February 20, 2003
An extra week of negotiations obviously wasn’t enough for Federal Communications Commission (FCC) Chairman Michael Powell to get the majority he was hoping for to dramatically scale back existing regulations of the telecom industry (see FCC Rules on Regulations and FCC Guru: RBOCs Will Win).
At today’s FCC meeting, which got underway one week and two hours after it was originally scheduled (see FCC Delays UNE Ruling), the chairman was outmaneuvered on the one issue he has been pushing hardest for: abandoning the unbundled network elements platform (UNE-P). The platform, implemented with the 1996 Telecommunications Act, requires incumbent carriers to allow competitors access to seven key network elements at set, low, wholesale prices (see The Other Powell Preps for FCC Vote).
This is reportedly the first time in 15 years that an FCC chairman has been the dissenting voice on a key ruling. It was a major defeat for Powell's agenda, and he was clear in expressing his disappointment.
"The majority apparently is a big fan of UNE-P,” Powell concluded after three of the five commissioners voted for scaling back the platform at a much less radical pace than he had been lobbying for. "Today’s decision clearly steps back from pro-facilities-based policy."
Today’s ruling also comes as a slap in the face to the incumbent regional Bells, including BellSouth Corp. (NYSE: BLS), Qwest Communications International Inc. (NYSE: Q), SBC Communications Inc. (NYSE: SBC), and Verizon Communications Inc. (NYSE: VZ). All of these companies were hoping for major changes in policy, saying they don’t want to invest in their own networks when their competitors can simply piggy-back on them at a fraction of the price (see Whitacre: Regulations Will Wither). Most of their stock prices fell on the news.
Both Powell and fellow Republican commissioner Kathleen Abernathy dissented to the portion of today’s ruling that handed the states a large chunk of the decision-making power over which areas have sufficient levels of competition to start dismantling UNE-P, as well as over when different elements can be removed from the bundle.
“It’s a model that only works if hundreds of stars align… and stay that way,” Powell complained, insisting that with 50 states and the federal government reaching different opinions, there is “little chance of regulatory harmony.”
Not everyone agrees of course. “The states are really well-equipped to deal with this," says David Svanda, the president of the National Association of Regulatory Utility Commissioners (NARUC). “We are truly in the best position to make the granular analysis that’s needed.”Especially disappointing to Powell was the decision to keep switching on the UNE-P list for residential markets where states deem there are significant impairments to competition. Switching will, however, be removed from the bundle for all business markets requiring a DS1 or above, over a three-year transition period. The states have 90 days to claim that there is competitive impairment that requires switching also in these markets.
All was not lost to Powell, however. Both he and Abernathy were pleased with the Commission’s ruling to unbundle competitive Internet service providers' access to new buildouts of fiber networks (see Fed Reg Debate Heats Up). "I embrace today’s decision,” Abernathy said. "I believe that we’ll see increased competition overall… We’re not taking anything away… We’re simply removing the shackles for future investments.”
The two Democratic commissioners, Michael Copps and Jonathan Adelstein, who voted in favor of the UNE-P decision, dissented on the broadband ruling, saying they thought it would have a detrimental effect on competition in the area. “I fear that this decision might well result in higher prices for consumers, [and could] lead to re-monopolization.” Copps said.
The only commissioner who seemed thoroughly pleased with today’s ruling was Republican Kevin Martin, who got his way on both the broadband issue and the UNE-P issue. This comes as more remarkable, given that Powell and Martin come from the same party. A recent Optical Oracle report actually predicted that Martin would likely undermine Powell's vote (see Hanging Fire With the FCC).
“Martin got his entire agenda,” says Network Conceptions LLC analyst Phil Jacobson. “This became a Martin forum… Powell became a very ineffective leader today.”
No matter how wide the gulf between the opposing commissioners on this issue, today was their last chance to meet a court-imposed deadline to rewrite the regulations. Courts have already rejected two other attempts by the FCC to rewrite the rules (see Supremes Rule for Competitive Carriers).
While the Commission has offered guidelines as to how the telecom regulations should be scaled back, few observers expect today’s ruling to bring much clarity to the industry’s regulatory situation.
“For the most part, the rulings will be a lawyer's cash-pig,” Craig Johnson, an independent analyst based in Portland, Ore., writes in an email. “The Bells will sue in the states where they feel they are being 'taken advantage of' by the PUCs and the xLECs and LD players - and those cases will work their way up through the legal system and we will be right back to where we are today [in a couple of years]"
The RBOCs immediately fired up the rhetoric in protest.
"Rather than reform the rules to provide an economic stimulus to the entire industry, the FCC has chosen to continue guaranteeing profits to the long-distance companies without requiring them to invest anything in the local phone networks,” SBC President William Daley said in a statement today following the ruling (see SBC Reacts to FCC Vote). “It is a loss for American consumers, telecom employees, and advocates of real reform.”
The Bells, which have been counting on Powell to push through regulatory relief, all saw their stock prices drop following the ruling. Qwest was the hardest hit, seeing its stock plummet nearly 14 percent, or $0.55 to $3.50 a share in afternoon trading.
On the other side of the fault-line, competitive and long-distance carriers that have based much of their business on the UNE-P can breath a small sigh of relief today, for while UNE-P is being dismantled, it’s not being done at the cut-throat rate that many may have feared (see 24172}).
"The FCC decision supports the actions of the states to open the local service market to competition, and we remain committed to bringing competitive choice to as many customers as possible,” AT&T said in a statement today. “By leasing facilities initially, we bring competition to market that much sooner. Today's decision on switching therefore is a great win for our customers.”
— Eugénie Larson, Reporter, Light Reading
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