FCC Releases Its New Rules on Local-Phone Competition

Dow Jones News Service | August 21, 2003 | Mark Wigfield

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WASHINGTON -- The Federal Communications Commission released its long-awaited rules governing competition in the local-telephone industry Thursday, over six months after initially approving the measure in a 3-2 vote.

But the release signals less the end of a process than the beginning of litigation that has been promised from virtually every corner of the industry.

Suits are likely from the Baby Bells, which were looking for more relief from obligations that they lease their networks at low cost to competitors like the local arms of AT&T Corp. and MCI, as well as competitors who will say that deregulation of Bell lines that have been upgraded for high-speed Internet and data goes too far.

The Bells will likely quote from FCC Chairman Michael Powell himself in their lawsuits.

"There are some important achievements in this order that have long been objectives of mine -- namely substantial broadband relief," he said in a statement attached to the final order. "Yet, regrettably, there are some fateful decisions as well that I believe represent poor policy and flout the law."

FCC Commissioner Kevin Martin, who led a majority that overturned Mr. Powell on the phone rules, said in an interview the order "achieves a balanced approach. It preserves competition on the residential side that allows millions of customers to benefit from lower phone rates. Our emphasis continues to be on providing for competition first and then deregulation."

A key concern in the order is the right of competitors to lease at deep wholesale discounts elements of the Bell networks, such as lines and central- office switching capabilities, into a single "platform" to provide service. Enjoying low lease prices set by friendly state regulators, AT&T and MCI have only recently been able to provide substantial residential competition to the Bells using that platform.

In the face of evidence that competitors could provide their own switching, the heart of the market, Mr. Powell would have phased out those discount leases in nine months. But the final order from the majority gives states far more control over determining when discounted switches are necessary and up to three years for a company to provide its own switching once discounts are deemed unnecessary.

The order does include a federal "trigger" meant to discipline state regulators. It requires states to stop discounting switches in a market once three competitors provide their own or two wholesalers sell the service. FCC staff said it doesn't know how many markets have that level of competition. The task of determining that will be left to the states.

But Mr. Powell said the trigger "is no limitation at all. Indeed, there maybe few markets, if any, that include three competitors using self-provisioning switching."

That placed FCC staff in the awkward position of defending a provision that the chairman of the agency has criticized.

In a briefing with reporters, FCC staff said the trigger numbers were chosen " because we thought they were most reflective of the point at which carriers could enter the market and serve customers in economic fashion" without leasing discounted elements.

Asked if Mr. Powell's criticism could create problems in court, a staffer said a good order makes for a good court brief. "We believe we have a very good order here."

The order requires the Bells in nine months to be capable of moving masses of customers to competitors' switches efficiently -- a process that has been problematic in the industry to date.

The 576-page order also eliminates the Bells' requirement to lease to competitors new, fiber-optic cable strung to homes and limits leasing on hybrid lines using some copper and some fiber.

Mr. Martin said the changes will "jump-start investment in next-generation networks and facilitate the deployment of the advanced-services market, leading to a new period of growth in telecommunications and most importantly, manufacturing."

But the broadband provisions yielded another rift in the commission, with the three Republicans voting for them and the two Democrats against it.

"Make no mistake about it, this decision plays fast and loose with the country's broadband future," said a statement from Democratic Commissioner Michael Copps. "Consumers, innovation, entrepreneurs and the Internet itself are going to suffer."

Staff acknowledged a key reason for the six-month delay was the challenge of reflecting the two separate majorities on telephone and broadband issues. A tug- of-war between Messrs. Powell and Martin also emerged, as Mr. Powell filed statements criticizing elements of the order and Mr. Martin responded with clarifications he hoped would address Mr. Powell's concerns.

Ultimately, those changes failed to win Mr. Powell's support.

The telephone rules "will prove too chaotic for an already fragile telecom market," wrote Mr. Powell. He added Mr. Martin's majority "has brought forth a molten morass of regulatory activity that may very well wilt any lingering investment interest in the sector."

In a brief statement, Mr. Martin said, "While I would have liked to release the order sooner, I appreciate everyone on the commission's desire to explain fully their views on these very important issues."