CLECs Push Lawmakers to Break Up Bells

Small, local carriers are charging RBOCs with anti-competitive practices

Like many small-business owners, Doreen Mastandrea is eager to cut costs when she sees an opportunity. So when a friend told her in 1998 about a company called ServiSense Inc., which provides not only local and long-distance telephone service but also electric service, she didnt hesitate to sign up.

"Any savings we can get, we go for," said Mastandrea, who operates the Paint-a-Plate store in Lexington, Mass. "Im not going to sit down with numbers and minutes and all that jazz. I just try things out."

The difficulty for ServiSense and other startup CLECs, or Competitive Local Exchange Carriers, is that word-of-mouth advertising goes only so far, and they do not have sufficient advertising budgets to compete with the legacy brand names of the RBOCs (Regional Bell Operating Companies) they compete with. Whats worse, they say, the Bells have an inherent incentive to undermine CLEC efforts. To eliminate that incentive, they are asking the government to separate the Bells into independent wholesale and retail businesses.

CLECs rely on the Bells for final network connections to customers, and although the connections and the right to resell local service are mandated by the 1996 Telecommunications Act, CLECs charge the Bells with not cooperating. ServiSense, which has approximately 30,000 customers nationwide, found that the level of cooperation varies widely state by state. In Massachusetts and Pennsylvania, it found regulatory environments conducive to competition, and it signed up approximately 8,000 customers in each state, according to Chris McKeown, chairman and CEO, in Newton, Mass.

In Maryland and Ohio, however, ServiSense confronted so many difficulties working with the Bells that it stopped marketing services in those states. In Maryland, the CLECs filed official complaints against Verizon Communications Inc. with state regulators, charging, among other things, that Verizon took too long to process orders when customers switch service providers. In Pennsylvania, it generally takes one day or less to process an order, but in Maryland it can take between three and 21 days, according to the company. CLECs also charge that Bells use unfair tactics to win back customers.

"As soon as we sign up a new customer, the BOC goes right to work immediately with free offers and other deals," McKeown said. "They get the information solely by virtue of being a monopoly, and we dont even know that our customer has been enticed with a win-back offer."

Pennsylvania regulators are leading the charge to separate the RBOCs into wholesale and retail units, but the effort is gaining momentum elsewhere as well.

Legislators in Michigan introduced a bill last month to require structural separation of SBC Communication Inc.; a coalition of CLECs and long-distance carriers petitioned the Indiana Utility Regulatory Commission to do the same for SBC in Indiana; and AT&T Corp. testified to the New Jersey Board of Public Utilities that structural separation of Verizons New Jersey operations is required by state law, backing up a petition the long-distance carrier filed in February.

"Within the last six weeks, structural separation at the state level has really heated up. However, this will be a long, drawn-out process. It could take six months to two years in each state," said Maureen Flood, director of Regulatory and State Affairs at Washington-based CompTel, which supported petitions filed with regulators in Florida, Tennesee and Virginia as well as Indiana and New Jersey.

The Bells reject the charge that they act in an anti-competitive way to impede the CLECs service. Verizon Executive Vice President William Barr defended his company before the House Judiciary Committee late last month in the face of severe criticism from lawmakers. Responding to charges of RBOC monopolistic behavior by the committees ranking Democrat, Rep. John Conyers, of Michigan, Barr said, "All claims of the competitors have been levied and rejected. ... I think its wrong to immediately give credence to claims of foot dragging."

Congress is considering a bill to increase fines against the Bells for violating competition laws and other bills that would treat anti-competitive accusations as antitrust complaints. But the matter of structural separation has not generated much official discussion in Washington, despite growing interest at the state level. However, the Democrats new majority position in the Senate brought about by the party switch by Sen. Jim Jeffords, I-Vt., could give the subject a higher profile.

The only senator who has publicly advocated RBOC structural separation, Sen. Ernest Hollings, D-S.C., is in line to chair the Senate Commerce Committee.

Hollings grilled Federal Communications Commission Chairman Michael Powell on his view of structural separation before confirming him for a second term as FCC chairman. (The second five-year term begins in June 2002.)

Powell said he does not hold a position on whether Congress should require structural separation, but he said he believes it would be highly complicated.