FCC ruling is a blow to the competitive marketplace By Dan Gillmor

[Dave Farber <dave () farber net>]

FCC ruling is a blow to the competitive marketplace
By Dan Gillmor
Mercury News Technology Columnist

In his rare, fierce dissent from a pivotal telecommunications ruling
Thursday, Federal Communications Commission Chairman Michael Powell wrote,
``What is remarkable about today's decision is that one looks in vain to
find a clear or coherent federal policy in the choices made by the
majority.''

He got that much right. The regulatory ruling -- the most important in
years, with big implications for Internet and local telephone services --
was a hodgepodge.

But at least one aspect of the 3-2 decision seemed plain enough. Barring
technological and regulatory developments that spur innovation from
genuinely new directions, the nation's regional phone monopolies have won a
huge advantage in deploying tomorrow's high-speed data networks. And if they
operate true to form, they will use that advantage in anticompetitive ways.

Before I explain why this is a likely outcome, let's look at the major
pieces of this ruling.

It maintains, at least for the time being, a semblance of fairness in use of
the copper lines and central offices that make up the heart of local
telephone service.

The Baby Bell regional companies -- SBC, Verizon, BellSouth and Qwest --
must continue to lease key elements of their local phone networks to
competitors at a reasonable price.

That's good news for customers, because it lets companies like AT&T and MCI
offer you local phone service in real competition with SBC and the other
regional monopolies. Of course, the Bells hate those rules, whining that
they are being forced to sell access at a loss.

If that is true, why haven't they moved in on each other's territories,
offering competing services? Either they've been colluding to stay out of
each other's way, or the wholesale prices aren't that cheap after all.

By the way, the FCC didn't say the relatively low-cost access requirements
had to be maintained indefinitely. The commission said state regulators get
to decide.

Given the clout of the phone giants in the states they dominate, they may
get what they want in any event. But the Bells have thoroughly antagonized
regulators in several states, so this may not be as simple as it once might
have been.

Powell decried the commission's passing of this buck to the states, and he
had a point, given the potential for multijurisdictional haggling. But if
the FCC wasn't going to do its regulatory job, at least there's the
possibility some other public officials will.

The Bells' share prices dropped on Thursday, down more than the overall
market. Investors seemed to be looking only at the short term.

But shares in Covad, a competitor in the digital subscriber line market for
faster data connections, plummeted. That's because the FCC said the Bells
can phase out their obligation to provide DSL competitors fair-priced access
to local copper lines -- a major setback in an arena where the Bells had
already pulled all kinds of anticompetitive stunts. Powell rightly decried
this move by the commission.

The DSL debacle was bad enough. But another major element of Thursday's FCC
decision was an outright gift to the regional phone giants -- and a further
blow to a truly competitive marketplace.

Under the ruling, the Bells won't have to allow competitors fair access to
new high-speed fiber-optic lines and facilities they say they will deploy in
the future.

What this likely means, unfortunately, is that the Bells will use their
current power in local voice and data service to subsidize dominance in
next-generation data services. Remember, they built their networks on the
backs of customers who had no choice but to buy local phone service from
their government-granted monopoly.

Maybe none of this will matter in the long run. Wireless has already cut
into the regional phone companies' voice traffic. Budding Internet-phone
services, which use DSL and cable connections, are also starting to make
waves. High-speed wireless data services could curb the power of the Bells
and equally rapacious cable companies, who currently offer the only serious
data alternative.

Powell understands the potential of wireless. The FCC could open more
spectrum in ways that spurred new competition.

Or maybe local governments or electric or gas utilities will start deploying
fiber competitively -- though the Bells are working state legislatures to
disallow such competition.

Another school of thought, meanwhile, holds that the Bells are in a
financial death spiral no matter what they do. I'm not yet convinced of
that, but nothing would be better for America's economic future than to see
the Bells humbled, once and for all, and real competition emerge in the
vital telecommunications sector.

One of the real disappointments in this entire matter has been the
technology industry's backing of the Bells. The tech companies care more
about selling their gear to the deep-pocketed Bells -- and to people who
will want better consumer gear to use on faster networks -- than about
ensuring sound public policy.

The FCC is taking a big chance with our future. If the phone giants can
leverage today's power into dominance of tomorrow's telecommunications, the
rest of us will pay, and pay, and pay.
------------------------------------------------------------------------
Dan Gillmor's column appears each Sunday, Wednesday and Saturday. Visit
Dan's online column, eJournal at
http://weblog.siliconvalley.com/columns/dangillmor/. E-mail Dan at
dgillmor () sjmercury com 

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