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Skeptics Question RBOC Victory

The excitement from yesterday's telecom regulation decision waned today as RBOCs gave back some of yesterday's share gains.

Yesterday a U.S. Appeals Court ruled against some large chunks of the Federal Communications Commission (FCC)'s Triennial Review (see Courts Overrule FCC Again ). The highlight of the order was that the FCC doesn't have the legal authority to let the states set the prices that local carriers can charge long-distance operators to access their networks.

That bit of news initially gave a lift to RBOC stocks, as incumbent carriers were viewed as the clear victor in the proceedings. But as the complexity of the decision has set in, the regulatory skies have grown cloudy once again.

Today it became evident that more legal battles are in the cards, as the opposition will launch an appeal effort. The FCC commissioners who backed the savaged portion of the Triennial Review -- Jonathan Adelstein, Michael Copps, and Kevin Martin -- say they'll appeal the D.C. court's decision to the Supreme Court.

In addition, with the technology pace of the telecom world picking up, it's not clear that regulation of UNE-P line sharing, which primarily involves legacy circuit-switched voice traffic, will matter as much in the future. Some analysts have noted that the rise of packet-switched technology such as VOIP has already made line sharing somewhat irrelevant (see FCC Rules on VOIP – Sort Of, Light Reading Launches VOIP Directory, and VOIP to Star at FCC ).

"VOIP, wireless and cable competition is making the current regulatory structure obsolete," write analysts at CIBC World Markets, in a note to clients. "The RBOCs have already lost approximately 25 percent of local access market share and are losing 4 percent per year, by our estimate, and new technologies are accelerating."

So what the FCC has managed to do, as investors signaled today, is continued down the path of regulatory uncertainty.

"The political and legal implications of the decision are simply unclear at this time... though we concede that the decision introduces further uncertainty into the marketplace for competitive providers of local service," says attorney Dana Frix, the co-chair of Chadbourne & Parke LLP’s telecommunications and technology practice.

Shares of Qwest Communications International Inc. (NYSE: Q) fell $0.14 (2.90%) to $4.69; BellSouth Corp. (NYSE: BLS) dropped $0.21 (0.73%) to $28.60; Verizon Communications Inc. (NYSE: VZ) slipped $0.51 (1.29%) to $38.95; and SBC Communications Inc. (NYSE: SBC) gave back $0.28 (1.10%) to $25.20 in late afternoon trading on Wednesday. — Phil Harvey, News Editor, Light Reading

technonerd 12/5/2012 | 2:18:56 AM
re: Skeptics Question RBOC Victory The press called it a major victory for the RBOCs, but as usual they don't know what they're talking about. The issue is whether the states will set the lease rates on the network elements and the unbundled network element platforms, or whether the FCC will do so. This is a fairly minor issue, easily finessed.

The biggie is the formula by which the rates are to be set. The US Supreme Court has now twice upheld the "TELRIC" forumla which gives the RBOCs relatively little credit for owning the wires. The court decision says nothing about TELRIC. It couldn't, because the US Supreme Court has been clear as a bell on that issue.

That said, the FCC has been doing everything it can to allow the RBOCs to sidestep the TELRIC issue in a couple of ways:

1. Let the RBOCs build "new" fiber and then not give access to competitors. Trust me, children, the RBOCs will take this and run with it. They'll have fiber running literally across the street from their COs to RTs, which will then be orphans.

2. Declare any circuit with a potential speed of 200 Kb/s to be "broadband," and any traffic running on this circuit to be an "information service" not subject to regulation. This is the FCC's way of preserving RBOC monopolies without saying so.

Bottom line is that the court case is meaningless. The real action is with the NPRMs that are breaking mostly for the RBOCs. The reason it's happening is that Powell wants to run for the Senate from Virginia and he'll need campaign money. The RBOCs know it, and if he can deliver for them they will finance his campaign.
talbottc 12/5/2012 | 2:18:50 AM
re: Skeptics Question RBOC Victory Just a brief note of correction: Mssrs. Raynovich and Harvey both refer to "UNE-P line sharing" in commenting on the court's ruling. There are two different issues, "UNE-P" and "line sharing," the latter referring to the DSL and TDM voice uses of the local loop. The court ruling vacates the Commission's TRO as to UNE-P, but leaves the TRO intact as to line sharing.
technonerd 12/5/2012 | 2:18:27 AM
re: Skeptics Question RBOC Victory Funny thing is that the FCC gave the states a lot of leeway to set higher UNE-P rates than the CLECs would have wanted. If the feds now set the rates nationwide, you just might find that TELRIC will set those rates significantly lower than they are now in many places. Now wouldn't that be a bite in the shorts?!
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