Bells Win Victory on Broadband

Bells Win Victory on Broadband

Source: San Jose Mercury News

The Federal Communications Commission refused Thursday to free the local phone companies from requirements to share their lines but eased up on regulation of new networks for high-speed Internet access — a decision widely welcomed in Silicon Valley.

In the biggest ruling for the telecom industry in seven years, the FCC refused to get rid of anti-monopoly measures that give rivals low-cost access to the Baby Bell regional phone companies’ lines, and instead left it to state regulators to decide how far to go in opening up local phone networks. In its split decision, the FCC also gave the Bells a key victory in the emerging broadband market by ruling that they do not need to make new networks used for high-speed Internet connections available to competitors.

Thursday’s vote was one of the most heavily lobbied and closely watched decisions in the industry in years, as phone giants, regulators, upstart competitors and consumers all sought to shape federal rules to reflect their competing visions of the telecom landscape.

Many high-tech companies praised the decision, predicting that deregulation of the broadband market would unleash a fresh round of telecom investment. A coalition representing 15,000 high-tech companies had lobbied the FCC aggressively to not impose the same network-sharing obligations that apply to the Bells’ older copper voice networks to their new fiber-optic data lines for broadband.

“I think it’s a shot in the arm to the tech community,” said Matthew Flannigan, president of the Telecommunications Industry Association, which represents telecom equipment manufacturers such as Cisco Systems, Nortel Networks and Corning. Flannigan said he expects to see the effects of increased investment by the second half of this year.

Intel CEO Craig Barrett called the decision a “bold step to promote and accelerate broadband deployment in this country.” Barrett has personally lobbied the FCC on the issue, most recently paying a visit to the agency last month.

However, those new investments are unlikely to come from the Bells. The two largest Bell companies — Verizon and SBC — reversed course on Thursday and said they will not invest in new broadband networks as long as their older copper voice networks remain heavily regulated. The Bells argue that the current rules discourage them and their rivals from investing in their systems since they must share their lines with competitors such as AT&T and WorldCom at wholesale rates.

“Our core business is still under siege,” said Jim Smith, SBC’s senior vice president/FCC. “When we get reasonable rules in our core business, we’ll be able to take advantage of the positive broadband rules.”

The impact on consumers is not yet clear. Consumer groups and some Bell rivals said Thursday’s decision will limit competition — particularly in the broadband market.

“Telephone consumers did well, but advanced services customers are facing severe risk of rising prices and less choices,” said Mark Cooper, director of research for Consumer Federation of America.

One secondary piece of Thursday’s ruling came as a blow to a Silicon Valley trailblazer — Covad Communications, the Santa Clara-based provider of digital subscriber line services.

The FCC decided to phase out current rules governing “line-sharing” — which allow companies such as Covad to deliver DSL connections over the same lines that the Bells use to deliver voice service, at reduced rates.

Now the company will have to negotiate the rates it pays for access to those lines with the Bells. If the Bells set those rates too high, they could push up DSL prices and potentially even drive Covad out of the consumer broadband market, said Charles Hoffman, Covad’s president and chief executive.

“This will make us rethink whether we want to be in the consumer space,” Hoffman said. He added that because the company already orders separate lines to serve its business customers, the ruling will likely encourage the company to focus more on these customers. Business customers generated more than 60 percent of Covad’s recurring revenue last year.

The decision to eliminate line-sharing will also harm many smaller Internet service providers that rely on Covad as an alternative to the Bells to reach their customers, according to Sue Ashdown, executive director of the American ISP Association.

“This means less choice for consumers in how they get their broadband,” she said. “Basically what you have is the FCC making a decision about what technology should be used. They are saying: ‘Let’s use fiber, and the Bells should be the ones to deploy it.’ ”

In the end, FCC Chairman Michael Powell scored a decisive win on his efforts to free new broadband networks from regulation, but failed to muster three votes needed to overhaul the landmark Telecommunications Act of 1996. He was forced into the rare position of issuing a dissenting opinion. Instead, Republican Commissioner Kevin Martin pushed through a proposal that grew out of a plan put forth by state regulators and backed by AT&T and WorldCom.

In a scathing statement, Powell said the decision was “legally suspect” and predicted that the new rules would be overturned in the courts. He also warned that the vote “could prove quite harmful to consumers” and “too chaotic for an already fragile telecom sector.”

Powell also warned that handing regulatory authority to the states will result in a patchwork of uneven rules across the country.

But Joan Marsh, director of federal government affairs for AT&T, explained that while the FCC will provide guidance to the state commissions, the analysis of local market conditions is best done at the state level because “it’s not one size fits all.” Many states have been aggressive in promoting local phone competition.

By Heather Fleming Phillips and Joelle Tessler

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To see more of the San Jose Mercury News, or to subscribe to the newspaper, go to http://www.mercurynews.com.

(c) 2003, San Jose Mercury News, Calif. Distributed by Knight Ridder/Tribune Business News.

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