Tauzin-Dingell Takes Another Step

The Bell brigade has won the first skirmish in the war on telecommunications deregulation. After two years of lobbying by the regional Bell operating companies (RBOCs) at a cost of over $19 million, the U.S. House of Representatives yesterday passed the controversial Tauzin-Dingell bill.

Competitive carriers and large long-distance carriers like AT&T Corp. (NYSE: T), Sprint Corp. (NYSE: FON), and WorldCom Inc. (Nasdaq: WCOM) strongly oppose the bill. If it becomes a law, which now requires passage by the Senate, it will allow RBOCs to offer broadband Internet services over upgraded and newly built long-distance lines without opening up that network to competition (see Last Mile Political Battle Heats Up).

Reaction to the news that the bill passed in the House has been predictably mixed. The RBOCs are ecstatic, while opponents have expressed disappointment (see SBC Cheers Tauzin-Dingell, Verizon Applauds Tauzin-Dingell, and Sprint Slams Tauzin-Dingell).

"This policy change is sorely needed. America is still in an investment-led recession,” Tom Tauke, senior vice president for public policy and external affairs for Verizon Communications Inc. (NYSE: VZ) said in a statement. "This is exactly what the economy needs. This will make billion-dollar investments in the Internet make sense again.”

Opponents to the bill caution that the battle may have been won, but the war isn’t over yet. The bill must still make it through the U.S. Senate where powerful leaders on the Commerce Committee, like Senators Ernest Hollings (D, SC) and John McCain (R, AZ), are poised to kill it upon arrival.

“I think this is the high-water mark for the RBOCs,” says Robert McDowell, vice president and assistant general counsel for the Competitive Telecommunications Association, a lobbying group for CLECs (competitive local exchange carriers). “It just isn’t going to go anywhere in the Senate. We’re focusing a lot of our attention on similar battles in the Federal Communications Commission (FCC). I think you’ll see a lot more action in the FCC than on Capitol Hill this year.”

But what does all this mean for the sagging telecom equipment sector? How are these players reacting to the news? Most companies aren’t saying much. And who could blame them? Companies like Alcatel SA (NYSE: ALA; Paris: CGEP:PA), ADC Telecommunications Inc. (Nasdaq: ADCT), Cisco Systems Inc. (Nasdaq: CSCO), Lucent Technologies Inc. (NYSE: LU), and Siemens AG (NYSE: SI; Frankfurt: SIE) sell broadband access equipment to both incumbents and competitive carriers. These companies also sell gear to cable operators, which are also competing for broadband business.

“We don’t really have a position on this, but our feeling is that anything that will stimulate more buying in this sector is positive,” says Rob Clark, director of public relations for ADC. “The RBOCs have been sort of dragging their feet for awhile, so if they can get more clarity on the regulatory issues they should start spending again.”

For the past year, RBOCs have slowed their DSL deployments, complaining that they have been unwilling to spend money building out their networks when the fate of those networks is still so uncertain. According to Jon Cordova, an analyst with market research firm Infonetics Research Inc., shipments of DSL customer premises equipment was down 17 percent in North America in 2001 from 2000. DSLAM aggregation equipment for the central office was down 43 percent in 2001. A closer look at the numbers reveals that much of the drop came in the earlier part of the year, while unit and port shipments actually grew. In Q4 2001 CPE shipments were up 3 percent and DSLAM port shipments were up 60 percent.

Cordova says there are several reasons for this. For one, carriers were trying to fill up excess capacity, so they didn’t need to buy as much equipment. Secondly, several CLECs went belly-up in the first half of 2001, reducing the number of customers buying gear. And the third reason he cites is that RBOCs were indeed slowing deployment because of the uncertainty in regulation.

“I think the stage is set now for aggressive RBOC DSL deployment to begin,” he says. “We know that in the past, RBOCs have taken their sweet time deploying DSL services, so maybe this last quarter is an indication that they suspect legislation will get pushed through that favors them.”

But Cordova says that not all equipment vendors would benefit equally from Tauzin-Dingell becoming law. He sees bigger players like Alcatel, Lucent, and Cisco, which have a strong presence in the U.S. RBOC market, benefitting more than some other companies. For instance Copper Mountain Networks Inc. (Nasdaq: CMTN), which traditionally has sold to CLECs, would suffer if things continue to get worse for them. It will also potentially hurt other smaller equipment providers who are just starting to develop their DSL equipment businesses.

”Tauzin-Dingell could be great for those companies already in RBOC networks,” he says. “But for the ones who are just starting to compete in the DSL market, it’s not so great.” — Marguerite Reardon, Senior Editor, Light Reading
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