Regulatory News - FCC Order Gives ILECs an Edge over Resellers

Posted:  03/2000

FCC Wraps Up Record On SBC Long-Distance Bid
BY KIM SUNDERLAND

The FCC is getting down to business on deciding whether SBC Communica-tions Inc. is
ready and able to provide in-region long distance in Texas.

If approved, SBC (www.sbc.com) will offer a bundle of
services that includes local, long distance, Internet and satellite television, without
charging a minimum monthly fee for long-distance service.

The 90-day deadline for the commission’s ruling on SBC’s Section 271 bid ends April 10.
Some Washington insiders say the decision could come this month.

"While there has been a lot of rhetoric, the merits of this application will get
national scrutiny at the FCC," says Jeffrey J. Binder, a Washington telecom attorney
and consultant with Dickstein Shapiro Morin & Oshinsky LLP (www.dsmo.com).

"The agency will decide if SBC’s application falls short, equals or even exceeds
that of Bell Atlantic in New York."

The FCC’s (www.fcc.gov) approval of Bell Atlantic
Corp.’s (www.bell-atl.com) Sec. 271 application in
New York set the minimum standard for evaluating whether an RBOC has opened its markets
fully to competition. That same standard now applies to SBC.

"If SBC does not measure up, then the application must be rejected and SBC must
address any shortcoming before reapplying," says Ernest B. Kelly III, president of
the Telecommunications Resellers Association (TRA, www.tra.org).

"In many ways this application is even more important than Bell Atlantic’s,"
Kelly says. "It will determine whether the FCC has the perseverance and courage to
ensure that Americans throughout the country can expect that local monopolies are opening
their markets to competition on an equal, fair and consistent basis."

Kelly adds the FCC "will be judged anew on this application."

The FCC’s record on the SBC filing is complete. Comments were due in January. The U.S.
Department of Justice (www.usdoj.gov) submitted its
recommendation in mid-February. Replies were due late last month.

During this time, FCC staffers have been poring over SBC’s almost 200,000-page filing,
combing through the details from the Texas Public Utility Commission’s (PUC’s,
www.puc.state.tx.us) nearly two-year testing and review process, which concluded SBC’s
Southwestern Bell Telephone (SWBT, www.swbell.com) has
opened its local markets to competition.

The Telecommunications Act of 1996 requires a BOC open its local market to competition
before it can offer in-region interLATA service.

This is SBC’s second attempt to provide such service. The first filing was for
long-distance provisioning in Oklahoma, which the FCC rejected in June 1997 for, among
other reasons, not meeting the 14-point competitive checklist the Telecom Act requires.

Competitors remain somewhat skeptical that SBC has met the 14-point checklist fully
this time. Not mincing words, general counsel for AT&T Corp. (www.att.com) Jim Cicconi
says SBC "has been openly hostile to competition in its local market. AT&T is
asking SBC to provide service for our customers at the same level of quality it provides
to its own. Parity, not promises, should carry the day."

On the other hand, many nationwide carriers acknowledge that SBC’s OSS "is among
the better of the RBOCs’," says Kelly.

SBC’s application is strong, says the company’s Chairman and CEO Edward E. Whitacre Jr.
He adds the "unanimous and unqualified endorsement from Texas regulators shows,
without a doubt, that our markets are open and that we have met the necessary requirements
to enter the long-distance market in Texas." Whitacre also says when you look at the
numbers, "Texas is actually a more competitive market than New York (see chart page
34). There are more competitors in Texas, and more Texans get their local service from a
CLEC than do New Yorkers."

SBC filed its application for interLATA relief with the Texas PUC in March 1998,
triggering an in-depth evaluation of all SWBT’s OSSs by Telcordia Technologies
(www.telcordia.com), the independent third-party auditor the Texas PUC selected to conduct
the tests. In its final report on OSS submitted in October 1999, Telcordia reported the
OSSs "are operationally ready" and are able to provide non-discriminatory access
to competitors.

According to SBC’s filing, its local market in Texas is open because:

* Competitors in Texas operate more than 1.4 million lines, or 12 percent of all lines,
in SWBT’s Texas service area.

* SWBT demonstrates in multiple ways that it provides nondiscriminatory access to local
loops for CLECs’ advanced services, such as x digital subscriber line (xDSL) services.

* SBC has established a structurally separate affiliate that will provide advanced
services in Texas using the same facilities and services available to competitors.

* CLECs operate in 299 of SWBT’s 300 calling areas in the state.

* SBC has 237 interconnection and/or resale agreements with CLECs in Texas; 48 provide
services over their own facilities and 114 resell service from SWBT.

* In the first nine months of 1999, SBC said it processed more than 1.3 million orders
from competitors for access to its Texas network, bringing the total orders SBC has
processed in Texas to more than 3.7 million since passage of the Telecom Act.

* Between January 1997 and November 1999, minutes of network use exchanged between SBC
and competitors, excluding Internet traffic, totaled more than 2.7 billion minutes in
Texas.

* SBC has spent more than $1.4 billion to open its local markets.

According to SBC’s in-region long-distance filing, its resale offerings allow
competitors to enter the local market with virtually no investment or delay. Texas
resellers "also enjoy highly favorable wholesale prices," according to the
filing.

Chart: Section 271 Comparisons
for Texas & New York

The Texas PUC set a generally applicable wholesale discount of 21.6 percent off the
retail rate, and SWBT offers a promotional discount of 32 percent on residential services
under the FCC’s SBC/Ameritech merger conditions.

SWBT also says it provides CLECs telecom services for resale that are identical to the
services it furnished its own retail customers. "CLECs are able to sell these
services to the same customer groups as SWBT in the same manner," the filing says.

"The 21.6 percent is not adequate," an unimpressed Kelly says. "In Bell
Atlantic land, they’re cutting deals up in the 30 percent mark. We’d like to see every BOC
willing to do that."

SBC’s 32 percent discount on residential services "may be a limited offering for a
set number of resellers," Kelly says.

SWBT also says it offers wholesale discounts on promotional offerings that last more
than 90 days. The BOC says it allows resellers to access pre-ordering, ordering and
provisioning, maintenance and repair, and billing functions for resold services in an
efficient and nondiscriminatory manner.

For example, resellers that use the pre-ordering/ordering interface have experienced
parity or better response times during each of the last 12 consecutive months, according
to SBC’s Sec. 271 filing.

Resale orders are made within the Texas PUC-approved intervals, and their orders flow
through SWBT’s systems at parity. But a lot of this has been happening only in months
"for which data are available," usually in the latter part of 1999.

Future Concerns

As the number of potential BOCs the FCC approves to provide in-region interLATA service
rises, the competitors’ jobs get harder.

"Anytime a BOC files to provide long distance, the situation gets pretty darned
serious," says one Washington lobbyist.

A concern that grows with the number of BOCs getting into long distance is pricing,
Binder says.

"In the era of one-stop shopping, the opportunity of leveraging on the part of the
BOCs is greater and greater" in which they might price less competitive services too
low, he explains.

"There are structural and nonstructural rules in place, and an extra burden will
be on regulators and competitors to make sure these rules are complied with," Binder
adds.

In order for the BOCs to compete fairly on advanced services offerings, their
operations must remain separate so the costs aren’t shifted from unregulated side to
regulated side of the business, Binder adds.

There’s also the issue of the BOCs backsliding on their competitive promises, which the
FCC’s Enforcement Bureau handles. Bell Atlantic and SBC have self-policing penalties
listed in their Sec. 271 filings, but competitors still should report any relevant
information to regulators.

"This can really help us in our investigations," one FCC staffer says.