FCC tells Bells to share gear But panel makes new broadband networks exempt from rules

[Dave Farber <dave () farber net>]

FCC tells Bells to share gear

But panel makes new broadband networks exempt from rules

02/21/2003 

By VIKAS BAJAJ / The Dallas Morning News

Federal regulators Thursday handed each of the telecommunications industry's
warring factions some of the spoils they were seeking, making none of them
completely happy and all of them a little mad.

A sharply divided Federal Communications Commission exempted new broadband
networks from regulation, but said the Baby Bells must continue sharing
existing local-phone networks.

The five members of the FCC formed shifting alliances to pass the measures.
An unusual partnership between Republican Kevin J. Martin and Democrats
Michael J. Copps and Jonathan S. Adelstein outmaneuvered Chairman Michael K.
Powell in giving state regulators significant control over local-phone
competition. And Mr. Martin and Mr. Powell were joined by Republican
Kathleen Q. Abernathy in easing broadband rules.

Since delaying a vote last week, the commissioners have been in marathon
negotiations with one another amid heavy lobbying by the industry and state
officials. The commissioners and FCC staffers worked from Wednesday into
early Thursday trying to reach a compromise on the local-phone decision to
no avail. 

"Today's decision is not just a big-ticket item for telephone companies on
one side or another of some admittedly arcane issues," Mr. Copps said. "It
affects us all. It's next month's phone bill, but it's also the next
generation's broadband and the future of the Internet."

Mr. Powell issued a scathing rebuke, calling the local-phone measure a
"molten morass of regulatory activity" and predicted it would be challenged
in courts in all 50 states and the District of Columbia.


NEW RULES FOR TELECOM
Highlights from the Federal Communications Commission's Thursday decision:
Local-phone competition: State regulators have nine months to decide where
and when Baby Bells' switches can be placed off-limits to rivals for
residential and small-business customers.
Fiber optics: Baby Bells don't have to share new fiber-optic lines to homes
with rivals.
Broadband upgrades: SBC doesn't have to share new capabilities of its
upgraded network, but must give rivals access to older technology.
Line sharing: Covad Communications and other digital subscriber line
companies can no longer rent portions of phone lines to sell broadband. They
must pay for the entire line after a 3-year transition.

SOURCE: Dallas Morning News research
The FCC has lost two legal challenges on the matter, with the latest defeat
in May 2002 at the U.S. Court of Appeals in Washington.

'Nobody is happy' 


"My guess is it will end up in court," said David Farber, professor of
telecommunications systems at the University of Pennsylvania. "Nobody is
happy, everybody is a little unhappy. Some people more than others."

San Antonio-based SBC Communications Inc. dislikes the decision because it
lets AT&T Corp. and others keep using its phone switches at regulated
discounts. Verizon Communications Inc. said it expects to appeal parts of
the order. 

"Our biggest philosophical disagreement is the decision doesn't seem to take
into account the competitive realities of the marketplace today," SBC
spokesman Selim Bingol said. "And it is vigorously competitive."

SBC's stock closed down $1.73 to $21.30. Verizon fell $1.84 to $34.76. AT&T
was down 32 cents to $18.25.

Meanwhile, consumer advocates and AT&T welcomed the local-phone decision but
deplored the broadband measure.

"The irony is ... we got competition for the 20th century technology, and we
got a monopoly or a duopoly for the 21st century technology," said Mark
Cooper, the Consumer Federation of America's research director.

In states' favor 


Most pleased were state regulators, who lobbied the FCC to let them
determine when and where SBC and Verizon no longer have to share their
equipment. The agencies now have 9 months to do that analysis.

Rebecca A. Klein, chairwoman of the Texas Public Utility Commission, said
many details will be revealed in four to eight weeks, when the FCC issues a
detailed order. 

For instance, it remains unclear how much of the Bells' upgraded broadband
networks the FCC will free from regulation, Ms. Klein said. The decision is
important because SBC has invested billions of dollars to install
fiber-optic equipment in neighborhoods but hasn't replaced the last several
thousand feet of copper wire to homes.

"We will have to really peel back the onion and be able to understand which
parts of the network are affected by the decision," said Ms. Klein, who was
in Washington Thursday to attend the FCC meeting and talk with
commissioners. 

SBC's competitors said the broadband ruling may not make a big difference
today but could hurt them in the future.

"Restricting access to advanced technology is not good public policy at
all," said Royce Holland, chairman and chief executive of Dallas-based
Allegiance Telecom Inc. Allegiance rents phone lines from SBC and Verizon
and sells phone and data service using its own equipment. Its stock closed
down 1 cent to 44 cents.

Mr. Martin said the broadband rules will spur phone companies to buy gear
made by vendors such as Alcatel and Nortel Networks Corp.

"Our actions could then revitalize the advanced services market, leading to
a new period of growth in telecommunications and most importantly,
manufacturing," he said.

While SBC and Verizon welcomed the easing of broadband rules, they remained
reticent to write big checks for fiber optics and other equipment.

"In theory, it sounds positive, but we just really won't know for some time
to come how it will play out," SBC's Mr. Bingol said.

Verizon said the FCC's actions may make it more expensive to deploy new
networks if it will also have to maintain older lines for rivals' use.

Digital subscriber line companies such as Covad Communications Inc. emerged
as the biggest losers from Thursday's decisions. Those firms rent portions
of phone lines to sell Internet service, leaving phone service to SBC or
other companies. The FCC majority led by Mr. Martin voted to free the Bells
from such "line sharing" in three years.

Covad, based in Santa Clara, Calif., said Thursday that about 40 percent of
its revenue comes from DSL on shared lines.

"The FCC passed on the opportunity to guarantee that broadband competition
continues on a level playing field across the country," said Covad CEO
Charles Hoffman. 

E-mail vbajaj () dallasnews com


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