“This is the fourth time in eight years that the FCC has attempted to craft rules for network access, yet this ruling is likely to create more uncertainty and lawsuits for the industry.” – Braden Cox, Competitive Enterprise Institute
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RESEARCH TRIANGLE PARK — On a day when the Federal Communications Commission debated use of cell phones on aircraft, allowing broadband access for users while in aircraft, and encouraging use of broadband for rural telemedicine initiatives, most of the media attention was focused on the continuing RBOC wars.

LTW normally doesn’t cover FCC decisions in such detail, but Wednesday’s could have tremendous impact on how we communicate at work and at home. The day was also an extremely busy one with several key decisions (see links below).

The FCC made a fourth attempt at regulating access to the four regional Bell operating companies’ networks on Wednesday, a decision that apparently satisfied neither side in the debate. Each time, the FCC seems to be in the same paradox as Solomon when he ordered the quarreling “moms” to cut the baby in half.

The real mom was easy for identify by Solomon. She wanted the child to live, so she gave up her rights. In the telephone wars, it remains to be seen who will blink and give up the struggle — the RBOCS who face growing competition from wireless and cable ventures they don’t own (BellSouth, SBC and Verizon have their wireless flanks well protected with their own ventures) or the outsiders such as AT&T and MCI and smaller phone companies that want discounted access to the big carrier networks.

The FCC voted 3-2 to require the Baby Bells, including Bell South and Verizon, to continue to sell competitors access to their networks at discounted rates.

However, access in residential areas eligible for discounts will be phased out over the next year. Forced discounts for high-speed business access will also be reduced.

This is an important decision for every business and consumer who have not yet moved to a wireless or cable telephony services provider because, ultimately, phone bills and choices for providers will be affected.

The New York Times quoted some officials as saying rates the Bells charge their competitors could increase 30 to 50 percent, creating a domino effect of raising end-user costs.

The Federal Courts have rejected previous FCC attempts to moderate the dispute between the RBOCS, or incumbent carriers, and the competitive local exchange carriers (CLECs). The RBOCs insist that being forced to sell services at discounted rates to competitors as mandated to do so under telecom reform dating to the 1990s is unfair.

Mixed reaction

“This is the fourth time in eight years that the FCC has attempted to craft rules for network access, yet this ruling is likely to create more uncertainty and lawsuits for the industry,” said Braden Cox, technology counsel with the Competitive Enterprise Institute, a non-partisan public policy group in Washington. “While there was some small reform of access rules for providers who are merely resellers, the Commission still hasn’t embraced the market alternatives available, leaving a narrow and misleading picture of the overall telecom marketplace”

In a statement, Steve Davis, a vice president at Qwest Communications, said the FCC “has defied the courts by ignoring competition and opting instead for an approach to this industry that relies on intrusive government regulation.”

But Mark Cooper of the Consumer Federation of America offered a different view. “Consumers will be the ones paying the price through diminished choices and higher rates,” he said.

FCC Chairman Michael Powell, voting with the majority, defended the decision.

“Today’s decision crafts a clear, workable set of rules that preserves access to the incumbent’s network where there is, or likely will be no other viable way to compete,” he said. “The rules have also been carefully designed to pass judicial muster, for I hope we have learned that illegal rules, no matter their other merits, are no rules at all. For eight years, the effort to establish viable local unbundling rules has been a litigation roller coaster. Regrettably, years of fierce battles to bend the rules entirely toward one sector or another without proper respect for the legal constraints have contributed to a prolonged period of uncertainty and market stagnation.”

AT&T and MCI have already cut back on efforts to provide local competitive access services for residential users.

Other companies, such as Charlotte-based US Lec, have focused on business customers and have built their own networks so they would be less reliant on use of the RBOC facilities.

The two FCC commissioners who voted against the decision say many CLECs will suffer, if not be forced out of business.

FCC Commisioner Michael Copps issued a strong dissent.

“What we have in front of us effectively dismantles wireline competition. Brick-by-brick, this process has been underway for some time. But today’s Order accomplishes the same feat with all the grace and finality of a wrecking ball,” he said. “No amount of rhetoric about judicially sustainable rules and economically efficient competitors can hide the blockbuster job this Commission has done on competition. During its tenure, the largest long distance carriers have abandoned the residential market. And as a result of today’s decision, other carriers will follow suit. In their wake we will face bankruptcies, job losses and customer outages. Billions of dollars of investment capital will be stranded. And down the road consumers will face less competition, higher rates and fewer service choices.”

Jonathan Adelstein, the other dissenter, predicted doom for competition.

“With this order, the Commission officially cuts the cord on the local competition provisions of the Telecommunications Act of 1996, the companies and investors which sought to deliver on the promise of the act, and the American consumers — to whom that promise was made,” he said. “By fundamentally undermining facilities-based competition, the Commission relegates consumers to an inevitable future of higher rates and fewer choices. Regrettably, and unnecessarily, the Commission’s action will ratchet up rates for both residential consumers and small businesses, which are so central to our nation’s economic growth.”

But did all the anger and such over the FCC ruling miss a bigger picture?

Standard & Poors said in a note that it sees the FCC ruling as a “slight negative” for the RBOCs. The analyst firm insisted the main threat to the telecom giants are “wireless substitution and cable telephony competition.”

For details on the FCC’s decision, see: hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-255344A1.doc

Other decisions:

The FCC wants to encourage more telemedicine in rural areas and is looking for ways to encourage it. For the rural broadband subsidies for telemedicine: hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-255348A1.doc

For using cell phones on aircraft: hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-255246A1.doc

For using broadband services in the air: hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-255345A1.doc