Controlling the Pipes
washingtonpost.com
By Cynthia L. Webb
washingtonpost.com Staff Writer
Wednesday, March 3, 2004; 9:56 AM
In a ruling that has major implications for broadband Internet subscribers, a federal appeals court yesterday said the Federal Communications Commission was wrong to require local phone monopolies -- a.k.a. the Baby Bells -- to share their phone lines with their competitors -- long-distance providers like Sprint and MCI -- at steeply discounted, government-mandated rates.
The U.S. appeals court ruling handed "a major legal victory to the regional telecom giants as they attempt to ward off insurgent rivals. If implemented, both sides in the debate said, the decision would put in jeopardy an eight-year-old system that allows competitors to lease phone networks owned by large local carriers such as Verizon Communications Inc. at government-mandated rates," The Washington Post summarized in its report.
"The court also ruled that the FCC should not have given states the authority to determine when the Bells -- Verizon, BellSouth, SBC and Qwest -- may stop leasing parts of their networks to long-distance carriers such as MCI and AT&T," The Financial Times reported. "The decision vindicates Michael Powell, the FCC chairman, who suffered an embarrassing defeat last year when Kevin Martin, a fellow Republican commissioner, voted with the agency's two Democrats to defeat his deregulatory telecoms agenda. Mr Powell argues that forcing the Bells to provide cheaper access to their networks was stifling competition in the telecoms sector. ... The ruling is likely to revive battles on Capitol Hill over the intentions of the 1996 telecoms act, which required local carriers to provide discounted access to competitors where it would otherwise be impaired."
No surprise that Powell lauded the ruling, while his opponents on the FCC are vowing to take the fight to the Supreme Court. The ruling does not go into effect for 60 days.
"The regional companies have argued that government regulation of the local phone networks is not needed because there already is plenty of competition from wireless and cable firms and from companies selling phone service over the Internet," The Washington Post explained. "The regional companies say that the government rates are too low and that they give rivals an unfair advantage. Competitors such as AT&T Corp. and MCI say that without the regulated rates, they would have to get out of the local phone business in many markets because the regional companies' rates would be too high," the paper said.
USA Today put the ruling in terms that consumers could relate to, reporting that the ruling "could jeopardize low-cost, competitive local phone services, such as MCI Neighborhood, that are used by more than 19 million households. However, the ultimate outcome from the ruling is anything but clear. Incumbent phone companies such as SBC Communications and Verizon say the ruling will allow them to build new networks that are cheaper to operate, resulting in lower prices. Consumer groups counter that the ruling will lead to higher prices and lost jobs. Some members of Congress are urging an appeal, which would leave the industry in stasis for a year or two."
More on this theme from The Wall Street Journal: "The court decision is a victory for regional phone companies ... and a blow to long-distance companies ... that have taken market share from the regional players by relying on the low rates. Some 19 million consumers now get their local phone service from alternative providers. Consumer groups and the losing companies were quick to say that the court ruling -- which is certain to be appealed -- would mean higher prices for consumers. AT&T and MCI could be forced to pay as much as $3 to $5 more each month for every phone line they lease, said Tim Horan, an analyst at CIBC World Markets."
The Los Angeles Times detailed the history behind the ruling: "The ruling is just the latest wrinkle in a long-running fight over how to generate more competition in the $100-billion local phone market, which is dominated by the so-called Baby Bells, the regional phone companies that were broken off from AT&T Corp. in 1984. Congress overhauled federal communications law in 1996 to promote competition in the long-distance and the local telephone markets. The Bells, who fought strongly for the law to gain entry to what was then a fast growing long-distance market, were required to share all or part of their local networks with competitors such as AT&T and small start-ups. Once they complied, they were permitted to sell long-distance service."
The Associated Press also explained more about the 1996 legislation: "Congress mandated in 1996 that the FCC write rules to encourage competition with the former Bell phone companies, which have held a near monopoly in local markets. In a bitterly contested 3-2 decision last August, the FCC voted to let state regulators require Verizon, BellSouth, SBC and Qwest to lease parts of their networks to competitors like AT&T and MCI at low prices. The idea was that competitors couldn't afford to build their own networks, but allowing them to use existing infrastructure would make it attractive to get into local markets. The former Bell companies say that left them at a competitive disadvantage and took away the incentive to build better networks. The court said the responsibility for encouraging competition rested with the FCC, not the states."
The Broadband Angle
For the technology sector, the big item in yesterday's ruling was the fact that the court upheld the FCC's broadband policy, which says broadband providers are not required to share their networks with competitors. Telecom equipment makers "cheered that choice," The Washington Post reported, "saying it will give carriers more incentive to invest in new networks. ... The regional phone companies, which have expressed reluctance to spend on broadband until their existing voice networks are freed from regulation, indicated yesterday that they'll be more willing to spend now in light of the ruling."
Telecommunications Industry Association's Grant Seiffert said: "Once again, it just proves that the broadband rules are correct. If you're going to take the risk to invest, you're going to get a return on your investment now." That quote was picked up by The Post.
SBC chief William M. Daley echoed that sentiment in a quote picked up by The New York Times: "Today's court action is a victory for consumers, and should help this industry move forward in developing healthy, sustainable and economically rational competition that will extend telecommunications innovations further and faster in the marketplace. This appears to be a victory for those who support markets free of rules that have repeatedly been judged illegal and which have eliminated jobs, shrunk investment and hurt fair competition."
Battling For Customers
AT&T and MCI are on the same page when it comes to challenging yesterday's telecom ruling, but the two are still arch rivals in the battle to win customers. "AT&T signalled the beginning of a price war in the US telecommunications market after the country's largest long-distance phone company on Tuesday said it was prepared to fight over its corporate customers when rival MCI returns to the market in the next few months," The Financial Times reported. "We need to make it crystal clear that we are not going to lose our customers. If competitors try to take them, we will punch them on the nose, and if that doesn't work, we will punch them on the nose again," William Hannigan, AT&T's new president, told the newspaper.
Meanwhile, while companies like AT&T and others are looking for ways to offer customers one-stop shopping when it comes to phone, wireless and Internet needs, America Online has taken a step back from this strategy. AOL "has quietly stopped offering a complete broadband package, requiring subscribers to instead obtain their high-speed Internet connections directly from a cable modem or DSL provider," The Associated Pres reported. "The reversal in strategy stands as another black mark against the purported wisdom of the $160 billion merger between America Online and Time Warner at the height of the Internet boom, a deal the companies had described as a perfect marriage of new and old media with the means to deliver it."
Plug Into This
And just when one broadband player is shifting gears, another company plans to fight for high-speed Internet customers. A unit of Cincinnati-based Cinergy Corp. "plans to offer high-speed Internet service over its power lines, letting customers connect by simply plugging a computer modem into existing electrical outlets. The idea of broadband service over power lines, or BPL, has been around for some time, but this appears to be the first large-scale rollout of the technology by a major utility," The Associated Press said.
The Wall Street Journal reported on the plans yesterday, noting that the "idea of using power lines to send Internet signals to homes has been around for years. It is based on the fact that electricity travels at a far lower frequency than the Internet signal, so the two generally don't interfere. But earlier efforts were disappointments, mostly due to the cost of the equipment needed and technical issues. Two years ago, a pivotal breakthrough occurred when the industry improved the speed and lowered the price of the modem that plugs into wall sockets to bring the Internet into the home, thanks to advances in semiconductor chips."
Phone Companies Fight Other Battles
Telephone companies aren't just battling each other, they're also going after another competitive force: cable companies. Cable firm have been snatching customers with phone service offerings and now they are fighting back with TV plans to give cable companies a run for their money. "Starting Wednesday, SBC Communications Inc. will offer DISH Network satellite cable service to all of its residential customers in the 13 states where SBC is the dominant local phone provider. Next week, Verizon Communications Inc. will begin selling DirecTV satellite cable across New England and New York state. Qwest Communications, the Denver-based local phone company for much of the Rocky Mountain and Northwest, is already selling both DISH and DirecTV. And later this month, BellSouth Corp. plans to begin selling DirecTV through its Web site in advance of a full-fledged launch in its nine-state region slated for the summer," The Associated Press reported. |
