If FCC Chairman is Defeated, Will Bells Embrace UNE-P?

It is no revelation that the Bells are likely to appeal an FCC decision tomorrow on local phone regulations if the federal agency, as widely anticipated, cedes authority to state regulators, letting them determine where and when to remove the incumbents’ obligations to lease their networks to rivals at deeply discounted rates.

What remains uncertain is whether any of the Bells will exploit the unbundled network element (UNE) regulations themselves to compete in the residential market against the unlikeliest of rivals: each other.

Maureen Flannigan, a spokeswoman with Verizon Communications Inc., the No. 1 local phone company, said Wednesday it was premature to answer whether or not the phone company would use the UNE platform to compete against its incumbent brethren.

Selim Bingol, a spokesman with SBC Communications Inc., one of the most vociferous critics of the UNE-P, said the company has not ruled out using the platform to compete for customers in the residential and small business market outside its 13-state territory.

“I don’t anticipate we would be going the UNE-P route right away though it is not out of the question,” he said. “Nothing has been foreclosed. I wouldn’t say we wouldn’t do it.”

Another Bell operator says it is unlikely the company would use the resale platform.

“The UNEP platform is an unsustainable business model and therefore we would be most unlikely to use it as a platform for competing outside of our region,” said spokesman Bill McCloskey.

Skip Thurman, a spokesman with Qwest Communications International Inc., did not directly answer whether Qwest had ever considered a UNE-P strategy or would do so.
“We have had so much of a focus on investment and facilities-based competition. That is really where we put our focus,” Thurman said. “I think we would continue to pursue the business plan that makes the most sense and historically for us [that] has been facilities-based.”

It has been widely reported in recent days that three FCC commissioners support a proposal that would cede much control over the local phone regulations to state regulators, leaving FCC Chairman Michael K. Powell in the minority along with commissioner Kathleen Q. Abernathy.

FCC commissioners Kevin J. Martin, Jonathan S. Adelstein and Michael J. Copps support a proposal granting states a significant role in determining when to change the phone regulations, according to sources and several news reports.

“It looks like we are going to have a three vote majority and Mr. Powell will have a dissent,” a source said late Wednesday. Sources said late Wednesday broadband rules were still under debate.

The Bells oppose a proposal bolstering heavy state involvement for an obvious reason, rivals say. State regulators across the country have drastically slashed the rates the Bells can charge their competitors to lease their networks, encouraging phone giants such as AT&T Corp. and MCI as well as smaller providers such as Talk America to market local phone service to American households and small businesses.

But the Bells are not prohibited from using those same regulations to compete against each other.

“We have been waiting for them to do that for a while now,” said one source, who represents one of the country’s largest telephone competitors. “Would they challenge each other? I really doubt it.”

Jeff Kagan, an independent telecom analyst, said the incumbent phone companies are still putting much emphasis on preserving their customer base within their local phone territories. The prospect of the Bells competing with one another is “something that may happen eventually but I don’t think that’s the main focus right now,” he said.

But nii communications president and CEO Richard Burk, who also is the chairman of the Competitive Telecommunications Association, said he believes the Bells will compete in each other’s territories for residential customers if they lose the regulatory battle.

“I think they have already formulated plans to do that [use UNE-P] and that they would absolutely use it,” he said. “Once they figure out they can’t win that battle they will use UNE-P in each other’s territories to compete for that business.”

But the fight over local phone regulations could resemble more of a war than a short-lived battle and be drawn out for a year or more in appeals court proceedings with the country’s highest court possibly having to settle the matter once and for all.

“Obviously the concern to the CLEC industry [is] you are in litigation with the 800-pound gorilla,” said Peter Karoczkai, senior vice president of sales and marketing, at InfoHighway Communications Corp.