Will Powell Pull the Plug?
The FCC would not confirm whether or not it has reached a verdict in its more than one-year-long review of the regulations. “The Commission does not comment on open proceedings,” says FCC spokesperson Michael Balmorris. “It is highly speculative and premature to say what the Commission will ultimately adopt.”
Industry observers, however, say it would not be surprising if the Commission, under the leadership of widely-perceived RBOC-fan Chairman Michael Powell, ultimately sides with the Bells. “To me, this really smacks of the RBOCs owning Powell,” says Craig Johnson, an independent analyst based in Portland, Ore.
If the FCC does vote to abandon the regulations next month, it will be a huge victory for the Bells, which functioned as monopolies in their regions until the Telecommunications Act of 1996, which forced them to open their networks to competitors. The regulations put in place at that time were intended to open the competitive landscape and make it easier for new service providers to enter markets traditionally dominated by the RBOCs (see Fed Reg Debate Heats Up).
All four of the remaining Bells, BellSouth Corp. (NYSE: BLS), Qwest Communications International Inc. (NYSE: Q), SBC Communications Inc. (NYSE: SBC), and Verizon Communications Inc. (NYSE: VZ), have been very vocal in their criticism of the regulations, claiming that the prices they are allowed to charge competitors for access to their networks and unbundled networking elements (UNE-P) are lower than the amount it costs to run them. In addition to unreasonably low prices, they say, the regulations also hurt the industry as a whole, since they dissuade competitive carriers from investing in their own networks (see Whitacre: Regulations Will Wither).
“UNE-P has resulted in economic damage [for the RBOCs],” says SBC spokesman George Thompson. “And [that damage] trickled down and hurt other parts of the industry. Ultimately, it’s unsustainable.”
The competitive carriers, on the other hand, insist that abandoning the regulations that ensure their access to local networks will once again give the RBOC monopolistic control over most local service offerings (see Competitive Carriers Lash Out at FCC). In addition, they point out, the RBOCs have been granted approval to offer long-distance services in most of the states in their regions based on the fact that their networks were sufficiently open to competitors. To date, the RBOCs can offer long-distance services in 35 states (see RBOCs Get Long Distance Go-Ahead).
Now, traditional long-distance providers have reason to fear that the Bells will not only dominate local services, but that they will also gain large market shares in long distance.
“They’re goners,” says Craig Johnson of the competitive carriers if the FCC does vote to abandon the regulations. “What do they have left to sell? …If they do this, it will be the nail in the coffin for all [standalone] long-distance businesses.”
“I think it’s a disastrous decision,” agrees Network Conceptions LLC analyst Phil Jacobson. “I think it’s going to hurt innovation, and I think it’s going to hurt the economy.”
In May last year, a D.C. court of appeals ruled that the FCC had to reevaluate which network elements should be included in the UNE-P regulations. The Commission has until February 20 to reach its conclusion. While some elements are likely to remain regulated, the Journal article claims that the current version of the FCC plan calls for a two-year phase-out period for CLECs’ discounted access to the Bells’ network switches that route calls to customers. “That is very humorous,” Johnson says. “It took eight years to get here.”
While it might make sense in some cases for competitive carriers to build their own networks and invest in their own equipment in the business market, Jacobson says that abandoning regulation of the residential market doesn’t make any sense at all, since revenues are far too low to justify having several networks in the same area. “I don’t see any situation where facilities-based residential competition makes any sense,” he says.
Before the FCC can vote on dismantling the UNE-P regulations, the Commission will have to overcome what is expected to be considerable legal challenges from the competitive carriers, as well as from state regulators.
“I think we’re living through historic times here,” Jacobson says. “Unfortunately, it’s not going to go well.”
— Eugénie Larson, Reporter, Light Reading