Will Bells Beak Up Over Data?
By Carol Wilson , Inter@ctive Week, 7/13/98
The U.S. Federal Commnunications Commission appears to be dangling a substantial carrot in front of the five Bell companies, with recent comments by Chairman William Kennard that local phone companies should be allowed to offer data services without regulation.
But that carrot may well be tied to a substantial stick - a requirement that advanced data services, like long distance services once they're allowed, be provided through a separate subsidiary, kept at arm's length from the still regulated phone company.
That approach sits well with Ameritech Corp., which already set up a separate subsidiary to sell local data services. But the other Bell companies are expected to resist separate subsidiary requirements.
"They're preaching to the choir with us with us," Ameritech Chairman Richard Notcbacrt says. The notion seems to be gaining favor in Washington however. Between now and FCC will rule on petitions filed by three Bell companies seeking regulatory relief to build long-distance data networks. Those petitions, known as Section 706 requests based on the part of the Telecommunications Reform Act of 1996 that encourages construction of broadband networks, ask the FCC to view data and voice services separately and to let the Bells carry data traffic over the boundaries of their local service areas, known as Local Access and Transport Areas (LATAs). The FCC could allow the Bell companies to build long distance data networks if they agree that the local data service will be provided by the separate unit also providing long-distance and that they wiII buy access to local loops and other unbundled network elements just as competitive local exchange carriers (CLECs) do today. The unregulated data units would then own and operate the advanced access equipment, such as Asymmetric Digital Subscriber Line (ADSL) gear that puts data at speeds of 1.5 megabits per second and up onto ordinary phone lines. And the unregulated subsidiaries would rent space in telephone company central offices (COs) - known as colocation space --- to house their ADSL gear, just as CLECs do.
"They have to have these units anyway why not also use them for data services?" says one FCC staff who did not want to be quoted by name. "If they have to buy all of their services from the local phone company like everyone else, it's one way to make sure they have the systems in place to provide competitive access.
All five of the Bell companies already have set up their long distance operations, although they are not legally allowed to provide long-distance service as yet. The structural separation is not a new one.
It's been around at least eight years in one form or another.
Most recently ICI Communications Inc. had suggested to both federal and state regulators that separating the Bell companies into retail and wholesale operations makes competitive sense.
Other competitors like the idea as well. Speaking at a July 9 FCC hearing, XChuck McMinn, chairman of Covad Communications Co., (www.covad.com), , a CLEC providing high-speed access services to other CLECS, said all incumbent phone companies that want to provide xDSL services should be required to provide these services through a separate entity" "has to obtain the inputs essential [x]DSL service in exactly the same manner as Covad or any competitor."
When forced to buy at the same price as CLECs and submit customer orders through the same operations support systems, a telephone company data unit "should face the same obstacles that any business does every day, McMinn said. He pressed further, saying the FCC should require that at least four competitors have equipment colocated in a given CO before the separate subsidiary of the incumbent phone company can offer unregulated data services from the CO.
Without true structural separation, McMinn added, the FCC is likely to face "endless disputes and litigation as to what constitutes an 'InterLATA data service," as well as the need for regulations to determine how to distribute the costs of running the phone network between voice service and enhanced data services that occupy same phone line.
Needless to say, the separate subsidiary idea doesn't have many Bell company fans.
Frank Gumper, vice president of long-range public policy at Bell Atlantic Corp.(www.ba.com),says the business case for serving residential customers with high-speed data at low cost begins to fall apart if his company is forced to create duplicate companies, one providing voice and one providing data.
"Our competitors are allowed to offer both services through one company," Gumper says. "If we have to use a separate sub to provide not only the advanced services but also the local dial tone, we've gone into a situation where we are competing at a disadvantage"
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