Powell Wants Bigger Fines for Rogue Telcos

Washington — The Federal Communications Commission wants to crack down on dominant local phone carriers by upping the dollar amount of fines the agency can impose on rule breakers.

FCC chairman Michael Powell, in a May 4 letter to Congress, said the agency needs to be able to impose stiff fines to ensure the incumbent local exchange carriers do not cripple competitors by neglecting their responsibilities under federal law.

Currently, the FCC can levy fines up to $1.2 million per violation. Powell asked Congress to pass a law raising the per-violation limit to at least $10 million to give the FCC's enforcement policies real teeth.

"Given the vast resources of many of the nation's ILECs, [$1.2 million] is insufficient to punish and to deter violations in many instances," Powell said.

Many local phone competitors complain that the Baby Bells move too slowly to fill their orders, harming them financially and jeopardizing their relationship with new customers.

Some competitive local exchange carriers say the FCC should award them damages in lieu of collecting fines from ILECs. A view Powell supported in the letter.

"Congress could give the [FCC] the authority to award punitive damages, attorneys fees and costs in formal complaint cases," said Powell, who did not recommend a specific cap on damages.

He told Congress that the CLEC industry is suffering today for various reasons, naming discriminatory conduct by phone incumbents as just one element.

In congressional testimony and in other recent public appearances, Powell has said that local phone companies with billions of dollars in annual revenue probably do not view a $1.2 million fine as a serious deterrent to misconduct.

"Our fines are trivial — they are the cost of doing business to many of our companies," Powell said in March testimony before the House Subcommittee on Telecommunications and the Internet.

Subcommittee chairman Rep. Fred Upton (R-Mich.) vowed to help Powell by adding stiffer FCC fines to legislation (HR 1542) that would deregulate the high-speed Internet facilities and services of the Baby Bells and other ILECs.

In a statement, AT&T applauded Powell's request for broader authority to levy fines against ILECs.

"This letter is a welcome acknowledgement of the need for greater vigilance and more forceful action to ensure that incumbent local exchange carriers open their monopoly markets to competition. For too long the incumbents have dodged their obligations, driving the competitive industry to the brink of extinction," AT&T said.


AT&T also has felt the sting of FCC fines. Last month, the FCC ordered AT&T to pay $520,000 for switching long-distance customers to AT&T, a practice known as "slamming." Powell's proposed higher fines would apply to slamming violations as well.

Verizon Communications spokesman Bob Bishop said an increase in phone company fines was unnecessary.

"Currently we are monitoring and providing information on more that a million metrics a month," Bishop said. "We are scrutinized by state public utility commissions and the FCC. We believe that the existing enforcement measures are sufficient to assure that we re performing at our utmost capability."

Last year, the FCC slapped local phone companies with $29 million in fines. SBC Communications Inc. paid a record $6.1 million for failing to inform competitors when it had switched customers to new companies and for failing to install service by the promised delivery date.

The issue of cooperation between ILECs and CLECs came up two weeks ago in a hearing by the Senate Judiciary Subcommittee on Antitrust, Business Rights and Competition.

Larissa Herda, president and CEO of Time Warner Telecom Inc., said the cooperation of ILECs was essential for her company to retain and attract customers.

"I just recently lost a $100,000-a-month customer in Verizon territory because of trunking problems. They were slow to respond, and by the time we got all the trunks in, the customer had already chosen another provider," Herda said. "We spent a lot of money for nothing."

But James D. Ellis, SBC's senior executive vice president and general counsel, said the data showed that his company is serving the needs of competitors abundantly.

SBC, he said, has 2,000 contracts with companies that lease portions of the network and resell services, and 500 more are in negotiation. Competitors hold space down in 10,000 collocation points and they had 8 million customer change orders processed by SBC.

"And I think perhaps most telling, we started with an industry that had zero exchange lines in 1996," Ellis added. "Today, in our territory, they have obtained 10 million lines…By any stretch of the imagination, you can't say our markets are not open."

SBC was granted approval to enter the long distance market in Texas after demonstrating that it had opened its networks to competitors.

Pat Wood, chairman of the Texas Public Utility Commission, a body instrumental in aiding SBC's entry, told the Senate panel that SBC is continuing to comply with local competition requirements despite fears SBC would backslide on its commitment after entering the long distance market.

"They've done a better job. It's not been backsliding. In fact, it's gotten better in the Texas market," Wood said.