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FCC Rules for Phone, Internet Competition May Open Door to Long Court Battle

Posted on: Friday, 22 August 2003, 06:00 CDT

Aug. 23--For consumers, telecommunications companies and state regulators trying to decide whether they like the Federal Communications Commission's new rules for telephone and Internet competition, the question boils down to this: Do you communicate with plain old-fashioned copper wire, or with space-age fiber optic lines?

The FCC decision announced late Thursday has rules favoring both technologies, but the fractious 3-2 commission vote also disappointed major industry players on both sides as well -- guaranteeing a long court battle that could last years and leave the state of competition in limbo.

"It's a split decision," agreed AT&T attorney and vice president Mary Tribby, a regulatory specialist for that company's Western region, which includes Minnesota.

Users of the twisted copper wires that have been carrying phone conversations since before the turn of the 20th century will like the rule that requires giant regional telephone companies like Qwest Communications International to continue to lease out its vast network to competitors. The lines must be offered at discount or wholesale rates, just as the government ordered when it deregulated local phone service in 1996.

Those local phone service competitors, particularly large long-distance giants AT&T and MCI, need access to the copper lines to continue offering local phone service to residents and businesses. Baby Bells like Qwest inherited a monopoly on those lines when the government broke up the old AT&T "Ma Bell" in 1984. No competitor could duplicate the millions of miles of wires without going bankrupt.

The order "will allow AT&T to continue to serve our existing local customers and to follow through with out plans to expand to other markets," said Robert Quinn, AT&T vice president for federal regulatory affairs.

However, users of fiber optic lines, which can carry high-speed Internet data and voice traffic faster than even copper digital subscriber lines, will prefer the rule that allows the Bells to keep competitors off any new fiber optic lines they build. That will encourage the regional companies to extend fiber broadband directly into homes and businesses instead of continuing to rely on older, slower copper to make what the industry calls "the last mile" connection.

"Our initial review suggests that the FCC made the right decision in the area of broadband communications -- taking a pro-investment and pro-competitive approach to the deployment of new facilities," Qwest senior vice president of public policy Steve Davis said.

While it sounds like each side got something, in reality both sides wanted everything, and telecommunications watchers expect legal challenges in federal court to hit the doorsteps of the FCC fairly soon.

"This leaves choice for voice and death for data, is the way we look at it," AT&T's Tribby said. AT&T, with 3.5 million customers nationwide, could never afford to build its own broadband network, she said.

The FCC decision could potentially shut long-distance companies like AT&T out of the future of telecommunications, especially since it sold its broadband cable company to Comcast more than a year ago.

However, experts note that while the industry is ultimately moving toward fiber optic lines, it would take decades to build out the high-speed network of the future, meaning that copper lines will be with us for a long time.

The Baby Bells ultimately will prevail, said financial analyst Bath Blake of Lehman Brothers in a report Friday. He predicted that regulators will allow state-set prices to rise on the copper lines leased to competitors, lessening their attractiveness to long-distance competitors like AT&T.

Consumer groups aren't thrilled with the FCC decision. The 300-member Consumer Federation of America, a Washington, D.C. umbrella organization, on Friday blasted the decision.

"The irony is that they preserved competition for 20th century technology and gave it away on 21st century technology," said Mark Cooper, director of research for the federation. He promised the group would fight that aspect of the decision.

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(c) 2003, Saint Paul Pioneer Press, Minn. Distributed by Knight Ridder/Tribune Business News.

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