re: FCC Ruling - Permits Line Sharing for DSL Operators? What's next? Will we see this, or, are there still some legal mountains to climb?
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FCC ruling aids high-speed providers -- Could bring cheap, faster connections to consumers
By Jeffry Bartash, CBS MarketWatch -- Last Update: 4:43 PM ET Nov 18, 1999
WASHINGTON (CBS.MW) -- Regulators ruled Thursday that big
providers of local phone service must share their conventional, copper
lines with rivals that offer high-speed Internet access, a move that could
soon bring cheaper, faster Web connections to millions of Americans.
The Federal Communications Commission ruled the local Bells and GTE Corp. have to allow high-speed suppliers, such as Covad Communications, Rhythms NetConnections and Northpoint Communications, to sell their service via the same phone lines over which consumers now receive phone calls. The Bells were given 180
days to comply.
At present, customers who want to buy high-speed service from
independent suppliers have to order a second phone line at a cost of
about $20 a month. The big local phone carriers, however, can provide
phone and high-speed access over the same line, giving them a cost
advantage that has basically shut the independents out of the consumer
market. See Telecom Report.
In Thursday trading, Rhythms (RTHM: news, msgs) hopped 4 1/4 to 43
9/16. Northpoint (NPNT: news, msgs) climbed 7/8 to 35 7/8. (See chart
above.) Covad, after an initial surge, ended down 3/4 to 64 5/8.
Still, shares of high-speed access providers -- whose service is known as
digital subscriber line (DSL) -- have surged over the past two weeks in
anticipation of a favorable FCC ruling.
Head-to-head competition
By allowing independent providers to share the
Bells' lines, the independents will be able to better
compete on price, the result of which is likely to
force fees even lower and make such service more
affordable for consumers. Until now, the
independent suppliers have been largely restricted
to targeting businesses.
"This is the turning point for us" to go from an
"itty-bitty player" into a "mass-market player," said
Dhruv Khanna, co-founder and general counsel of
Covad.
Added Michael Olsen, deputy general counsel of
Northpoint: "The market potential obviously is
going to be huge. We could run circles around them
(the Bells) if we had the same cost structure."
The Bells generally charge around $40 to $50 for
basic high-speed access, while independent
providers charge $60 to $70, though service is not
widely available outside the big metropolitan areas.
And even in big cities, availability is spotty.
The ruling should "get high-speed access into homes quickly, cheaply and
as fast as possible," FCC Chairman William Kennard said during the
hearing Thursday.
The FCC is under orders from Congress to hasten the deployment of
high-speed Internet connections. With the Web increasingly becoming a
driver of economic growth, policy-makers want to ensure that slow
connections don't retard the growth of commerce over the Internet. Most
consumers now use 56K, or slower, modems. High-speed providers offer
service up to 25 times as fast.
Local Bells react
The big local phone carriers argued against line sharing, saying it was not
necessary and that its competitors already had access to customers --
albeit via a second line.
"These companies are in no way 'impaired' by current arrangements and
are already doing very well in the marketplace," said Bruce Posey, senior
vice president of federal relations and regulatory law for US West (USW:
news, msgs). "There is no need for corporate welfare that gives one
sector of a very competitive industry an unnecessary advantage."
Indeed, the Bells are expected to pursue ways to dilute the effect of the
ruling.
The Bells are already demanding that they be able to charge independent
providers a lease rate of 50 percent the total cost of providing a phone
line. Their smaller rivals want to pay a rate closer to 10 percent of the
overall cost. The dispute will be resolved by the states, and they're likely
to side more closely with the independent carriers, industry observers say.
If that's the case, executives at independent DSL suppliers believe they'll
be able to launch a full-scale campaign to capture a large share of the
consumer market by no later than the end of next summer.
In addition, some opponents of line sharing argue that the ruling will give
big phone carriers little financial incentive to roll out high-speed access to
consumers in less-populated areas, where it's more expensive to set up
such service.
The independent suppliers pooh-pooh such arguments. "This is going to
accelerate deployment to rural areas," Northpoint's Olsen said. "It
certainly won't delay it."
Though the FCC ruling should make high-speed connections more readily
available, regulators caution that more work needs to be done and that
they will be monitoring the issue closely.
"Our decision today," FCC Commissioner Susan Ness acknowledged, "is
not a panacea."
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