FCC Considers Allowing Baby Bells to Boost Net Services

Aiming to spur investment in high-speed Internet service, federal regulators are considering easing rules that restrict local phone companies from offering long-distance communications services.

The controversial plan--which is being championed by Federal Communications Commission Chairman William E. Kennard and has attracted interest from such heavyweights as Microsoft Chairman Bill Gates--would deregulate prices for high-speed data services.

It would, for the first time, open the door for local phone companies to play a major role in building and operating the Internet’s primary data pipelines. Until now, Baby Bells have been unable to offer any communications services outside their calling area as part of a ban on their entry into the long-distance market.

“What I want to do is level the regulatory playing field,” Kennard said. “If the local phone companies can demonstrate they are not going to use their market power to keep competitors out . . . then we will impose no tariffs, no unbundling requirements and no rate regulation” on high-speed data services.

Although critics characterize Kennard’s plan as a trial balloon and a longshot, it is picking up key endorsements from analysts and within the Clinton administration.

“This is a potential sea change,” said Scott C. Cleland, an analyst at the Precursor Group, an investment research firm in Washington. “There is probably no investment today that could have a bigger economic impact than providing high-speed broadband access to the home.”

“We strongly support broader bandwidth,” said Thomas A. Kalil, senior director of the White House’s National Economic Council. “It will provide a huge boost to jobs and economic growth.”

But major long-distance carriers are adamantly opposed to Kennard’s plan, fearing the Baby Bells will use money from lucrative high-speed data services to subsidize other operations or even try to gain entry to the long-distance market without first opening their own local phone markets to competition.

“I think this is just the chairman sending up a trial balloon that will soon run out of helium,” said Kathy Sloan, chief legal counsel in Worldcom Inc.’s Washington office. “It’s not greater bandwidth for upscale households that’s needed, but plain old affordable phone service for all consumers.”

Federal law currently restricts the four regional Bell telephone companies from offering long-distance service until they have passed a 14-point checklist proving they have opened their local phone markets to competition.

The Bells say they are reluctant under current rules to invest in advanced transmission technologies, because they would have to offer the high-speed services to rivals at discount prices.

“If you build an advance network, the question is how much are you going to be compelled to make available to competitors at wholesale prices?” said Alan Ciamporcero, vice president of regulatory affairs at GTE Telephone, which is not a Baby Bell, but is one of the nation’s largest local phone companies.

In a tandem development in recent months, Microsoft and other high-tech companies have reached agreement on a technical standard with local phone carries and cable companies to market high-speed Internet access.

The impending FCC action is being prompted by federal legislation and by petitions filed by the Baby Bells seeking permission to offer technologies that could boost connection speeds 100-fold over today’s analog computer modems.

The FCC, which is facing an Aug. 8 deadline under the Telecommunications Act of 1996 to promote “advanced telecommunications services,” is expected to act on the Bells’ petitions by fall. The agency will hold a hearing today with industry executives on how best to deploy high-speed data services to residential phone users.

But some legal experts believe the FCC initiative is certain to face a legal challenge because the Telecommunications Act does not carve out any regulatory exemption for data communications services. And even FCC Commissioner Susan Ness, a Kennard supporter, concedes the proposal faces an uphill battle.

“I generally agree with Chairman Kennard,” Ness told the Senate Commerce Committee in a letter discussing proposed deregulation of high-speed services. But Ness also agreed with concerns that the 1996 law appears to bar the FCC from going forward.

To get around those restrictions, FCC officials say they are considering redefining local calling areas to include the entire region serviced by a Baby Bell.