Challenges Likely on Phone Rules

Six months after a bitter split vote, the Federal Communications Commission released a contentious written order Thursday detailing how it plans to promote more competition in local telephone service.

The 485-page order keeps in place rules that require the nation’s four Baby Bell phone companies to lease their lines and equipment to competitors at low regulated wholesale prices. But it frees the Bells from having to share their fiber optic lines and other new equipment.

“Some segment of the industry will appeal every aspect of this,” said Robert Quinn, vice president for regulatory affairs at AT&T; Corp., the nation’s largest long-distance company. It has been battling for local customers with Bells such as SBC Communications Inc., California’s dominant local phone company.

Commissioner Kevin J. Martin, who spearheaded the FCC’s 3-2 vote on the rules in February, said the order spelling them out “achieves a principled, balanced approach” that ensures competition yet encourages new investment.

But Chairman Michael K. Powell blasted the rules as legally suspect and lacking any “clear and coherent federal policy.” In a statement attached to the order, Powell predicted it would “prove too chaotic for an already fragile telecom market.”

FCC officials said that the issues were complex and that the language had to conform not only to the Telecommunications Act of 1996 but also to two court decisions that had tossed out rules adopted by previous commissions.

Consumer groups cheered the order, saying it represented a victory for consumers by giving them more choices and lower prices. Internet service providers were critical, because their ability to compete with the Bells on high-speed service will be severely limited

SBC and the other Bells were mostly silent. They have indicated that they probably would challenge the order in court, where the Bells probably will argue that the rules are unrealistic in a rapidly changing market.

“The world is changing so fast, it may already be outdated,” said Tom Tauke, a senior vice president for Verizon Communications Inc., California’s second-largest local phone company.

Tauke and SBC spokesman John Britton said the companies needed time to examine the order before commenting.

Particularly annoying to the Bells is that they must continue to lease their lines to Fortune 500 competitors such as AT&T.;

“It’s unfair to Qwest customers that they continue to be forced to subsidize these giant corporations,” said Steve Davis, senior vice president of public policy for Qwest Communications International Inc., the dominant local phone company in 14 states.

“We will work with each of our state commissions to do what the FCC was charged with doing but failed -- eliminate these subsidies wherever possible, as soon as possible.”

Indeed, the battle now probably will shift to the states, which are charged with tailoring the rules to their particular markets.

Mark Cooper, director of research at the Consumer Federation of American in Washington, said the group would “continue to fight on behalf of consumers to make sure that state regulators have the flexibility they need to promote competition in a manner that reflects the unique considerations of their local markets.”

Once the order becomes effective, probably by the end of next month, state utility commissions will have nine months to identify their phone markets and determine whether there is sufficient competition to free the Bells from having to lease equipment at low-priced wholesale rates.

Under the FCC’s guidelines, a market is competitive once it has three competitors using their own facilities -- switches, transports and other gear -- to serve a substantial number of business and residential customers.

On the broadband side, any Bell company that runs fiber optic lines from its central office to customers’ homes -- as Verizon recently promised to do -- won’t have to lease those lines to rivals.

What troubles Internet service providers more is that the order lets the Bells keep competitors off the fiber lines being hooked up to the old copper lines that bring dial tones to neighborhoods; the Bells won’t have to lease out these fiber-copper lines if they connect the fiber to advanced switching equipment in central offices.