PM
re: FCC Denies Verizon's Rate Request Amazing Kreskin, do you get paid by someone to be so sure?
landisrod 12/5/2012 | 2:57:38 PM
re: FCC Denies Verizon's Rate Request Does the article state a complete list or are there soem CLECs that will be crushed by this? Particularly One Communications.
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