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Bells Get New Lease on Lines

FCC Republicans last week united to deregulate telephone-delivered high-speed Internet services, even as they generated headlines in a bitter dispute over competition rules for traditional local voice services.

Over dissents by the two Democrat members, the three GOP commissioners eliminated current rules requiring regional Bell companies such as Verizon, BellSouth and SBC Communications to lease new high-speed digital subscriber lines (DSL) at wholesale rates to competing Internet carriers.

The new rules make only existing lines, primarily old copper wires, subject to the unbundling requirement. New fiber lines and copper/fiber hybrids will be exempt from the rules. Leases or so-called unbundling agreements currently in place, however, will not be disrupted by the changes.

Relying on old copper wires, phone companies have deployed DSL service to roughly 60% of the American population. Further deployment is expected to come about through laying of fiber connections.

DSL competitors complain that the Bells will get a stranglehold on telephone-delivered Internet service if competitors aren't guaranteed access to residential subscribers at regulated prices.

Although the decision does not impact cable services directly, it likely foreshadows cable broadband decisions that the FCC is expected to issue in the next few months. The FCC is completing a review of temporary cable-Internet rules, and last week's ruling indicates that cable-modem services will not face telephone-style unbundling rules either. A tentative 2001 ruling has shielded cable from open-access rules so far, but consumer advocates and independent ISPs have lobbied to impose mandates similar to telephone rules.

Reluctant to celebrate prematurely, a circumspect National Cable & Telecommunications Association praised the voice-services portion of the decision as "generally favorable" because cable firms that offer local telephone competition can ask state regulators to order unbundling of Bell companies' local voice infrastructure. The NCTA refused to predict how the ruling will impact cable-modem service.

FCC Chairman Michael Powell called last week's ruling a "momentous step" that will "stimulate and promote deployment of next-generation infrastructure."

The Bell companies have complained that DSL-unbundling rules dissuaded them from constructing broadband infrastructure because competitors could capitalize on the investment without any cost. MSOs said the same thing to deflect calls for open-access requirements.

"The FCC's broadband decision shows the commission understands the need for a national policy that preserves the economic rationale for companies' making big investments in technology," said SBC President William Daley. However, he was extremely critical of the accompanying FCC decision to allow individual states to decide which elements of traditional voice service should be unbundled.

The broadband portion also was endorsed by a coalition of Silicon Valley companies and consumer-electronics manufacturers that will supply software and devices for broadband services. "This step represents a major triumph for the consumers of this country, who stand to benefit from high-quality, widespread and affordable broadband services," declared the High Tech Broadband Coalition.

Democrat Commissioner Michael Copps, however, called DSL deregulation the first battle in "the headlong rush to deregulate broadband." Further decisions, he predicted, could leave broadband delivery dominated by cable operators and the RBOCs.

That's also the perspective of Jeffrey Chester, executive director of the Center for Digital Democracy. "Today's decision is a setback for the Internet's future," he said. "Michael Powell is helping undermine the open architecture of the new online medium."

Regardless of whether the FCC chose the correct policy, Legg Mason analyst Blair Levin questioned whether deregulation of DSL access will stimulate deployment, given the high cost of fiber buildouts. "The real issue is whether the potential revenue justifies the investment," he said. "I don't think anything has changed."