Regional Bells Cheered by Powell Comments

Federal Communications Commission chief Michael Powell has vowed to try to shrink regulations that are hampering growth, and that's music to the ears of incumbent telephone companies.

Federal Communications Commission chief Michael Powell has vowed to try to shrink regulations that are hampering growth, and thats music to the ears of incumbent telephone companies.

Powell said established carriers are afraid to invest and innovate because future regulations could puncture profits on new networks and services. "We should guard against regulatory creep," and limit regulatory uncertainty, Powell said at a Washington, D.C., press conference earlier this week.

He said forcing incumbent local exchange carriers (ILECs) to share lines with competitive local exchange carriers (CLECs) is just an "interim" step, and that competitors should be given incentives to build their own facilities, the most pragmatic way for them to stay in the game.

Walter B. McCormick, chief executive of the United States Telecom Association, which represents mostly incumbent carriers, said he was pleased that Powell "understands ... that onerous regulations discourage broadband deployment. Investment and innovation are, indeed, critical and the chairman is wise to put the commission on guard against regulatory creep. "

The former Bell companies have been chafing under regulations stipulated by the Telecommunications Act of 1996, which said they must share their lines with CLECs.

Powell also said that if theres only one wire connecting a household or a business, regulation must be heavy to ensure that the incumbent owner of such a line, a regional Bell, doesnt squeeze out competition. But in a new landscape, with the cable modem, satellite and wireline industries all having their own facilities, they ought to be allowed to compete for the broadband dollar with a minimum of regulation.

Scott Cleland, CEO of independent research firm The Precursor Group, said Powell made it clear he wants a complete overhaul and review of policies. "I am very encouraged by the chairmans deregulatory directions. It signals that he understands you cant regulate your way out of a telecom recession."

Cleland applauded the tilt toward encouraging competitors to build their own networks, rather than leasing them from the regional Bells. "Hes saying were going to make a break from the past." Cleland says the Telecom Act of 1996 is "a disaster," because it values competition and low phone rates over a market-based solution, and thus discourages job creation, profits and growth.

The head of an association for competitive carriers said he expects Powell to enforce the 1996 Telecom Act, which provides for three methods of entry into the market - resale, leasing or building separate facilities.

"Competitors need to be able to lease facilities from the incumbents in order to build a base of customers to justify a facilities build," said H. Russell Frisby, president of the Competitive Telecommunications Association. "Clearly nowadays, no one builds based on the theory that If I build it, they will come. I do agree with him that we need to figure out how to increase competition."

David Yedwab, executive vice president of research firm The Eastern Management Group, applauded Powells focus on letting the marketplace dictate the pace of deregulation. "The idea is to have more than one wire in the house to provide broadband service - wireline from the incumbents or the new guys, wireless, cable modem or some new access."

Some observers said its the logical time to free the ILECs from providing below-cost lines to their competitors, because there are very few CLECs left to bring broadband to the home.

"If we dont have an open market subject to competitive market forces and allow businesses and companies to innovate, were not going to get anywhere," Yedwab said.

In the five years since the Telecom Act was passed into law, the FCC mostly has been making theoretical judgments on hypothetical activities, Powell said. Its time, he said, for Phase II: an attempt to evaluate what is working and what is not.

Powell said he remains resolutely committed to competition, as dictated by the 1996 Act, but so much technology has erupted since then that "its time to reconsider the best approach to achieving meaningful competition."

His comments seemed to indicate that the real competition was going to be between the wirelines, the wireless and the cables, not between incumbent and competitive DSL carriers.

Incentives to CLECs to build their own facilities would decrease their dependence on the incumbents, give consumers more truly different choices and safeguard the nation with redundant infrastructures, Powell said.

Sharing lines and sharing central offices doesnt give the nation the redundant infrastructures that it needs in the wake of the terrorist attacks, Powell said. Where interconnections are required, enforcement of anti-competitive rules should be concise, clear and rigorous.

Over the next six months, the FCC will work closely with state regulators to rethink the current framework, Powell said.

The FCC will try to streamline the performance measures that ILECs must meet to prove theyve opened their lines to competitors and are qualified to enter long-distance telephone service markets, he said. About a dozen measures should be enough. "This effort will try to limit regulatory burdens on carriers, and not add to them."