FCC phone competition rules may be finalized soon

The final language on a broad set of regulations governing competition between telephone and Internet service providers in the U.S. may be finished by the end of this week, after a half year of waiting, according to U.S. Federal Communications Commission (FCC) officials.

But telecommunications companies waiting for the final language of the FCC's triennial review aren't holding their breath, and some say the FCC's delay is postponing investment and causing uncertainty in the already troubled telecommunications industry. The FCC has been promising for months that the rules would come out soon, prompted by a steady stream of calls by the U.S. Congress for the FCC to issue the final language on changes to telephone competition rules approved by the commission Feb. 20.

"I really think it's this week," FCC Chairman Michael Powell said at a press conference Wednesday. But Powell also noted that the FCC had made the same sort of predictions previously, and he didn't answer a question about the cause for delay.

At issue are the rules that govern what network elements the regional Bell operating companies must share with their competitors, including parts of their DSL (Digital Subscriber Line) services.

The so-called triennial review is one of the most important decisions in the FCC's 80-year history, said Dana Frix, a telecom lawyer with law firm Chadbourne & Parke LLP, and the delay creates confusion in the telecom industry.

"This is the fundamental reordering order," said Frix, who has represented telephone companies that compete with the regional Bells. "There's going to be a new world out there, and here are the rules for the new world. But nobody knows what those new rules are."

Little information has been leaking out about the direction of the final order, Frix added. "Nobody I know is making any bets on when it's going to come out, and nobody knows why it isn't coming out," he said.

In February, the FCC voted to allow the four regional Bells to refuse sharing new fiber-based broadband networks with competitors, and to stop offering line-sharing at discounted prices for DSL service to competing Internet service providers serving residential customers. The FCC left it up to state public utility commissions to decide whether the regional Bells should still offer local phone switching facilities to competing phone carriers at discounted rates.

The FCC vote Feb. 20 gave the telecom industry a general sense of the direction the commission is headed, but the network-sharing rules, often called the unbundled network element (UNE) rules, are highly complicated and technical. The broad direction the FCC approved in February doesn't give telecom companies enough direction to move forward with many plans, Frix said, and even the final order will be open to some interpretation.

"Imagine 200 lawyers and a 600- to 700-page single-spaced order," Frix said. "How much damage do you think we can do?"

The details about how the FCC-approved changes will happen are in the written rules, and representatives of the telecom industry say the delay puts parts of their business in limbo.

"A big part of the business has been waiting for the certainty of these rules," said Dave Pacholczyk, spokesman for SBC Communications Inc., one of the four regional Bells. "We continue to move forward, but it's just that these rules will provide greater certainty."

Pacholczyk and Frix said the delay in the FCC rules has caused delays in new investment in the telecom industry. "It doesn't take a scientist to figure out that the financial community is not going to act until they have an idea of what the new rules are going to be," Frix said. "It's been detrimental ... in terms of dealing with Wall Street."

SBC has moved forward with some plans but has delayed others waiting for the final rule to come out, Pacholczyk. "We're ready to invest, we want to invest," he said. "We're just waiting for the rules."

Others in the telecom industry say the delay in the final rules has had more of a mixed impact on the industry. Andrew Lipman, a telecom lawyer with Swidler, Berlin, Shereff, Friedman LLP in Washington, D.C., said investment in the industry continues without the rules. He called the delay "modestly unhelpful."

"It's put telecom policy in suspended animation for six months," he added.

Lipman predicted that whatever the outcome, the FCC rules will end up back in court, as it has twice before since Congress passed the Telecommunications Act of 1996, which set the road map for telephone service deregulation. "Once the decision comes out, there's going to be a smorgasbord of appeals," he said.

David McClure, president and chief executive officer of the US Internet Industry Association, agreed with Frix and Pacholczyk that the delay has caused delays in telecom investment. But the delay also has had a "calming influence" over the Internet service provider industry, McClure said. Because the FCC February decision allowed the regional Bells to stop sharing some high-speed services such as residential DSL, McClure predicted that the final decision would cause some small ISPs to go out of business.

"I'm not certain you want a government policy that is released that causes significant churn in the industry while you're trying to get the economy back on its feet," he said. "The other side of that, thought, is that we're not seeing the significant investment particularly in telephony services ... while they figure out what's going on."

The UNE rules allowing competitors to use pieces of the regional Bells' networks at discounted prices hurts the Bells with investors on Wall Street, McClure added. "Wall Street is looking at them and saying, 'We're not giving you a penny as long as you have to give your product away to anyone who wants it at a 40 to 60 percent discount,'" he said. "Wall Street likes simple, uncomplicated, guaranteed profits. Wall Street punishes companies that exist in an environment of uncertainty."

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