Incumbents Close Ranks on Leasing Rules

FCC mulls easing of Bells' obligations; rivals fear being shut out of market.

Federal regulators are hinting that they see enough competition in local telephone service to warrant giving Bell telephone companies some slack in their obligation to lease portions of their networks to rivals. Whats more, regulators said, such relief might spur the Bells to make more investments in broadband infrastructure.

But to rivals struggling to break into local telephony markets, the suggestion is a ploy by the incumbent telcos to stymie competition. The debate continues to rage in telecommunications, and more and more voices are lining up against the Federal Communications Commissions proposal to ease the rules.

"An objective review of the facts will plainly reveal that the emperor truly has no clothes. Competition remains in a nascent stage and is ultimately doomed to failure if the FCC moves to reduce or eliminate the unbundling obligations now imposed on the incumbents," officials of Talk America Inc., a Competitive Local Exchange Carrier in Reston, Va., wrote the FCC earlier this month, in a summary that represents the view of many new entrants in the market.

AT&T Corp.s take on the suggestion that the Bells will forgo broadband expansion if the deregulatory effort fails makes the startups statement seem almost generous. "The commission should see this threat for what it is: a calculated and cynical ploy designed to wall off the very competition that is essential to spur investment in the equipment needed to provide [digital subscriber line]-based services," AT&T officials testified.

In the view of the four major incumbent telcos—Verizon Communications Inc., BellSouth Corp., SBC Communications Inc. and Qwest Communications Inc.—the network-leasing duties sap resources that could be used to build broadband infrastructure and discourage competitors from investing in their own networks.

"Not only do [network-leasing] requirements deny incumbents the fruits of their innovation and investment, they raise incumbents costs by requiring them to design their facilities not in the most efficient way possible but to permit their use by multiple carriers," an SBC official testified here last week.

In regulatory parlance, the leased portions of local networks are called unbundled network elements, or UNEs, (pronounced "yunies"). FCC Chairman Michael Powell, who is known for a deregulatory penchant, is promoting the prospect of facilities-based competition among different technologies—satellite, wireless, cable and traditional telephony—over the prospect of competition that relies on shared infrastructure. The contentious and highly complex proceeding has the attention of Congress, which is divided in its efforts to spur broadband services.

The FCC will likely try to complete its review by years end or early next year, a spokesman said. "This is one of three or four big-ticket items coming out this year," he said.

For enterprises in low-volume business districts, the outcome of the debate could have unfortunate consequences, according to AT&T. When AT&T started to offer local service to businesses, it used its own switches, which required the Bells to switch the customer to the AT&T network.

"This effort foundered and was ultimately terminated because hot cuts could not be provisioned in a timely, efficient, economic and accurate manner," AT&T officials told the FCC, arguing that the proposed deregulation means large numbers of low-volume business sites would not receive competitive offerings. Today, AT&T provides local service to 3 million businesses.

AT&T, WorldCom Inc. and Sprint Corp. flooded the FCC with more than a thousand pages of arguments opposing the proposal. They have the support of consumer groups and many state utility advocates, which maintain that the proposal would encourage the development of proprietary networks and that ISPs and independent application developers would fall victim to the Bells and cable companies.

Whenever the FCC takes up the issue of local competition, competitive carriers take the opportunity to document what they consider unjust treatment by the Bells—and the UNE proceeding is no exception.

"Talk America encounters on a daily basis a myriad of service problems that suggest anti-competitive behavior," said an official of the carrier.

Talk Americas experience is not unique, as indicated by the millions of dollars in fines the telcos have paid the FCC for violating their market-opening obligations.