As the Federal Communications Commission (FCC)'s review of regulations in the telecommunications industry approaches completion, the cheerleaders on either side are working themselves into a lather.

Wednesday, the Telecommunications Industry Association (TIA) decided to dive into the debate headfirst. Backing up the incumbents' line of defense, the organization sent a letter to FCC Chairman Michael Powell outlining the findings of a study it has done on the link between cuts in carriers' capital spending and a decline in quality of service (see TIA: Capex Cuts Cripple Quality).

"[T]he recent and projected broad downward trends in capex should cause alarm bells to go off among regulators at every level,” TIA president Matthew J. Flanigan writes in the letter. “Concrete action must be taken quickly to restore the balance between regulation in service of the public interest and the creation and maintenance of a regulatory environment that will promote investment and shareholder value.”

The Bells have been arguing for months that the FCC should dismantle the 1996 Telecommunications Act regulations that oblige them to let their competitors lease access lines and network elements at set wholesale prices. They insist that the regulations are causing them to lose money and dissuading them from investing in their networks (see Whitacre: Regulations Will Wither, and SBC's Fed Up, But So Are Its Critics).

While TIA is pushing hard for the FCC to remove regulations on broadband, it claims not to have a position on whether or not the agency should dismantle the entire unbundled network elements platform (UNE-P). “We haven’t gotten involved in that particular exercise,” says David Owen, the chairman of TIA’s public policy committee. However, the organization’s report, which shows how Ameritech’s customer complaints exploded as the company cut capital spending in the 90s, is bound to be used by the RBOCs to support the argument for a complete end to regulations.

The report cautions that the huge reduction we’re seeing now in incumbent capital spending will have dire consequences. “Nothing good has come out of the ILECs feeling inhibited to make investments in their networks,” Owen says.

Other organizations have been voicing their support for getting rid of, or at least scaling back, regulations. Dan Phython, senior vice president of law and policy at the United States Telecom Association, speaking on a panel at the UBS Warburg telecom conference in New York yesterday, said: “If the Commission does the right thing, there will be more spending on the side of the incumbent carriers.”

At the other end of this debate, the competitive carriers and their supporters have been equally vocal in their resistance to dissolving regulations, insisting that would mean an end to competition altogether (see AT&T's Dorman Disses RBOCs, and Report: DSL Is Profitable). The Bells aren’t losing money and cutting capital spending because regulations treat them unfairly, they argue, but because they don’t know how to compete.

"The Bells need to learn to be wholesale carriers... They’ll make a lot more money if they do,” said Robert McDowell, the vice president and assistant general counsel of the Competitive Telecommunications Association (CompTel), speaking on the UBS Warburg panel yesterday. “UNE-P is here to stay... Two to three years from now, it won’t look a lot different than it does today… You can’t just pull the plug on UNE-P.”

While the FCC itself insists that no decisions have been made, industry observers believe a compromise is in the works. “There will be constraints put on UNE-P,” UBS Warburg analyst John Hodulik said after the discussion. “There’ll be something more favorable for the Bells. The question is how favorable.”

“There will be no winner,” opined Robert C. Atkinson, the director of policy research and special projects at the Columbia Business School. No matter what the FCC’s decision turns out to be, he insisted, individual states will continue to play a major role. “The FCC just couldn’t come up with an optimal decision that works equally as well in Manhattan and in Kansas."

The FCC has said that it will try to reach its decision on whether or not to dismantle the regulations by year-end, but that the process could stretch into the new year.

— Eugénie Larson, Reporter, Light Reading
www.lightreading.com