FCC Rules on Local Competition

Hands off control to state regulators.

After six months of delay, the Federal Communications Commission finally released rule changes Aug. 21 on local telephone competition and broadband network deployment, leaving the question of the status of local telephone competition largely to state regulators. For business users, the FCCs action could result in a changing array of choices, depending on state actions.

The unwieldy, 576-page order—which the FCC chairman called "chaotic" and "a litigation bonanza"—deals with the obligations of incumbent local telephone carriers (namely, Regional Bell Operating Companies) to lease parts of their networks to rival carriers at discounted rates. The order attempts to address the traditional voice services network and new fiber-based deployments for broadband services separately, but critics argue that the distinction will become meaningless as voice services migrate to packetized transport.

For residential phone users, the FCC refused to eliminate the RBOCs obligation to give rival carriers discounted access to parts of the local network. However, for midsize and large enterprises, the commission found that the obligation is no longer necessary to promote competition. State regulators have three months to rebut the commissions finding, but if they do not, the RBOCs would no longer have to offer discounted access to rivals for business customers using DS-1-line capacity. That, critics say, could lead to reduced choices and higher prices.

"I think theres a presumption that since there are [Competitive Local Exchange Carriers] that have their own switches, people arent impaired without [discounted access]," said Rob Curtis, senior vice president at Z-Tel Communications Inc., a CLEC in Tampa, Fla. "I think its a mistaken presumption. The guys using their own switches are the same guys in bankruptcy."

FCC Chairman Michael Powell criticized the voice network portion of the decision as discouraging facilities-based competition. Powell chided the commissions majority for handing over responsibility to state regulators and predicted that it will result in 51 sets of litigation and no nationwide policy.

For broadband services, the new rules relieve the Bells and other incumbents from having to offer rivals discounted rates for leasing new fiber network elements. Proponents of broadband deregulation, including Powell, argue that it will promote investment in new facilities. However, critics say it could lead to the remonopolization of local broadband services.

Mark Cooper, director of research at the Consumer Federation of America, in Washington, said last week that competition in high-speed Internet services will be "shattered and destroyed" if the rules arent overturned by the courts. CFA is one of many parties planning to file lawsuits against the FCCs order.