Posted on 01/06/2003 2:48:48 PM PST by HAL9000
NEW YORK (Reuters) - U.S. regulators are preparing to stop making local phone companies rent their networks to rivals at cheap rates, a move that could reduce competition and price-cutting in the local phone market, the Wall Street Journal reported on Monday.The expected change by the Federal Communications Commission would be a huge win for the four regional Bell companies, which are trying to continue their domination of the profitable local market, the report said.
It could be a significant setback for their biggest competitors, the two already beaten-down long-distance giants, AT&T Corp. and WorldCom Inc, which have struggled to make inroads into local phone service.
The revisions to the rules would be the most drastic change to the nation's telecommunications laws since Congress passed the Telecommunications Act of 1996, which was predicated on allowing the Bells and the long-distance companies to enter each other's markets.
The move would essentially undo the FCC's key rules intended to make it easier for new providers of local service, including long-distance companies, to compete with the Bells: Verizon Communications, BellSouth Corp., SBC Communications Inc., and Qwest Communications International Inc.
Instead, the plan would force them to pay higher prices to rent network access or buy more of their own equipment, the article said.
The plan, now a draft, could be voted on by the FCC commissioners early next month, the Journal said, citing people familiar with the plan. It would then have to overcome likely legal challenges from the long-distance companies and state regulators, who have been trying to foster competition and win lower rates in local phone service. In its current form, the plan would take two years to be phased in.
Unregulated monopolies - 1
Free markets - 0
FCC Plans to Erase Key Rule on Local Phone Competition
WASHINGTON - Federal regulators are preparing to stop making local phone companies rent their networks to their main competitors at cheap rates, a move that could reverse the increasing competition for customers that had begun to push prices down, Monday's Wall Street Journal reported.
The expected move by the Federal Communications Commission would be a huge win for the four regional Bell companies trying to continue their domination of local phone service. And it could be a significant setback for their rivals, the two already beaten-down long-distance giants, AT&T Corp. and WorldCom Inc. , who have struggled to compete against the Bells in the profitable local market.
The move would essentially undo the FCC's seven-year-old rules intended to help long-distance companies compete with the Bells, instead forcing them to pay higher prices to rent network access or buy more of their own equipment. But it would continue to allow the Bells to compete on the long-distance companies' home ground, where they have made significant inroads.
The plan, now a draft, could be voted on by the FCC commissioners early next month. It would then have to overcome likely legal challenges from the long- distance companies and state regulators, who have been increasingly aggressive in trying to foster competition and win lower rates in local phone service. It also would take two years to phase in, in its current form. It would take time for customers to feel the effects of the change, but critics say it would lead to fewer choices and higher rates than if the rules were left alone.
Those familiar with the plan say FCC Chairman Michael Powell is acting on his long belief that real competition requires the regional Bells' competitors to have networks of their own. That is also the position held by the Bells, which after several mergers now consist of Verizon Communications Inc. , BellSouth Corp., SBC Communications Inc. and Qwest Communications International Inc.
Soon after, De-regulation allowed different companies to offer service in the same local market so I contacted Consolidated Comm and presto, there was service (and several calls from Ameritech wanting me to switch).
When I see the phrase "monopolies", I'm reminded of the very flexible Sherman Antitrust Act. Price your service too high, you get accused of being a monopoly. Price your service too low, you get accused of "dumping". Price your service close to the "market" prices, you get accused of "collusion". If the politicians don't want you in business, they can simply pick the appropriate label and drive you out.
Deregulation did this? Don't think so. Used to be that if you invested in a phone company, you had control of it. Regulations then came, stating that if there was a competitor in the area, you must lease your lines to the competitor. Here in Anchorage, that was very important. The local company (then owned by the city) owned all the lines. A start-up (GCI) moved in with a Lucent switch and a billing system and ATU was forced to lease their lines to the competitor. This resulted in DRASTICALLY lower rates for all services.
This competition came from the regulations they are getting ready to drop. What they are doing *now* is deregulation.
If you want to talk about "a violation of private property rights", where is my rent income for the phone lines that cross my property without my permission?
The RBOCs didn't build the network in the first place. AT&T built it - with taxpayer subsidies. Then in the breakup of AT&T, the courts took away the local networks and gave them to the RBOC spinoffs.
When I see the phrase "monopolies", I'm reminded of the very flexible Sherman Antitrust Act. Price your service too high, you get accused of being a monopoly. blah blah blah...
Don't get confused. The local telephone company is a real, natural monopoly (unlike Microsoft, AT&T, etc.) It is a common carrier with right-of-way through public and private property and powers of eminent domain. In return for those powers and their inheritance of a taxpayer-funded network, it's reasonable to expect that the local phone companies should be required to meet standards for service and allowing competition.
It seems to me the best solution is to deregulate retail telecom services to the maximum extent, but keep wholesale service regulated and available for competitive services over the existing last mile facilities. This would entail structural separation of the RBOCs into wholesale and retail units, and the retail unit paying the same rate for wholesale access and the competitors pay.
You use this term twice. Could you explain? Are you referring to network facilities on ROW? If so, most states allow all licensed network providers to now place their facilities on ROW at the same cost. There was a recent court case from NY state about that.
If you mean something other than ROW placement, the correct term would probably be "rate-payer funded," or if you want to be more pejorative, something like "built on the backs of captive customers" or "built out of monopoly profits."
And about your comment that there are network facilities on your property without you receiving compensation: are you served out of those facilities? If not, you (or then property owner) were due compensation at the time of placement (for a pure crossing).
I have represented both RBOCs and CLECs as a lawyer, so I see both sides. Currently I suppose I lean towards the RBOCs. They have money to pay my bills for one thing. For another, they are not WorldCom.
I see no reason to punish the Bells any further. The industry is in enough difficulty as it is.
When the companies lost that arrangement in 1984 it meant they could no longer afford to place a couple of miles of poles and cable just to serve one customer, something that they previously did for anyone in their area.
Are you wondering by now why the RBOC's stock has fallen on hard times since 1984?
It should have been done a long time ago.
It's being done. Last month the FCC gave BellSouth long distance authority in its remaining two states making BellSouth the first RBOC to have long distance authority in all its territory. The others will follow. The line of business restrictions (thank you Judge Greene) were stupid, inefficient, and counter-productive. The RBOCs could not engage in information services, build interstate or international networks, manufacture equipment, etc. The '96 Telecoms Act was a step in the right direction, and I am glad to see Michael Powell taking some much needed action (I saw him speak at a telecoms banquet/press conference - very impressive; he may be president some day). The FCC is much better today than under the Hundt/Kinard regime.
BTW, you seem to be arguing with yourself. Has Hal9000 given up?
Yes, my noisy SBC phone line keep dropping my connection every 30 seconds. I give up - at least until SBC gets around to repairing it in a couple of days.
The RBOCs paid for the switching machines and cabling in the streets. The money did not come from taxpayers. It came from ratepayers. I worked for Pacific Telephone and later Pacific Bell. I know the business inside out.
The RBOC spinoffs took their own property plus a share of the network resources that they paid AT&T to supply over the years. The RBOCs owned a big piece of Bell Labs that was spun off as Bell Communications Research to support all the commonly supported systems.
Again, you make the mistake of calling the phone system a taxpayer supported network. The only thing the taxpayer covered is phone services provided to the government and military. Paying for SERVICE does not entitle you to ownership.
AT&T and the RBOCs did make a good, natural monopoly. The Bell System Practices that governed how the business was run ensured uniformity and end to end responsibiity. The "settlement" process ensured that all parties were paid equitably for their capital investment and usage sensitive costs. There was a "smelly" bit of socialist class warfare in this process. Businesses were raped with high rates to offset the cost of services to residential users and rural users where the actual cost of service far exceeded the revenue that would be produced.
The government breakup of AT&T was one of the major government screwups in history. All the "cool" technology that you enjoy today was already working in the labs in the mid 80s. I saw that stuff many years before it was ever made public. We did get the technology out the door, but at the cost of a major drop in quality of the overall network. It also pushed telecom expenses up almost 10 fold for most users.
And that's where it would have stayed if the RBOCs had their way. They preferred the pre-Carterfone Decision era when they prohibited customers from attaching modems and answering machines to their phone lines.
What's next? Will the local phone company block customers from selecting competing long distance carriers?
Analysts Warn Investors to Temper Baby Bell Enthusiasm
Monday January 6, 2002
By Tom LockeDENVER -- Shares of Baby Bells were up strongly Monday on word the Federal Communications Commission may no longer require local phone companies to rent their networks to rivals at cheap rates.
But analysts warn that investors may getting ahead of themselves.
"I think the market's sort of jumping the gun a little bit," said Davenport & Co. analyst F. Drake Johnstone.
Analysts point to many potential pitfalls. It isn't clear what the FCC will decide and what distinctions it will make between the small-business and residential markets. And it is unknown whether the regulatory changes will be made to all elements of the Baby Bells' local networks. Plus, it's possible litigation over such changes that could hold up implementation.
The regulatory changes would make it more expensive for competitors to lease network elements from the Baby Bells in order to compete with the Bells in offering local telephone service. In the last two years, some states have imposed steep discounts on the leasing of those elements, making it more attractive for competitors to provide local phone service.
Mr. Johnstone said that the states "are likely to battle the FCC tooth and nail," he said.
In addition, long distance companies such as AT&T Corp. and WorldCom Inc.'s MCI unit -- who have struggled to make inroads into local phone service -- would battle back legally and through marketing in the proposed two- year phase-in, he said.
Kaufman Brothers analyst Vik Grover thinks the FCC will take a compromise approach and not deregulate all of the network elements.
He thinks the FCC will only deregulate the leasing of the switching element of the networks. And he thinks the deregulation will only affect small business customers, and will occur over a two- or three-year time period.
Because companies like AT&T already have a number of their own switches in place, "this is not a big issue for them." Indeed, it was already in their plans, he said.
But Mr. Grover doesn't foresee switches or other elements of the networks, such as the "local loop" lines that reach residences, being deregulated.
Mr. Grover thinks the Bells could be hurt by regulation changes that would cost them wholesale revenue. The Baby Bells "are making plenty of money" in leasing network elements, he said.
Guzman & Co. analyst Patrick Comack said that the market prior to Monday had already anticipated the possible deregulation of the switch elements of the Baby Bells' networks for small businesses. But an article in Monday's edition of The Wall Street Journal appeared to imply that all the network elements, including the local lines out to homes, would eventually be deregulated, he said.
That would be damaging to long-distance companies such as AT&T and WorldCom's MCI because they are now able to compete with the Bells by getting the network elements below cost, he said.
Jefferies & Co. analyst Richard Klugman said that if competitors like AT&T have to use their own switches, it could still be tough for them to compete in offering local service. That may depend on the amount of cooperation provided by the Baby Bells in switching lines to competitive switches, he said.
Another question is how quickly the FCC would be able to implement any changes, particularly if states and long distance companies filed legal challenges. With the support of states, Mr. Klugman said, AT&T "would have a very good case for getting a stay" that would stop implementation of the new regulations.
All the Baby Bells rose Monday. Verizon Communications was up 8.9%, BellSouth Corp. was up 7.9%, Qwest Communications International Inc. was up 10.2% and SBC Communications Inc. was up 8%.
AT&T Corp. was down 0.7%. Sprint Corp. was up 7.7%. It doesn't have the same exposure to the FCC regulatory issue as AT&T, said Mr. Johnstone.
None of the analysts cited own shares in the companies they cover. Guzman has had investment banking ties to some of the companies. The other firms don't currently have such ties to those companies.
AT&T spokeswoman Timi Aguilar declined to comment directly on the report in The Wall Street Journal or to speculate on the FCC's actions, but she did say that the leasing of unbundled network elements is necessary for local competition.
Competitors now provide 11 million local lines to residential and small- business customers through leasing network elements, and about 2 million of those are provided by AT&T, Ms. Aguilar said. The regulations regarding unbundled network elements apply to residences and small businesses, but not big businesses with a large number of lines.
The leasing of the network elements has been the most effective way for competitors to gain local customers, she said.
"We'd hope that they'd vote in favor of competition," Ms. Aguilar said of the FCC, and "not take away the most effective means of competition."
It would be too expensive and take too long for AT&T to build its own network, with lines extending out to residential neighborhoods and individual houses, Ms. Aguilar said.
It's "not a viable option," she added.
The Baby Bells are not being forced to lease network elements below cost, she said. "They're well above cost," she said. Indeed, in many states AT&T can't compete in offering local service because the wholesale rates for the network elements are too high, she added.
WorldCom spokesman Peter Lucht also stressed that the Baby Bells are not losing money on the leasing of network elements, and that such leasing is " vital" for competition.
He also stressed that the state commissions are closest to the consumers and they should continue to have power in setting rates on network elements.
WorldCom provides customers 2.5 million local lines, either standalone or in conjunction with long-distance service, and competition is really starting to take hold in the local-service arena, Mr. Lucht said.
"Just when it's starting to work, there's the threat of it being eliminated, " he said.
Deregulation of the switch element is not favored by WorldCom for at least two reasons, according to Mr. Lucht. Of the 8,000 Baby Bell central offices that house their switches nationwide, WorldCom has its own switches connecting to only 431, he said. Plus, there are technical and other difficulties in connecting the switches of the Baby Bells with those of their competitors, he said.
The FCC is required under the Telecommunications Act of 1996 to review its rules under the act every three years, said Mr. Lucht, and the attention to its policy regarding network elements is part of that review process.
He declined to speculate on how the FCC might rule. "We continue to be engaged with the FCC," he said.
Analysts generally agreed that, if network elements become deregulated, it is unlikely that competitors would compensate by building their own networks with lines that would reach out to residential customers.
Mr. Johnstone said it's important for the long-distance companies to be able to bundle local and long-distance services in order to compete with the Baby Bells, which have been entering the long-distance market in their local-service areas.
While Mr. Johnstone thinks that the discounting of rates for network elements has been too steep in some instances, he doesn't favor an elimination of regulation of the amount charged because of the loss of competition it would entail. "There's got to be a happy medium," he said.
Previous to "wideband connections", something that many on the net still do not have, just how many users do you think could be on the line all day long? How fast do you think the traffic would be moving with all those people on? Yes that little 300 baud modem and the IBM clone caused some problems with the telephone network. Were there people working on solutions at the Bell Companies? You Bet!
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