Bell-Friendly Policy Rewrite to Face Critics

Intensifying support for telecom policy reform in Washington points to a sweeping revision of the rules that could go well beyond what the courts and the FCC have done previously to strengthen the competitive positions of the largest players.

In both houses of Congress, leaders on telecom policy are pushing legislation that in effect rewrites the Telecom Act to bring it up to date with IP technology in ways that clearly benefit the dominant carriers. Meanwhile, the FCC continues to build on its deregulatory record with actions such as a major rulemaking affecting ISPs access to DSL broadband service and a less publicized but potentially significant decision granting Qwest Communications International Inc. relief from unbundling and other requirements in Omaha as a result of wireline competition it faces there.

With potentially major consequences for smaller telecom players, consumers and the regulatory roles of state and local authorities, there likely will be heated debate before new Bell-friendly laws are enacted by Congress. But a shared vision across the administrative and legislative branches that the cable-telco duopoly should serve as the competitive engine to drive broadband expansion has altered significantly the policy making climate. As noted by Jason Oxman, senior vice president for legal affairs at competitive industry trade group COMPTEL, the new bills in the Senate and House come at a time when the FCC has been granting quite a bit of deregulatory relief for the Bells.

The governments emphasis on broadband expansion as a core economic requirement of the United States, which now lags several countries in broadband penetration, provides incumbent carriers a powerful argument for deregulation as they scramble to become more effective competitors against aggressive cable companies and other facilities-based entities. Broadband deployment is vitally important to our nation as new, advanced services hold the promise of unprecedented business, educational and health care opportunities for all Americans, says FCC chairman Kevin Martin in a statement released with the commissions order eliminating the requirement that the Bell companies offer ISPs access to customers over their DSL lines. Perpetuating the application of outdated regulations on only one set of Internet access providers inhibits infrastructure investment, innovation and competition generally.

This view underlies the commissions decision granting regulatory dispensation to Qwest in the Omaha Metropolitan Service Area, where cable MSO Cox Communications is offering voice as well as video and high-speed data services. The commission said its decision, which relieves Qwest from offering unbundled network elements in nine of its 24 wire centers in the MTA and from dominant carrier regulations like price caps for the entire MTA, was justified by the particular market characteristics of the Omaha MSA, including the substantial infrastructure investment made by Cox … in its competitive network.

Oxman cites the Qwest decision as a worrying case in point. We dont know yet whether this decision will be seen as a precedent for relief elsewhere, Oxman says. But its our hope that the FCC narrowly concludes that relief was granted based on the specific competitive parameters in Omaha.

Cox, the most aggressive cable purveyor of phone service to date, now has a larger share of the residential voice market in Omaha than Qwest, which is a fairly unique situation. Its unclear at this point whether the commission would require that there be a similar level of success by cable to justify telco relief elsewhere or whether some lower level of significant competition would be sufficient.

Either way, the decision is worrisome because it focuses on cable competition as the issue of merit to the detriment of other competitors, notes COMPTEL President Earl Comstock. Unfortunately, the commission has sacrificed the interests of Omaha businesses and consumers in favor of a cable-ILEC duopoly in the residential marketplace, and a Qwest monopoly in the business market, Comstock says, according to a statement released following the FCC decision in September. How ironic that the FCCs response to the nascent success of competition in Omaha is to pull the rug out from under competitors.

While the FCC confirmed earlier this year that no competitive alternatives to use of unbundled telco loops are available to CLECs in Omaha, its decision, according to Comstock, infers that as a Bell company loses retail market share proving that competition is working the FCC will step in to help the Bell company byeliminating competitive access to lastmile facilities. He also warns, Incumbents in other regions may well follow suit on a city-by-city basis, hoping to reverse the trend toward competition by eliminating unbundling requirements in a piecemeal fashion.

CONGRESS TACKLES REFORM

It remains to be seen how Congress will treat the unbundling question as it moves various pieces of legislation through the mill, but theres no doubting the emphasis on fostering cable-telco competition as the best spur to broadband development has diverted policymakers attention from the competitive solutions they once viewed as key to robust telecom growth.

The prevailing view driving the gathering momentum for reform was reflected by House Energy and Commerce Committee Chairman Joe Barton (R-Tex.), following the release of a committee discussion draft of proposed legislation. New services shouldnt be hamstrung by old thinking and outdated regulations, Barton says. We need a fresh new approach that will encourage Internet providers to expand and improve broadband networks, spur growth in the technology sector and develop cutting-edge services for consumers.

The fresh new approach as embodied in the committees draft bill provides a deregulatory umbrella for all providers of broadband Internet transmission service (BITS), which is all the features, functions, packetized facilities and other network equipment used to transmit packetized information. FCC, states and localities are barred from regulating rates or other terms set by BITS providers with a few exceptions, especially in the case of VoIP, where universal fund contributions, interconnection, number portability and 911, among other requirements, are to be administered by the FCC.

The draft does preserve the rights of a company that is both a telecommunications carrier and a BITS provider to access unbundled network elements and colocation as provided under the Communications Act. In addition, it preserves an entitys rights to special access tariffs.

The House committee draft differs in some respects from the leading Senate bill on telecom reform, which was introduced in the summer by Sen. John Ensign (RNev.) with Sen. John McCain (R-Ariz.) as co-sponsor, but in overall thrust the two measures are largely in sync.

Leaders in both houses make clear theyre committed to action. In a speech last spring before the Federal Communications Bar Association in Washington, D.C., Senate Commerce, Science and Transportation Committee Chairman Ted Stevens (R-Alaska.) said: Theres almost a universal concern about the costs and merits of state regulation or local regulation. I am one who basically believes in states rights, but this is getting to the point now where we will have to find a way to deal with these issues that confront the industry.

Barton is confident the Senate is with the House in wanting to get something done. Stevens wants to do a big bill, and I think theres probably a 75 percent chance we get it done this year, Barton says.