FCC Chief Loses Battle On Telecom Deregulation

WASHINGTON — In a contentious decision, U.S. federal regulators agreed to let states decide whether to spur competition between the regional Bell phone companies and their rivals.

A WALL STREET JOURNAL NEWS ROUNDUP

**********************

Craig Erickson poses the question- Are the decisions described in this article good or bad news for Montana?

What do you think? Add your comments below so all can share.
Thanks,
Russ

**********************

In opposing the plan, Federal Communications Commission Chairman Michael Powell said deregulation likely will be slowed by giving state utility commissions more control over the process, rather than the federal regulator.
[Michael Powell]

The panel’s 3-2 vote "could prove quite harmful to consumers," Mr. Powell said in his first dissenting opinion as chairman.

The vote is a major defeat for the Republican chairman, who had promised to sweep away rules forcing the dominant Bell telephone companies to share some of their local connections with smaller competitors, as required under the sweeping 1996 Telecommunications Act. His stance is backed by the politically influential Bells and opposed by long-distance carriers such as AT&T Corp. and WorldCom Inc., as well as consumer groups and many states.

"I think the market needed certainty. The market is too fragile, and I think the majority has not stepped up to its responsibility on this," Mr. Powell said in an interview, apparently angry and frustrated about the FCC’s decision. He argued that the decision "is legally vulnerable in the federal courts" and likely will result in challenges at the state level.

Mr. Powell had indicated that the easiest method of competitive entry — lease of a full "platform" of network elements — couldn’t be justified by legal or market conditions. He had proposed to quickly relieve the Bells of their obligation to provide that platform in large markets.

The Bell companies — BellSouth Corp., SBC Communications Inc., Verizon Communications Inc. and Qwest Communications International Inc. — have said say they are at a disadvantage because the rules allow competitors to undercut their prices.

AT&T and other companies say the competition requirements allow them to offer alternative service and prevent the Bells from having an overwhelming advantage.

The Bells did score a victory, however, when the commission, in another split vote, eased restrictions requiring the Bells to provide rivals discount access to fiber-optic lines for broadband, the high-speed Internet access that quickly delivers large amounts of data. The Bells have complained for years that they have no incentive to invest in costly new fiber-optic networks if competitors can share the benefits.

"We took some bold steps today on the broadband piece, creating incentives for new investment in broadband and advanced architecture, to bring more fiber closer to the home," Mr. Powell said.

Gene Kimmelman, co-director of Consumers Union in Washington, said shifting authority to the states is "just putting a little patch on an enormous problem." He said that to create lasting competition, Bell rivals eventually will have to build their own networks.

Mr. Kimmelman said the alternative sought by Mr. Powell would have wiped out competition consumers have begun seeing in telephone and high-speed Internet services.

Many state regulators want to retain the leasing rules to boost and maintain the competition that has reduced phone rates. Requirements may relax over time, but it won’t be the immediate, nationwide relief the Bells had sought.

The vote was the commission’s last chance to meet a court-ordered deadline to rewrite the policy before existing rules are struck down. Courts have rejected the agency’s last two attempts to revise the rules, saying they failed to meet the requirements of a 1996 telecommunications law.

*********************

High-Speed Service May Cost More

By SAUL HANSELL NY Times

Of the roughly 20 million users of high-speed Internet service, only a few hundred thousand customers are likely to have their rates increased as a direct result of yesterday’s ruling by the Federal Communications Commission. But some executives argue that eliminating this form of price competition will lead to increased overall prices for the service, also known as broadband.

The companies that will be hardest hit are those that have built high-speed data networks that share the lines of local telephone companies into homes and offices. The F.C.C. voted to eliminate, over three years, a rule that forced local Bell companies to let these rivals offer broadband services using their networks.

But even under the old rules, which had been intended to help them, these companies have had a hard time competing, and most have failed.

The biggest company remaining in that market is Covad Communications, which provides high-speed data service to 200,000 homes; its service is sold to consumers mostly by Earthlink. Covad said that, with the ruling, the price it paid local phone companies for access to their wires would be $5 and $15 a month, up from the current rates of less than $5 or, in some cases, free.

Currently, Covad charges Earthlink and other Internet service providers about $30 a month, and Earthlink in turn charges consumers about $50 a month. If the new rules are carried out, Covad said it would be forced to raise its prices.

Phone companies use a technology called digital subscriber line, which allows a voice phone call and high-speed data to use the same copper wire at the same time, transmitting the data through inaudible high frequencies. The previous F.C.C. rules forced local phone companies to give access to these high frequencies to companies that were building their own data networks but did not want to string new wires to consumers’ homes.

Michael K. Powell, the chairman of the F.C.C., argued yesterday that phone companies should have been forced to continue to share their lines for broadband service. He had taken the opposite point of view for voice service, arguing the Bell companies should not be forced to share their networks. He was outvoted on both counts.

"Line sharing has clear and measurable benefits for consumers," he said. "The decision to kill off this element and replace it with a transition of higher and higher wholesale prices will lead quite quickly to higher retail prices for broadband consumers."

Internet service providers can also buy D.S.L. service directly from local phone companies, without going through a company like Covad. Those arrangements, which are subject to both state and federal regulations, are not affected by the rule change yesterday. Indeed, most of the D.S.L. lines offered by the two largest Internet services, America Online and Microsoft’s MSN, are purchased directly from local phone companies.

But AOL, MSN, Earthlink and the other Internet service providers that have dominated the dial-up market have collectively been a quite small part of the broadband market, despite whatever price advantage the old F.C.C. rules may have given them. The vast preponderance of broadband customers choosing D.S.L. have purchased it directly from the local phone company.

Even more customers, however, have chosen to get broadband service from their local cable companies, which offer service that is often even faster. At the end of June 2002, the F.C.C. counted 5.1 million D.S.L. customers in the United States and 9.2 million broadband cable customers.

Indeed, the phone companies have been struggling to increase their market share against cable, largely by cutting their prices. SBC Communications, for example, just lowered the price of its D.S.L. service to $35 a month. It had been $50 a year ago.

The phone companies point to these price cuts as a sign that consumers will not be hurt by the F.C.C. actions yesterday.