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Calling the Bells’ Bluff

The FCC’s latest ruling on fiber-to-the-home appeared to be a victory for the Baby Bells. A closer look suggests they may be getting more than they bargained for.

By Om Malik Business 2.0

The Federal Communications Commission created quite a stir last week with its Triennial Review report, which left the Baby Bells feeling bruised. Totaling 576 pages, it upheld rulings on the unbundled network element platform, which forces incumbent carriers to open up their local networks to competitors. Needless to say, these rulings did not go down too well with the Baby Bells — Verizon Communications (VZ), SBC Communications (SBC), Qwest Communications (Q), and BellSouth (BLS).

The Bells did cheer one part of the report — in which the FCC exempted broadband fiber-to-the-home from the UNE-P ruling — but perhaps they shouldn’t have. The FCC agreed with the Bells’ position that they shouldn’t have to share the broadband fiber that they pay to install and maintain. When they were required to share their networks, the Bells resisted laying down fiber that would benefit their rivals. Now if they want to compete with the cable companies in the highly lucrative broadband market, they’ll have to lay fiber to the home. And that won’t be cheap. According to telecom sources, implementing between 500,000 and 1 million lines will cost around $1 billion. Research group TeleChoice estimates that equipment costs alone will be about $700 per line. That’s bad news for the fiscally challenged Bells.

Now the big question is, Will they go ahead and build those FTTH networks? During the past two decades, the Bells have often promised the moon when it comes to fiber-to-the-home, but so far they have failed to deliver. It took the cable companies’ success in broadband to get the Bells to roll out DSL service — and they did that grudgingly. Why all the resistance? The Bells are trying to protect their highly lucrative T-1 access business. T-1 lines bring in somewhere between $600 and $1,500 a month each, and are a highly profitable business for the Bells. DSL, which runs over copper, costs just $50 a month. And FTTH, which could theoretically substitute for T-1 lines, would have to compete with cable, which charges about $150 a month for video, voice, and data services.

All of which makes you wonder why the Bells fought so hard for protection in FTTH. Now they have no excuse, unless they want to lose all their local business to cable and wireless. Assuming they don’t, we can expect the already strapped Bells to start laying off more workers and cutting costs even further. The moral of this "victory" is, Be careful what you ask for.

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