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
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ramiral 12/4/2012 | 10:55:31 PM
re: FCC Stirs Up Competitive Carriers I am confused by the statement that the RBOCs control 93% of the broadband access when other research indicates that there are twice as many cable modem connections as there are DSL connections.

Would someone please explain the apparent contradiction to me?

There also was no objective research on the state of the industry and the lack of true broadband capabilities into the home. For instance, how many multiple stream video connections are offered by the RBOCs? Isn't this really the type of broadband the public will need?

Her article seemed to be more of a ISP, CLEC and/or cable company spin on this potential ruling change rather than an objective and well thought out article. Is Light Reading just a pseudo newpaper that is really just another advertising/PR mechanism?
g_shdsl 12/4/2012 | 10:55:28 PM
re: FCC Stirs Up Competitive Carriers read Wallstreet Journal, Feb 11th. Light Reading should get perission to quote from it.
You can get the archive if you subscribe.

"SBC dominates local phone service in 13 states and controls a third of the nation's phone lines."

"The four ramaining Bells...control more than 90% of the nations's local phone line".

"None of the regional Bell giants has been as aggressive as SBC, ... to attack the FCC".

SBC is allowed to enter other markets if it proves it has opened its market. So in '97, SBC was rejected to sell long distance in Oklahoma.
SBC provided evidence that its market was open. The evidence was, four subscribers of a tiny competitor trying to enter the local market.
The four subscribers all work for the tiny competitor. SBC sued.

the rbocs are putting up the biggest fight, beyond any imagination. Read the article and others like it here on L.R.



ramiral 12/4/2012 | 10:55:25 PM
re: FCC Stirs Up Competitive Carriers I'll try to find the article, but looking at the points you quoted, nothing refers to the RBOCs controlling 93% of the broadband market - the 90% figure quoted relates to voice only.

So, once again, where does Marguerite validate her data? In reality, it's the cable companies that monopolize the broadband access in this country. The FCC should loosen the constraints on the RBOCs, and quickly, to get our telecom sector moving forward again.
g_shdsl 12/4/2012 | 10:55:24 PM
re: FCC Stirs Up Competitive Carriers
Sorry. I missed the key word, "broadband". I am more focused on the big picture.

Here is an article to help your figures,

Of the 9.6 million broadband customers as of June 2001, cable operators have signed up more customers, by almost a 2-1 margin over telephone carriers. There are about 5.2 million cable-modem subscribers compared to 2.7 million DSL customers.


Realize that the way to get competition going is to allow VOICE SERVICE providers to come in, e.g. call ATT and order their LOCAL phone service over cable. Then RBOC's will slow their BIG FIGHT, and start competing.
ramiral 12/4/2012 | 10:55:23 PM
re: FCC Stirs Up Competitive Carriers As far as I know, there are no regulatory issues blocking AT&T, or any other cable company, from offering voice services. In addition, the RBOCs are already under the rule to allow CLECs voice access.

So, again, it seems that the most vocal objection to considering RBOC broadband deployment as information service based and not voice based comes from the cable companies.

The sooner the public and the government realizes this, the sooner the rules can change so that we can all start to get truly competitive broadband access into the home vis-a-vis massive RBOC infrastructure investment.
g_shdsl 12/4/2012 | 10:55:23 PM
re: FCC Stirs Up Competitive Carriers
Very likely correct that nothing is stopping AT&T. Except the consumer.

Thus my suggestion for "you/us" to call AT&T, and Direct DSL, etc. to bipass the RBOC's and ingnite a consumer based rebound.

Please read my emails with links on them for bigger picture of the whole telecom BIG-PICTURE problem.
g_shdsl 12/4/2012 | 10:55:22 PM
re: FCC Stirs Up Competitive Carriers
SBC's annual profits have more than tripled to $7.2 Billion (wsj.com).

Also, instead of saying voice, I should have stated LOCAL TELEPHONE MARKET.

On a different point, I don't know anyone that prefers wireless over wire. I mean every cubicle around here has a wire hooked up to it, which is good because I can whisper things to my girlfriend. On my cell, I have to yell them and that kind of ruins the goal.
rjmcmahon 12/4/2012 | 10:55:22 PM
re: FCC Stirs Up Competitive Carriers Realize that the way to get competition going is to allow VOICE SERVICE providers to come in, e.g. call ATT and order their LOCAL phone service over cable. Then RBOC's will slow their BIG FIGHT, and start competing.

Consumers prefer a wireless voice network service due to their pedestrian nature. Expecting them to switch to an alternative fixed line voice service misses the direction of the market demands.
ramiral 12/4/2012 | 10:55:22 PM
re: FCC Stirs Up Competitive Carriers The wireless arguement will work much better once we have phones that convert from wire line based (but portable, like 900 MHz or 2.4 GHz phones) to wireless as people walk away from their 'base' station.

Also, I have read all of your links and still don't see where the logic holds to keep the RBOCs 'feet to the fire' to share broadband, information based, access.

By the way, are you Marguerite?
rjmcmahon 12/4/2012 | 10:55:21 PM
re: FCC Stirs Up Competitive Carriers Also, I have read all of your links and still don't see where the logic holds to keep the RBOCs 'feet to the fire' to share broadband, information based, access.

Tomorrow's revenue comes from content and services and less from access. Those with today's access revenue would be making a better strategic move if they provided for tomorrow's revenue generating businesses rather than fight to maintain their status quo.

A lessen from Coke's bottler franchises may be a decent analogy where they inadvertently enabled the bottling industry and eventually bought the ones that won. (An obvious problem with the analogy is that Coke had the product (syrup) and the brand, neither of which the RBOCs have managed to develop)

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