FCC releases phone line competition order

The U.S. Federal Communications Commission (FCC) has released a long-awaited final order governing the competition among telephone and Internet service providers, but legal challenges almost certainly are on the way.

"Parties who do not believe they got everything they wanted out of an FCC order frequently go to court, and I don't think this order is going to be any exception," said an FCC staffer who spoke on condition of anonymity in a conference call after the order was released late Thursday. "In terms of the defensibility of the order, I think the staff has acquitted themselves magnificently in writing an order that ... will stand up to judicial scrutiny."

The 576-page order is designed to set the rules on what parts of their networks the four large regional Bells must share with competitors at discounted prices. Thursday's order largely added details to a decision commissioners made Feb. 20, when the FCC voted to allow the four regional Bells to refuse to share new fiber-based broadband networks with competitors.

FCC Chairman Michael Powell, who was outvoted 3-2 in the commission's February decision, cheered the final order for allowing the regional Bells to stop offering discounted line-sharing services to competing Internet service providers offering DSL (digital subscriber line) service to residential customers. That decision will allow the Bells to invest in new broadband Internet services, he said in a statement, including fiber to homes.

However, Powell criticized the commission's decision to allow state public service commissions to set the discounts that the regional Bells must offer for their switching facilities. Powell said the decision preserves FCC rules that have twice failed in court challenges since the Telecommunications Act of 1996 was passed by the U.S. Congress.

"The majority's switching decision is bad law, bad policy, and ultimately bad for consumers," Powell wrote in his statement about the order. "After one sorts through the legal contortions of the majority's switching decision he will find an order remarkably similar to the prior two fatal decisions -- one that preserves (network sharing) as the favored mode of competition ... This is bad policy and bad law."

Backers of the Bells argue they shouldn't have to prop up their competition by offering parts of their phone networks at discounted prices. The Bells argue that competitors should have to build their own networks or pay full price to use the Bells' equipment. Competitors such as AT&T Corp. and MCI argue, however, that without the discounts on the Bells' so-called unbundled network elements (UNEs), the competition would dry up and the Bells would gain regional monopolies on phone and phone-line-based Internet services.

The FCC's February decision 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 in the home and small-business markets. The order allows the Bells to end discounts for switching facilities in the large-business market.

But the written order, available at http://www.fcc.gov/Daily_Releases/Daily_Business/2003/db0821/FCC-03-36A1.pdf, introduces a new method of deciding when the regional Bells must offer their UNEs at discounted prices to competitors such as Sprint Corp. and scores of smaller telephone and Internet service providers. The FCC order sets a "trigger" for when the states can demand continued discounts on switching facilities in residential markets. The FCC order will make it difficult for states to offer discounted rates if there is already a competitive market: When there are three competitors of the Bells offering residential phone service on their own switches or at least two wholesale companies offering switching services to Bell competitors.

States will have nine months after the order goes into effect to decide whether to require the Bells to offer switching facilities to competitors at discounted rates.

Telecom lawyer Dana Frix, who has represented competitors to the regional Bells, questioned those triggers, saying they would exempt most major cities in the U.S. from discounts because they have three Bell competitors serving at least parts of them. Another question is how broad an area around the city would be exempted from switching discounts, possibly making suburbs more difficult to serve for competitors of the Bells.

Those switching triggers may tip the balance of the order in the eyes of those looking for winners and losers, after the regional Bells were seen by some as being hurt the most after the February vote. "There are a lot of moving parts in this order, and it's really going to be up to people to feel free to decide who's better off," an FCC staffer said.

Others also gave the order mixed reviews. CompTel, the Competitive Telecommunications Association, said it was pleased with the FCC's decision to preserve switching discounts but concerned about the decision on DSL.

"CompTel remains wholeheartedly disappointed about the broadband portion of this order," CompTel president H. Russell Frisby Jr. said in a statement. "The unjustified discontinuation of line-sharing and premature deregulation of broadband access to customers nationwide will only serve to strengthen the Bells' monopolistic grasp."

The FCC order gives Internet service providers three years to phase out their use of discounted line sharing from the regional Bells.

Sprint and other Bell competitors also voiced concerns about the broadband portion of the ruling, while endorsing the FCC's switching action. "While today's lengthy, complex order will require time to review fully, it appears that the FCC has recognized the current reality that competitive local phone companies can't fairly compete without continued use of (shared networks)," said Tom Gerke, Sprint's executive vice president and general counsel said in a statement. "The bottom line for consumers will be good: more competition, more choice, and more of the kind of bundled products and services that consumers clearly want."

Verizon Communications Inc., one of the four regional Bells, said it needed some time to digest the massive order. "It took the FCC two years to decide and write the order; we need time to read and understand it," Tom Tauke, Verizon's senior vice president for public policy and external affairs, said in a statement. "The world is changing so fast it may already be outdated. Every day it becomes more and more apparent there's a whole new world of communications around us that connects people in ways that weren't even imagined just a few years ago."

Critics of the FCC said the six-month delay between the FCC vote and the final order has postponed investment in telecommunications companies and services. [See, "FCC phone competition rules may be finalized soon," Aug. 21.] FCC staffers said the delay was unavoidable given the complexity of the new rules and the two previous court rejections of FCC attempts to create the rules. The order also dealt with two major issues, broadband line sharing and phone network sharing, an FCC staffer said.

"We have seven years of issues that built up," said an FCC staffer. "So yes, a significant amount of time has passed since the order was originally adopted, but it was extremely important for the commission to make sure that it was adopting fair rules and setting forth these rules in a way that was as unambiguous as possible. This was a hard task to get done in any period of time, much less six months."

FCC Commissioner Kevin Martin, who broke with fellow Republican Powell in approving the new rules, praised the final order for providing clarity to the telecommunications industry. But he also laid out several new directions the FCC should take in his written comments on the order.

"I will not be surprised if there are aspects with which you agree, but you do so silently, and points with which you disagree, and you do so loudly," Martin wrote. "But in the end, if the commission is to move forward, we must engage more directly and specifically. I therefore welcome your reaction, criticism, and suggestions. Your move."

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