INTERVIEW : Rubber-Stamp Review

Posted: 06/2002

Rubber-Stamp Review
Section 271 Approvals Pile Up Against Beleaguered Competitive Industry

By Kim Sunderland

WITH THE FEDERAL COMMUNICATIONS COMMISSION (FCC) approving nearly a dozen Section 271 applications and several more pending, the Bell operating companies effectively are trouncing the shrinking competitive carrier industry as they enter the long-distance business and expand their service offerings. The picture isn’t pretty and it will get uglier this summer and beyond.

Qwest Communications International Inc., for example, is moving closer to receiving approval for a multistate 271 application, as well as an approval to offer in-region long-distance in Arizona. BellSouth Inc. finally appears ready to nab its first approval, as well, while SBC Communications Inc. and Verizon
Communications Inc. remain virtually unstoppable.

“Approval of RBOC 271 applications is tightening the noose around the neck of an industry already gasping for breath,” says Dena Alo-Colbeck, director of public policy for regulatory consultants Miller Isar. “The federal Telecommunications Act of 1996, sadly, has been the subject of RBOC litigation since its passage, and its pro-competitive policies have sadly never been accorded sufficient legislative or regulatory certainty to allow competitors to create stable business models.”

Add to this the re-entry of the Bells into the long-distance market and the net effect is to undermine nearly every gain intended by the act, she added.

Clearly, Alo-Colbeck says, the RBOCs will not stop their campaign of long-distance market re-entry until they have recaptured their monopoly stranglehold on local and long-distance markets in every state in the union. State reviews of Bell 271 applications are becoming more summary in nature as the RBOCs increasingly point to the “regionality” of OSS and operations in states where 271 applications already have been approved, she said. The current FCC also appears to share the RBOCs’ dream of nationwide long-distance monopolization, “making the only limitation on the number of 271 applications that may be approved this year the amount of time it takes state and federal regulators to complete their reviews,” she said.

Qwest claims to be on the verge of filing applications in all states in its region, and it is leaning toward filing the applications in batches. Due to the regionality of the company’s OSS, as tested under a 13-state regional methodology, the applications should move through the FCC fairly quickly, says Alo-Colbeck.

“And given recent FCC approvals even in states such as New Jersey, where local markets are clearly still subject to incumbent domination, we would predict speedy FCC approval of Qwest’s applications,” she said.

Most recently, Qwest received a favorable, comprehensive report from third-party tester Cap Gemini Ernst & Young that said the RBOC successfully completed an Arizona systems and performance test demonstrating its efficiency in providing wholesale services and support to competitors. Likewise, on April 23, the staff

of the Arizona Corporation Commission addressed the entire 271 process and Qwest’s compliance with federal requirements to re-enter the long-distance business. The reports set the stage for Qwest to file an application with the FCC to re-enter the long-distance business in Arizona in late May. As in all 271 filings, the FCC has 90 days from the filing of an application to issue a decision.

An independent report also has been issued for the other 13 states in Qwest’s local service territory that demonstrates Qwest’s ability to provide wholesale services and support to competitors. The draft final report signals the end of the systems and performance test, subject to the completion of a limited retest of one minor test segment. The release of the final report early this month will allow Qwest to begin filing its applications with the FCC for approval to sell long-distance services in the 13 states.

Steve Davis, Qwest’s senior vice president of policy & law, said in April that the company was “now a matter of weeks away from filing long-distance applications with the FCC.”

Also in April, with the news changing hourly it seemed, BellSouth appeared poised to receive its first FCC approval to offer long-distance service. The Bell company has failed repeatedly since 1997 on other long-distance applications filed with the commission, but it hopes to reverse that trend with its Georgia and Louisiana application. An FCC decision was due by May 15.

In the meantime, the Kentucky Public Service Commission told the FCC that BellSouth had met the requirements in Kentucky for unrestricted access to the long-distance telephone market. In an advisory opinion, the PSC said that BellSouth has complied with conditions set forth in the Telecom Act to provide unrestricted long-distance service. The Kentucky PSC previously approved performance standards to monitor BellSouth’s performance and progress in opening its local market to competition. The PSC says BellSouth’s entry into the long-distance market will reduce rates for Kentucky residents. Kentucky is the fifth state to recommend BellSouth’s entry into the long-distance market, following South Carolina, Mississi-ppi, Georgia and Louisiana.

“The fact is that the local phone market in Kentucky is open to competition,” says Eddy Roberts, president of Kentucky operations for BellSouth. He adds, competitive growth has risen from the 7.3 percent in May 2001 to 9.2 percent today, which is nearing the national average of 10 percent. “Competitors now serve over 121,000 customer lines in the state, and now we look forward to the opportunity to join our competitors in offering our customers a full array of services.”

Meanwhile, the U.S. Department of Justice (DOJ) recommended the FCC approve Verizon’s application to offer long-distance service in Maine. The recommendation deals another blow to an already wounded CLEC industry that basically must sit and watch as the BOCs continue gaining such approvals around the company.

While the DOJ’s recommendation isn’t binding, the Telecom Act requires the FCC to consider the DOJ’s evaluation before it makes a final decision on a BOC 271 request. Verizon filed the Maine application March 21 with the FCC, which must rule on it by June 19. The DOJ’s recommendation for Maine came on the heels of an FCC approval for Verizon to offer long-distance in the neighboring state of Vermont and moves the company closer to being able to offer the service throughout its New England region.

While it appears competitive carriers can’t keep up, Verizon has met some opposition in Delaware, where the Association of Commun-ications Enterprises (ASCENT) has told state regulators that Verizon has not yet met its local market opening obligations for interLATA market entry. And New Jersey competitors were successful in helping to force the FCC to recommend that Verizon withdraw its 271 filing for that state until the market was proven competitively open. Verizon did just that in March and refiled the application later that same month.

At the Delaware PSC, meanwhile, ASCENT claims there’s an anemic level of local market competition in the state. “Glaring deficiencies” include Verizon’s pending adoption of permanent unbundled network element (UNE) rates, Verizon’s failure to demonstrate that competitors presently offer advanced services on a resold basis, and Verizon’s continued market dominance, which reflects operational barriers that are impeding competition.

Of Verizon’s UNE rates, ASCENT charges that Verizon hasn’t yet adopted permanent UNE rates, nor made any indication that those rates, if adopted, would not be challenged later. ASCENT also argued that with regard to Verizon’s advanced services resale obligations, Verizon had offered only weak assertions that advanced services were “available” — but not actually offered –for resale.

Overall, though, Verizon continues racking up the Section 271 approvals faster than the cash-strapped CLECs can file petitions against the requests. In April, for instance, the FCC approved Verizon’s application to provide long-distance service in Vermont. The company now is working with state regulators so that New Hampshire soon joins the list. Verizon has 271 approvals in New York, Massachusetts, Connecticut, Pennsylvania, Rhode Island and Vermont.

SBC’s most recent FCC approval for a 271 filing came last November for Arkansas and Missouri. The company currently has no 271 applications pending, but it seeks several favorable recommendations in California, Illinois, Indiana, Michigan, Nevada, Ohio, and Wisconsin. The incumbent already provides in-region long-distance in Texas, Connecticut, Kansas, and Oklahoma.

But don’t fear, competitive industry. There is some good news. “The competitive industry is already working in anticipation of full RBOC interLATA entry,” Alo-Colbeck says. “Those companies that have survived are poised to compete in the one area where the RBOCs are most challenged — the open marketplace.”