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FCC Phone, Net Rules Send Mixed Messages

Posted on: Friday, 21 February 2003, 06:00 CST

FCC Phone, Net Rules Send Mixed Messages

Source: Associated Press

The government's latest attempt to overhaul rules governing competition for telephone and Internet services sends mixed messages to consumers about how much they will pay to go online or make a call, analysts and regulators say.

The decisions from the Federal Communications Commission also face a flurry of legal challenges from telecommunications companies that feel the rules hurt their business.

The FCC voted 3-2 Thursday to let states decide whether to spur competition between the regional Bell phone companies and their rivals, rejecting arguments from agency Chairman Michael Powell and the Bells that existing federal competition rules should be eliminated altogether.

Another split decision eased requirements that the Bells provide rivals discount access to fiber-optic lines for the high-speed Internet access called broadband. The Bells have complained they have no incentive to invest in costly new networks if competitors profit.

Consumers could benefit from the decision to shift authority to states because local regulators tend to focus more than the FCC on keeping phone bills low, said Kathie Hackler, an analyst with Gartner Dataquest.

"States have more of a capability to deal directly with consumer issues," she said.

But Powell, in his first dissenting opinion as chairman, said the decision "could prove quite harmful to consumers."

"This decision will prove too chaotic for an already fragile telecom sector," he said. He said having states evaluate the rules will take years and the process will be plagued by lawsuits.

Behind the commission's divided ruling is a requirement that the regional Bell companies lease parts of their local networks to competitors such as AT&T Corp. and WorldCom Inc. at discount rates. The policy was adopted seven years ago to encourage companies to compete in the Bells' markets while giving the Bells the chance to offer long-distance service in their regions.

Consumers have been offered in recent years increasing communication choices and lower prices, especially in the areas of long-distance and cell phone service, said David Kaut, an analyst with the Legg Mason investment firm. He said some of the benefits stem from the 1996 telecommunications law and other government policies, but the Bells and Powell feel that those benefits won't last in local markets.

The Bell companies - BellSouth Corp., SBC Communications, Verizon Communications and Qwest Communications - say the leasing rules allow competitors to use their networks at artificially low prices. The Bells said they were disappointed with the FCC ruling.

James C. Smith, an SBC senior vice president, called the decision "a pipe dream of people who have spent no time working in the real world." Smith and officials from other phone companies said they would increase lobbying of Congress and state regulators and appeal the FCC decision in the courts.

Bell rivals say the competition requirements allow them to offer alternative service and prevent the Bells from having an overwhelming advantage.

Jim Cicconi, general counsel for AT&T, praised the commissioners who voted for more state authority, saying that they "rejected radical proposals that would have killed local competition."

Companies like AT&T are facing shrinking revenues in their long-distance business and need to get into local phone service to survive, Kaut said.

Mark Cooper, research director of the Consumer Federation of America, echoed the FCC's Democratic commissioners, saying the agency decision would maintain local phone competition, but lifting broadband restrictions would mean higher prices and fewer choices for high-speed Internet access.

Powell took the opposite view. He applauded the broadband decision as promoting investment in new networks, but called the phone competition ruling a "molten morass of regulatory activity" filled with legal errors that will ultimately doom the measure.

Courts have rejected the agency's previous two attempts to revise the rules, saying they failed to meet the requirements of a 1996 telecommunications law.

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Copyright © 2003 The Associated Press. All rights reserved. The information contained in the AP News report may not be published, broadcast, rewritten or redistributed without the prior written authority of The Associated Press.

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