FCC Stirs Up Competitive Carriers

Last week (February 14) the Federal Communications Commission (FCC) issued a press release stating that it would begin the rulemaking process on defining wireline broadband services.

Even though an official decision by the FCC is at least a year away, the press release has stirred up concern among competitive local exchange carriers (CLECs) and Internet service providers (ISPs) that fear the FCC may be leaning toward rules that favor the incumbent carriers -- the so-called regional Bell operating companies (RBOCs) -- over CLECs.

"It's very early in the process," says Dave Baker, vice president of law and public policy for EarthLink, an ISP. "But it looks like the RBOCs are playing some regulatory games here, and the FCC seems willing to indulge them. And if rules are overturned it will be a matter of law."

In the notice adopted last week, the FCC tentatively concluded that wireline broadband Internet access services -- whether provided over a third party's facilities or self-provisioned facilities -- are information services, with a telecommunications component, rather than telecommunications services. Information services include such services as voice mail and email, which ride over telecommunications facilities.

The press release also stated that the commission would be asking for comment on changing or eliminating Computer Inquiry rules. These rules were developed in the 1970s and 1980s as a way to force phone companies to open their networks to information service providers like data storage companies and, later, Internet service providers.

It’s the combination of the broadband classification and possible changes to the Computer Inquiry rules that have ISPs most concerned. If these rules are changed drastically or eliminated altogether, ISPs like EarthLink could lose access to the incumbents' networks.

The problem is that the Telecom Act of 1996, which was supposed to spur competition, was not designed with the Internet in mind. It was designed to force competition among telecom services -- most notably, voice services. Specifically, the Act deals more with facilities-based services than with Internet services, which are provided over the RBOCs' facilities and, in the case of dial-up Internet service, as part of the RBOCs' own telephone services. If the Computer Inquiry rules were eliminated and broadband services classified as information services rather than telecom services, the RBOCs could deny access to their networks.

On the other hand, competitive broadband carriers like Covad Communications (OTC: COVD) would not be directly affected by the classification of broadband as an information service or by the change in Computer Inquiry rules. The belief is that they would likely be protected by the Telecom Act of 1996, says Jason Oxman, vice assistant general counsel for Covad. Covad leases the physical part of the RBOC network, thereby providing telecom services and not just information services.

”The regulatory issue on resale doesn’t really impact us, but the way that they get to their decision is important,” Oxman says. “We don’t want to see them make any stupid statements that RBOCs could use to argue that they no longer have to open their facilities to us.” Oxman says he is more concerned about the influence the RBOCs appear to have over the FCC. He sees this press release as a reaction to pressure from RBOCs to loosen regulatory constraints in order to bring them on better regulatory footing with cable operators.

“The opening of the proceedings like this shows the power the Bell companies have over the FCC,” he adds. “The fact that they have gotten them to believe the rhetoric that they should be free to compete with cable providers without opening their networks is of concern, especially since RBOCs already control 93 percent of the broadband market.”

Carriers like AT&T Corp. (NYSE: T) are concerned, because they believe that any weakening in open access is a danger to competition. AT&T issued a statement last week voicing its concern.

“Based on the preliminary information released today, we are approaching the FCC's broadband notice with caution and concern,” says the statement. “To the extent today's rulemaking casts a shadow on the ability of competitive carriers to obtain access to essential last-mile facilities, it endangers the hard-fought gains made in states like New York, and could make it less likely that consumers elsewhere would be able to enjoy competition in voice and data services.”

Most ISPs and competitive carriers think it highly unlikely that their worst fears will come to fruition.

“I don’t think it will ever get that far,” says EarthLink's Baker. “But if they were to be overturned, the FCC would be undermining over 25 years of progress. It would be an incredibly short-sighted decision, and this commission would go down in history for ruining competition.”

Incumbent carrier, Verizon Communications Inc. (NYSE: VZ) had no comment on the FCC’s press release, saying it will wait until further information is available before making public comment. But Bob Bishop, a company spokesman, emphasized the company’s commitment to comply with the Telecom Act of 1996 for open access to its network.

More information on the notice of proposed rulemaking is expected this week.

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