FCC Ruling Could Deal Blow To Rural Broadband Service

The residents of Ruby Ranch, Colo., have secluded homes, great views of the mountains west of Denver and hiking trails at their doorsteps. But they have had a very hard time getting Internet access.

By JULIA ANGWIN
Staff Reporter of THE WALL STREET JOURNAL

Like many rural communities, Ruby Ranch hasn’t been able to persuade its local phone or cable company to install high-speed Internet service. Ruby Ranch’s phone lines aren’t even good enough to provide decent dial-up Internet access — instead of offering a speed of 50 kilobits per second or more as in many places, residents were stuck surfing the Web at a pokey 26 kbps.

So this past May, the community launched its own high-speed Internet service called the Ruby Ranch Internet Cooperative. The cooperative rents space on phone lines from Qwest Communications International Inc. and houses its equipment in a local horse barn alongside nine horses. These shared lines carry both traditional voice calls offered by Qwest as well as the fast Internet service called digital subscriber line, or DSL, offered by the cooperative.

But last week’s big Federal Communications Commission ruling on local-phone regulations could deal a major blow to Ruby Ranch, as well as some other small Internet services. The FCC decreed in a preliminary decision that the regional Bell phone companies such as Qwest would no longer be forced to share their lines with competitors starting three years from now.

That means the cooperative might have to rent so-called dedicated phone lines from Qwest, which amounts to a second line coming into a customer’s home. The cooperative says that when it inquired about dedicated lines last year, Qwest wanted $24 a month — nearly seven times the $3.50 a month it charges for line-sharing. The cooperative currently charges its own customers $50 a month, which includes the cost of its equipment.

"Given the unreasonably high price of the dedicated lines, we will struggle and might be put out of business," says Carl Oppedahl, a Ruby Ranch patent lawyer who helped found the cooperative. "Then our area will again have no broadband at all."

A Qwest spokeswoman confirmed the dedicated-line price quoted to Ruby Ranch, but added that it’s too soon to say how Internet pricing in general will fare under the FCC order. The Bells have long argued it is unfair for their high-speed Internet business to be regulated while the cable companies’ isn’t. Most cable companies, for instance, face no such requirement to share their lines. Bells also say they often lose money on line-sharing contracts.

Line-sharing fees vary by state because they are regulated by state utility commissions. "Line-sharing charges in some states are as low as zero," says Link Hoewing, assistant vice president for Internet and technology policy at Bell company Verizon Communications Inc.

According to FCC statistics from the end of 2001, the most recent available, there were 294,000 high-speed, or broadband, lines provided by companies that compete with the Bells. An estimated 40% of those connections rely on line-sharing.

Some line-sharing services are offered by competitors that choose to wire areas where the Bells don’t yet provide DSL. Others are provided by companies competing directly with the Bells’ own DSL, which helps keep prices down.

"The decision to kill off this element … will lead quite quickly to higher retail prices for broadband consumers," FCC Chairman Michael Powell said in a dissenting opinion last week.

Mr. Powell’s view actually was shared by four of the five FCC commissioners, who said they would have preferred to keep line-sharing regulations intact. But the commissioners agreed to give up line-sharing in exchange for keeping local voice-calling competition in place as part of the complex, highly contested ruling.

Many DSL connections, such as the majority of those offered by America Online, won’t be affected because they are obtained from the Bells through another type of arrangement. The elimination of line-sharing most directly affects Internet providers such as Covad Communications Inc. Covad buys high-speed Internet access from the Bells and resells it to Internet service providers, or ISPs, such as EarthLink Inc. Covad says it provides service to about 200,000 residential customers, the vast majority through line-sharing.

Covad’s assistant general counsel, Jason Oxman, says the company may challenge the line-sharing ruling in court if it remains intact. But, he says, the final rule hasn’t been written and the commission could choose to regulate line-sharing some other way. "I think the commission understands that without line-sharing there is no competition in broadband," he says.

One of Covad’s customers agrees. "From the ISPs’ perspective, the worst part of [the decision] is that a concept of a viable competitor to a Baby Bell has just withered and died," says Alexis Rosen, president of Public Access Networks Corp., a New York Internet provider that has roughly 5,000 subscribers.

Internet provider Cyber Mesa Computer Systems Inc. of Santa Fe, N.M., says the elimination of line-sharing would throw a wrench in its efforts to wire up Silver City, N.M., a former mining town that lacks high-speed Internet access.

If the ruling goes into effect, Cyber Mesa’s president, Jane Hill, says she would likely have to raise DSL prices to $69 a month from $39 — something she expects will drastically limit how many of her 14,000 customers she can attract to the high-speed Internet service.

"Everybody wants broadband until they hear the price," Ms. Hill says. "So if you’re not in there at $39 a month, most people are not going to buy it, particularly in these smaller communities where there’s no wealth."

Write to Julia Angwin at [email protected]

Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved

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Bell Firms Pledge to Fight New FCC Rules
Voice-Network Sharing To Be Fought in Court

By Jonathan Krim
Washington Post Staff Writer
Tuesday, February 25, 2003; Page E01

The major regional phone companies yesterday promised a court fight to overturn rules governing competition for local telephone service that were approved last week by the Federal Communications Commission.

Two of the four former Bell companies, SBC Communications Inc. and BellSouth Corp. also renewed promises made after the vote that they would not invest in new, high-speed Internet networks unless the local telephone rules are scuttled.

The companies’ posture angered several government and industry executives, who accused the phone companies of the political equivalent of holding their breath to get more candy after getting what they originally asked for.

Although the FCC preserved the system that forces the Bells to lease their voice networks to rivals at discounted rates, the agency swept away similar requirements on "broadband," the high-speed lines considered key to the nation’s telecommunications future.

At one time, the Bells sought that outcome.

"Old wires, old rules . . . new wires, new rules," was the way Tom Tauke, senior vice president of Verizon Communications Inc., described his company’s position in a speech in August 2001.

The Bells spent tens of millions of dollars lobbying Congress and the FCC to drop the broadband rules, arguing that they could not be expected to invest in upgrading their networks with ultra-fast lines if they had to rent them to rivals at regulated rates.

The campaign attracted crucial support from major technology companies, which bet that if the Bells prevailed they would begin spending on new equipment, infrastructure and software that would revive the ailing technology economy.

With more legal battles certain to extend what already is one of the most expensive and punishing lobbying battles in memory, the Bells are unlikely to undertake such spending in the short run.

"Considering the Bells got almost precisely the broadband relief they requested, relief they argued would lead to increased investment, their change of heart makes you wonder whether they really want to increase spending at this time," said one Bush administration official who insisted on anonymity.

The Bells acknowledge that originally they were focused on gaining relief from broadband rules.

"There was a long time when we thought freedom in the broadband arena would be a panacea," said Herschel Abbott, vice president for government affairs at BellSouth.

But in the past year, he said, the Bells have been hurt as long-distance companies such as AT&T Corp. and WorldCom Inc. began offering competing local phone service, aggressively pricing local and long-distance packages that have forced the Bells to lower their rates.

That has been a boon to consumers, but the Bells claim that the regulated rates they charge their rivals to get onto their networks don’t cover their costs. That, in turn, means the Bells cannot spend on new networks, Abbott said.

State regulators, who set the lease rates, disagree that the fees are below the Bells’ costs. The system was put in place by Congress in 1996 and was designed to spur telephone competition.

The FCC allowed the states to retain authority but tweaked the system in response to a recent federal court ruling that found it to be unfair.

"I’d say the chances are around 100 percent" that the Bells will be back in court as soon as details of the FCC’s rules are put in place in the next few months, said Steve Davis, senior vice president for public policy at Qwest Communications International Inc.

Davis said his company will not link broadband spending to the local phone service rules. "But it’s not as if one can divorce the economics of the company," he said.

Yet some of the Bells improved their bottom lines recently. Verizon, for example, swung to a third-quarter profit of $4.4 billion, from the second quarter of last year, while SBC held steady at roughly $1.7 billion, compared with the prior quarter.

Verizon’s Tauke said yesterday that the Bells are also concerned about the details of the broadband rules the FCC will ultimately write.

A summary put out by the FCC staff said that if the Bells run new fiber-optic lines to homes and want to pull copper lines out of service, they will still need state approval to do so. That might force the Bells to operate two networks, Tauke said.

An FCC spokesman said that the language will be refined and that the intent is not to make it hard for the Bells to upgrade their networks.

One technology lobbyist who helped lead the battle for broadband deregulation said that he is disappointed with the Bells’ position but that he hopes they will see the benefits to investing in new networks.

"Now there’s no excuse on the regulatory side" for the Bells not to invest, said Rhett Dawson, president of the Information Technology Industry Council, a lobbying group. "If they choose not to make the investment, that’s a different matter."

© 2003 The Washington Post Company

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