FCC revises rules on Internet

Bells don't have to share lines with competitors

states given more power

Innovation, lower prices sought

February 21, 2003|By Andrew Ratner | Andrew Ratner,SUN STAFF

WASHINGTON - The Federal Communications Commission approved yesterday a major revision of the policy that governs the nation's telephone industry, in the hope of spurring more innovation and lower prices for broadband Internet service.

The commission voted 3-2, with Chairman Michael K. Powell one of the two dissenters, to relieve the regional Bell companies from having to share their lines at cut rates with Internet service competitors, but would require them to continue to lease equipment to competitors for telephone service.

The Bells, including Verizon Corp. in Maryland, had lobbied lawmakers and other officials hard the past year to free them from having to share equipment with competitors - a requirement the government ordered in 1996 to spur competition.

The grave faces of the commission's members and a stern speech by its chairman revealed that the outcome wasn't the delicate compromise that both sides described, but more like a split decision in a grueling prizefight no one could win outright.

Under the change, likely to take effect in weeks, the regional Bell companies will no longer have to share with competitors the fiber-optic lines they install to carry Internet traffic.

The FCC hopes that will encourage the Bells, the country's four dominant local phone providers, to invest more in developing high-speed Internet capabilities. They may ultimately make the service more attractive and available to consumers who either can't get it because of where they live or who have decided it isn't worth the added expense compared with slower dial-up connections.

The Bells will, however, continue to have to lease their voice networks to competitors trying to gain a foothold in the local phone market. Yesterday, the FCC granted the states greater oversight to determine the structure of that federal policy, which began in 1996 after Congress passed a historic law to speed the decades-long breakup of the former phone monopoly.

Bell competitors, ranging from small upstarts to the long-distance behemoths AT&T Corp. and WorldCom Inc., are breathing easier because the provision that lets them lease the Bell network remains, subject to review by state regulators who have been taking their side recently.

A Washington-based trade group, the Competitive Telecommunications Association, contends that consumers save about $90 a year on their phone bills if competitors are allowed to grow under the current framework.

Wall Street smacked the stocks of the Bells, with Qwest Communications International Inc. dropping the most, 14 percent. Verizon closed down 5 percent, or $1.84, to $34.76 on the New York Stock Exchange.

The Bells expressed their own dissatisfaction.

The FCC "had a great opportunity today and blew it," said Tom Tauke, senior vice president for public policy and external affairs for Verizon. "Rather than bringing stability, certainty and clarity to the regulatory structure for the industry, the commission left a void and handed off the decision-making to the states. This is a recipe for continued disarray in the industry and more litigation."

But others worry that the eventual details will work against Bell competitors, including those in the growing Internet field.

The FCC "vote closes the door on the prospects for competitive Internet service providers in the broadband world," said Sue Ashdown, executive director of the American Internet Service Providers Association in Washington.

The only clear loser yesterday was Powell, the commission chairman and son of the U.S. secretary of state, who had made no secret in recent months that he sided with the Bells and their Republican advocates in Congress. As recently as 10 days ago, it was expected that Powell might push the panel to abolish the policy that requires the Bells to share their networks.

But last week, Kevin J. Martin - a Republican and Bush appointee like Powell - indicated that he was siding with the commission's two Democrats and with state regulators who favor continued wholesale use of the Bell equipment to sustain competition. Powell was caught so unaware that the FCC postponed a meeting originally scheduled last week to settle the matter. Commission staff worked on the document through the snowstorm and into the early hours yesterday.

Powell and his supporters believe that the turmoil in the $286 billion telecommunications sector, one of the economy's most battered, is ample evidence that the government has mismanaged deregulation.

"We tried to socialize it and turn it into a level playing field that everyone had equal access to and created strange incentives," said Milton L. Mueller, an associate professor at Syracuse University's school of information studies who has written about the history of the phone monopoly and managing the Internet's infancy. "You're constantly engaged in this battle to pull this elephant along by its hairs. People are losing their appetite for that."

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