If your local telephone company sells you long distance service in addition to local service, should it be allowed to mix the figures from the two businesses in one set of books? And if so, should it have to file those figures with the communications regulators?
Today, local exchange carriers, namely the Bell Operating Companies, can sell long distance service to their local customers in 41 states and the District of Columbia. However, they had to win the Federal Communications Commissions approval to do so, and for at least three years from the date of that approval they can sell the long distance services only through a separate affiliate.
Bell companies that got an early start in the long distance arena are poised to break free of the separate affiliate requirement. By January, Verizon Communications Inc. will no longer have to use a separate affiliate in New York, and by July, SBC Communications Inc. wont have to use a separate affiliate in Texas. But if the carriers choose to integrate the provision of local and long distance services when the time comes, they will fall under a set of stricter FCC regulations, requiring them to file tariffs and a lot of other paperwork.
Now that the long distance market is highly competitive, the FCC wants to know whether they have to hold the Bells and other incumbent local exchange carriers to the tougher requirements after their separate affiliate mandate expires. Thursday, the FCC launched a proceeding to take a look at the local exchange carriers markets and try to figure out how much market power those carriers wield. If the Bells can use their leverage in the local market to an unfair advantage in taking customers from the long distance companies, the argument goes, perhaps the commission should maintain the tariff-filing requirements.
All five commissioners voted to open the inquiry, but the agencys two Democrats raised concerns that it could bias the results of other proceedings underway. Commissioners Michael Copps and Jonathan Adelstein expressed reservations about the decision to let Verizons separate affiliate requirement in New York expire this year, a decision they said was made without detailed market analysis or state regulators consent.
The commission should not abandon the separate affiliate requirement too quickly because it is a key means of trying to prevent improper accounting practices and cross-subsidization, Copps and Adelstein wrote in a statement following Thursdays vote to open the new proceeding.
“In an era of corporate governance problems and accounting depredations, this Commission has an especially high burden to overcome if it chooses to eliminate or reduce the separate affiliate protections that help prevent and detect anticompetitive behavior,” Copps and Adelstein wrote.
Worried that the new proceeding could be interpreted as “leading toward a predetermined outcome,” the minority commissioners urged the public to address the full range of competitive issues, including the rates that the Bells charge other carriers to connect to the local network.
“What we are in search of here is absence of such an outcome and the reality of an open and unbiased record,” they said.
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