What Will the RBOCs Do Next?

Posted: 2/2003

special report: viewpoint

What Will the RBOCs Do Next?

By Andrew O. Isar and Lisa Korner
Butler

AFTER
INITIATING PERHAPS one of the most bloody and costly regulatory battles ever
fought to retain market dominance, what’s left for the RBOCs to do? As the
Federal Communications Commission (FCC) review of incumbent unbundled network
element (UNE) obligations to competitors is decided, the RBOCs now must
guarantee the probability of their anticipated federal success at the state
level.

While so much recent attention has
been devoted to shaping UNE pricing and availability, a debate primarily before
federal regulators, the RBOCs quietly have been implementing the last part of
their strategy: To tie down their wireline competitors and state regulators, and
to gain access to their cable competitors’ networks. Despite recent,
unprecedented RBOC gains in the federal regulatory arena, state regulators
remain the proverbial thorns in the RBOCs’ sides. State regulators retain
statutory authority to regulate RBOC operations in their states, including the
ability to impose additional UNE or broadband wholesale obligations on the RBOCs
in the interest of promoting competition, unless otherwise preempted by the FCC.
To check this state regulatory "wild card," the RBOCs must ensure that
state regulators are hamstrung from acting in accordance with their historic
statutory authority — and potential ability to undermine incumbent market
dominance strategies — by changing state laws.

The immediate goal of the RBOC state
legislative strategy is twofold:

Broadband deregulation has become
particularly desirable as virtually all of today’s conventional voice traffic
will become indistinguishable "data" traffic within a few short years.
If successful, the RBOCs could guarantee their dominance, retain desirable
universal subsidies and become deregulated in the fastest growing, highest
potential segment of their business, high-speed broadband data services, while
denying competitor access to crucial, ubiquitous last-mile facilities.

RBOC state legislative strategy is
deceptively simple. It entails convincing state legislators, many of whom are
not intimately familiar with the nuances of telecommunications policy, that it
is the FCC — and not state regulators — who establish UNE policies, and that
broadband "parity" between competitors and the incumbents and
broadband service deregulation are prerequisites for network investment and
rapid deployment of desirable broadband services to the public.

To the uninitiated, these positions
appear rational on their face. RBOC broadband arguments prevailed in the
2001-2002 Oklahoma legislative session where SBC Communications Inc.
successfully gained passage of its broadband deregulation bill, House Bill 2769.
That law has become model RBOC state broadband legislation for other states.
When coupled with pervasive RBOC legislative influence, the RBOCs stand to gain
wide acceptance unless legislators understand the true impact of these laws on
their state’s regulators and on their constituents’ ability to choose among
providers.

Proposed RBOC legislation is
succinct and to the point: State regulators may not impose broadband obligations
on any broadband service provider, unless they are imposed on all providers.
Further, regulators may not impose UNE obligations on the RBOCs beyond those
established by the FCC. Legislation being floated in Kentucky, for example,
states:

"… the Public Service
Commission shall not impose or implement any regulatory requirement upon a
provider of broadband or services delivered on broadband … or entry into the
provision of broadband or services requiring broadband, unless such regulatory
requirement is imposed equally and uniformly upon all providers of broadband and
services …no company shall be required to unbundle the facilities and
equipment used in the provision of broadband services. This restriction …
shall not limit providers’ obligations to make such facilities, services and
equipment available to competitors as required by the Federal Communications
Commission ("FCC") or as required for services other than broadband
services.

State regulators may not impose
additional UNE obligations on the RBOCs beyond those established by the FCC by
tying regulators’ statutory authority to FCC rules:

The foregoing is not intended to
limit the jurisdiction of the Public Service Commission to provide unbundled
access to the local loop, sub-loop and interoffice transmission facilities to
the extent required under 47 C. F. R. Section 51.319 (specific unbundling
requirements) or any successor regulations issued by the FCC."

By precluding the states from
imposing additional UNE obligations beyond the federal obligations resulting
from the FCC’s Triennial Review, the RBOCs are assured no surprises. Their UNE
obligations will start and end with the FCC list. State regulators, who remain
in the best position to judge market dynamics, will have no say.

In seeking broadband
"parity" or deregulation, the RBOCs are attempting to do at the state
level what they were unable to do at the federal level with the ill-fated
Tauzin-Dingell federal broadband deregulation bill (H.R. 1542) and similar
bills. Attainment of these state legislative objectives will serve as the RBOCs’
insurance policy against unfavorable future state regulatory action.

Andrew Isar is president of the
Seattle-based regulatory consulting firm of Miller Isar Inc. and serves as vice
president of state affairs for the Association of Communications Enterprises
(ASCENT). Lisa Korner Butler has joined Miller Isar as regional vice president,
and leads the firm’s Philadelphia office. Korner Butler is former vice president
of regulatory for Broadview Networks Inc. and Network Plus Inc.