Sen. McCain to Call Bells Bluff

Initiative offers no regulatory relief for enterprise services.

The Bells vow to expand their data infrastructures in exchange for restricting rivals access to their networks is getting much attention in Congress, which is grappling for ways to bolster the lagging telecommunications sector and expand Internet connectivity in underserved areas.

Adding a twist to the debate last week, Sen. John McCain, R-Ariz., floated a plan to grant the Bells such regulatory relief, but not for enterprise services, which enjoy a comparably competitive climate today.

Late last week, McCain was still working on the legislation but fully intended to introduce it, according to one of his aides. The initiative holds out the prospect that even if the incumbent telephone companies win some regulatory relief in return for promises to build out in rural areas—which consumer advocates say would be the end of telecommunications competition—the changes would not affect the enterprise market. End-user advocates, who oppose any legislation designed to reduce the pro-competitive obligations on the incumbents, were weighing the pros and cons of the idea.

"This does call [the Bells] bluff," said Brad Ramsey, general counsel for the National Association of Regulatory Utility Commissioners, in Washington. "I dont think anyone thinks that we have a [competition] problem with business services. So the [legislative] measure that is the least bad would be McCains. With that, you dont have the near-term undercutting of companies being able to provide services through resale."

The prospect of gaining a regulatory victory solely with regard to residential services left the Bells fuming, however. Calling the McCain initiative "an advantage to AT&T [Corp.] and WorldCom [Inc.]," BellSouth Corp. lobbyist Herschel Abbott said that leaving business services subject to the current regulatory regime would continue to impede the incumbents ability to compete for enterprise users. "There is competition in the business market, and that is the test for deregulation," said Abbott, vice president of government affairs at BellSouth, in Washington.

The Bells support a different Senate bill that was introduced last week by Sen. John Breaux, D-La. The Regulatory Parity Act, which would deregulate the telcos to the same level as cable companies, closely mirrors the House measure known as the Tauzin-Dingell bill, which passed earlier this year. That bill calls for eliminating network-sharing obligations on Bells when it comes to broadband services.

"To the extent enterprise users work in rural areas, [the Breaux bill] would provide build-out to them," Abbott said. "To the extent they are in urban areas, the truth of the matter is that theyve got a broad assortment of high-speed data services available to them."

The Bells and their advocates in Congress are not shy about playing the contemporary security card to propel their cause. "This is not just a matter of the economy but also a matter of national security," Abbott said. "I dont want to suggest that the [Internet] backbone is imperiled today. But unless a very strong emphasis is given to facilities-based competition as opposed to faux competition, there will not be the capital available to maintain the networks."