AT&T to Seek Deregulation After Verizon’s Broadband Win

AT&T Inc yesterday said it would follow Verizon Communications Inc’s lead and seek relief from US government regulations on how it charges enterprise and wholesale customers for its broadband data services.

The Federal Communications Commission earlier this week granted a Verizon petition, originally filed in late 2004, to be exempt from price and tariff rules when selling broadband to enterprises and long-distance and wireless phone companies.

Verizon’s petition, which it updated earlier this year, argued that other players in the long-distance and cable markets did not face the same strict regulations and, given the fiercely competitive nature of the US broadband market, it shouldn’t either.

New York-based Verizon is now exempt from pricing regulations for its broadband infrastructure and fiber capabilities.

Verizon also sent a letter to the FCC in mid-February stating that if it were exempt from regulations it would still continue to pay into the federal universal service fund, which offers subsidized communication services for non-profits and community infrastructure.

Verizon, which bought rival MCI Inc for $8.6bn earlier this year, is the second-largest telecommunications carrier in the US.

AT&T chief executive Ed Whitacre told reporters in Las Vegas yesterday that AT&T, the country’s No. 1 carrier, would seek similar relief.

“I think it will be pretty close to what Verizon did,” Whitacre said, referring to his plans to file a petition like the one by Verizon that sought deregulation. “I’m sure if Verizon has it, we’ll get it too.” An AT&T spokesperson confirmed Whitacre’s position.

Like Verizon, AT&T is part of a telecom mega-merger in the country, after announced earlier this month that it will acquire the third-largest US telecoms group, BellSouth Corp, in an $89.4bn deal.

The upshot of the deregulation would not necessarily lead to higher or lower prices “one way or another,” said Verizon spokesperson Brian Blevins. “It allows us to work better with potential customers to meet their needs.”

Previously, pricing rules around broadband data services meant Verizon was limited in its ability to quickly respond to customer requests for specialized service, Blevins said. “Under the old regime, we just didn’t have capability to respond immediately,” he said.

Now, Verizon is able to create more tailored products for its customers, which in turn will spur “greater competition,” according to Blevins.

“Generally, the prices will be determined by market conditions,” he said.

But higher prices seem inevitable. As Jon Arnold, principal of US VoIP analyst firm J. Arnold & Associates, said, “It’s hard to think they’re going to be that benevolent and maintain the status quo.”

While the FCC granted the wishes of Verizon, the vote was not unanimous and the two Democratic FCC members who opposed the measure echoed Arnold’s concern.

Democratic FCC commissioner Jonathan Adelstein issued a dissenting statement that said the decision to grant Verizon’s petition, “raises the specter of price hikes and fewer choices for businesses [and others].”

“By allowing this petition to grant by operation of law, and without a shred of analysis, the Commission prejudges important open proceedings and ignores precedent,” Adelstein said.

“It helps one telecommunications giant at the expense of virtually everyone else, including small and rural telephone companies, and business users of all sizes.”

Fellow Democratic FCC member Michael Copps issued a statement voicing similar concerns. “It is end users, particularly small business consumers, who will suffer the consequences,” Copps said.

“By failing to act, the Commission flashes a green light for rate increases without any regulatory oversight. This will raise the cost of doing business in this country for businesses both large and small.”

However, the two Republican FCC members, including chairman Kevin Martin, outvoted the two Democratic commissioners.

Martin also issued a statement, claiming the deregulation would prompt broader deployment of broadband.

“This relief will enable Verizon to have the flexibility to further deploy its broadband services and fiber facilities without overly burdensome regulations,” Martin said.

More likely, it will mean reduced competition as competitive local exchange carriers, which rely on incumbents such as Verizon and AT&T for broadband infrastructure, may be virtually shut out of the market by higher prices, Arnold said.

“CLECs don’t have the menas to build alternative channels,” he said. Currently, CLECs account for roughly 15% to 20% of the business broadband market in the US.

Even carriers with their own DSL infrastructure, such as enterprise market vendor Covad Communications Group Inc, rely on the Verizon’s of this world for last-mile infrastructure.

“Everything is going to the incumbent’s way now,” Arnold said. “It’s downright scary if you’re anything but an incumbent.”

Inevitably, this deregulation may also mean higher whole prices for enterprise VoIP providers, Arnold said. “Either they’ll have to take smaller margins or figure out ways to sell higher-priced services,” he said.

However, chairman Martin’s statement, which was written jointly with Republican FCC member Deborah Taylor Tate, claimed the regulator’s action “does not constitute a failure to ensure adequate law enforcement access to Verizon’s broadband services.”