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CLECs Strike Back at SBC

SBC Communications Inc. (NYSE: SBC) is about to get slapped with multimillion-dollar damage claims from two prominent CLECs in the Midwest for allegedly violating the conditions of its merger with Ameritech (see FCC Rules SBC in Violation).

The FCC cleared the way yesterday for CoreComm and Z-Tel Communications to seek damages against the Baby Bell and its nine incumbent local exchange affiliates for breaking the conditions of its merger with Ameritech in October 1999. SBC was obligated under its merger and section 251 of the Communications Act to allow CoreComm and Z-Tel to use its transport facilities to deliver local phone services (see FCC 'Disappoints' SBC).

”Before the ink was dry on the merger, SBC refused to provide shared transport in Ohio, Michigan, Indiana, Illinois, and Wisconsin,” says Bruce Burnett, VP of external affairs at CoreComm. “We had to reroute all our traffic via other long-distance carriers, which was inefficient and uneconomical… It meant substantially higher costs to our customers."

The FCC already fined SBC $6 million for this violation in October 2002, but the latest ruling invites Z-Tel and CoreComm to recover any damages lost because of this infringement.

The CLECs have multiple options they can pursue, including going back to the FCC to seek damages, going to the individual states, or going to the courts and filing under antitrust laws.

“The enticing part is to go back to the FCC, as it has already found in our favor, so the case could be done quickly,” says Burnett. That said, CoreComm already has an antitrust suit pending against SBC in Ohio and is looking at the implications of rolling the current complaint into that proceeding. Burnett says whichever route offers the largest financial reward will undoubtedly be the one CoreComm takes.

Similarly, Z-Tel plans to fire off a damages claim against SBC for its affected businesses in Illinois and Michigan, and is investigating its options. “We have several proceedings with the FCC, state commissions, and legal issues against SBC… We are stepping back to look at what’s the best step,” says Ron Walters, Z-Tel's VP of strategic planning.

He expects a multimillion-dollar reward, which, with only $15 million in operating cash, is material and significant to Z-Tel. “It paints a picture of how badly we’ve been damaged,” Walters says.

SBC did win one point with the Commission, which found in favor of the Bell on Z-Tel’s claim in California. The FCC decided Z-Tel was offered enough contractual remedies by SBC, in that particular state, to sort out the issue of sharing facilities.

SBC had little to say on the matter. "We are reviewing the decision regarding the FCC's order and will take any lawsuits as they come," says Dave Pachokzyk, an SBC spokesman.

Overall, it’s a nasty slap on the wrist for SBC and comes just as the Commission is preparing its final ruling on the Feb. 20 broadband regulation order. To recap, on Feb. 20, the FCC announced a decision that four regional Bell operators in the U.S. -- BellSouth Corp. (NYSE: BLS), SBC, Qwest Communications International Inc. (NYSE: Q), and Verizon Communications Inc. (NYSE: VZ) -- should no longer be obliged to provide competitors with cheap line-sharing access to their broadband networks (see Covad Bends Commissioner Martin's Ear).

The states are already able to make their own decisions on the Unbundled Network Element Platform (UNE-P) issue, regarding competitive carrier access to the RBOCs' networks for local voice service.

Experts say the outcome of Z-tel and CoreComm’s complaints indicates a step by the FCC in favor of the competitive carriers and could kick-off similar complaints from other CLECs that believe they have been wronged by the RBOCs.

— Jo Maitland, Senior Editor, Boardwatch

sealink 12/5/2012 | 12:12:18 AM
re: CLECs Strike Back at SBC The CLEC's uprise and it take the baddest ILEC to knock them back down.
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