[IP] Bell Foes Seek FCC Relief
Begin forwarded message:
From: Dewayne Hendricks <dewayne@xxxxxxxxxxxxx>
Date: August 20, 2004 6:50:33 AM EDT
To: Dewayne-Net Technology List <dewayne-net@xxxxxxxxxxxxx>
Subject: [Dewayne-Net] Bell Foes Seek FCC Relief
Reply-To: dewayne@xxxxxxxxxxxxx
Bell Foes Seek FCC Relief
Chairman Powell faces pressure from investors and the White House to
amend rules on local phone competition.
By James S. Granelli
Times Staff Writer
August 17, 2004
<http://www.latimes.com/business/la-fi-fcc17aug17,1,5350850.story>
Three weeks after winning unusually swift approval of stopgap telephone
competition rules, Federal Communications Commission Chairman Michael
K. Powell is under pressure to change key elements in an effort to help
the companies that compete with the Baby Bells.
The temporary rules — which haven't yet gone into effect — would govern
the extent to which the Bells must share their equipment with rivals.
The FCC approved them to fill a void created this year when a federal
appeals court threw out regulations that were designed to spur
competition in local phone service — and were credited with saving
residential and business customers $16 billion a year.
Under the interim rules, companies such as SBC Communications Inc. and
Verizon Communications Inc., two of the regional Bells that emerged
after the breakup of onetime giant AT&T Corp., would be required to
freeze the wholesale lease rates they offer to competitors for six
months.
If final rules weren't adopted by then, the Bells would be able to
impose limited rate hikes covering their rivals' existing customers and
raise prices dramatically for new customers.
Powell has told colleagues that he wants to amend the interim rules to
allow providers of high-speed Internet access to ride the Bells' lines
into homes, and to keep fast, high-capacity business lines available to
Bell competitors at low prices. Rivals serve 29% of the small-business
community in major metropolitan areas.
The Bush administration, and investors that have poured billions of
dollars into the rivals, are urging the chairman to provide some relief
for competitors.
"The rules have been significantly changed since we all made our
investments," said James H. Greene Jr. of Kohlberg Kravis Roberts &
Co., which has invested more than $1 billion in Bell rivals such as
NuVox Communications Inc.
Last month, Kohlberg Kravis Roberts and other major investor groups
sent four letters to Powell that asked the FCC to keep making
high-capacity lines available at low prices. Without that help, they
said, their companies would be destroyed.
The commission has been bitterly divided over telephone competition
rules, and Powell is trying to focus on items that have appealed to
most commissioners, one insider said. But he has been facing
recalcitrant colleagues and procedural hurdles.
"There's a whole lot of skirmishing going on inside the commission,"
said Washington lawyer Bruce Fein, a former FCC general counsel.
He and others said the lack of support for competition in the interim
rules helped persuade AT&T to phase out its consumer business last
month and put MCI Inc. on the edge of quitting too.
The FCC adopted the interim rules by a 3-2 party-line vote July 21.
Powell wants them to be amended to include the high-speed and
high-capacity provisions.
Powell also is trying to get both the interim regulations and the
proposed amendments issued at the same time, pushing to get both out by
Friday, Fein and others said.
He needs the support of Democratic commissioners Michael J. Copps and
Jonathan S. Adelstein, who aren't buying into his program yet. They
view Powell as intent on abolishing local land-line phone competition
and restoring the Bells to regional monopolies.
The Bells are angry because the FCC hasn't allowed them to take
advantage of their appeals court victory. They have agreed to hold the
line on price hikes only until the end of the year, and they may
challenge any rules that restrict them further.
"This is somewhat frustrating," said Paul Mancini, assistant general
counsel of SBC, California's dominant local phone company. "The
commission voted on these interim rules, and we would like them to come
out now. This whole thing has been an excruciatingly slow process."
The interim rules would freeze for six months the wholesale rates that
the nation's four regional Bell companies could charge rivals for
leasing Bell lines and equipment. Powell believes he can get new rules
out by the end of the year. Should the FCC take more than six months to
approve them, competitors would face the most onerous provisions of the
interim rules.
Increases covering existing customers of Bell rivals would be limited
to $1 per month for an ordinary telephone line. The price for the
high-capacity lines used by existing business customers would go up by
15%.
But prices rivals would pay for new customers would be based on
so-called market rates, which could mean that prices would rise by 300%
to 500%, said Jessica Zufolo, telecom analyst for Medley Global
Advisors in Washington, D.C.
The problem is that there is no competitive marketplace that sets
wholesale rates, Fein said. "Now, we're going back to monopoly
pricing," he said.
With three months to go until the presidential election, the Bush
administration wants to keep a lid on any public outcry that might
result from price hikes after the freeze ends.
Meanwhile, influential investors in Bell competitors don't want to face
another bust in the telecommunications industry.
In their letters to Powell, the investors pointed to the huge price
increases that would be allowed for high-capacity lines.
They said their companies "operate on thin margins in highly
price-sensitive markets, and they simply could not absorb such dramatic
cost increases or pass them along to customers in the form of increased
rates."
Damage caused by such hikes "would be a disgraceful waste of capital
investment," according to the letter.
The investors' pointed remarks also bode ill for an industry that
already has lost billions of dollars struggling through years of
economic woes brought on by falling demand, bad management and outright
fraud.
"I don't know if we're looking at another telecom bust, but equity
investors will take a long, hard look at investing in companies with
business plans that can be so affected by changes in government
regulations," said Jake E. Jennings, vice president for regulatory
affairs at NuVox, a Greenville, S.C., firm serving 37,000 business
customers in 14 Midwest and Southeast states.
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