FCC Likely to Narrow Overhaul of Phone Rules

An emerging majority on the Federal Communications Commission is prepared to oppose the chairman’s proposal to slash regulations governing local telephone companies, preferring a more modest plan that would leave most of the current rules in place, industry sources familiar with the matter said Friday.

The badly split five-member agency has been struggling to develop a new approach that would promote competition in the local phone business, as required by the Telecommunications Act of 1996. Current rules force SBC Communications Inc., which serves California, and the three other regional Bell companies to lease the basic components of their local networks to competitors at deep discounts.

According to two sources, a majority of FCC commissioners would keep the rules in place for existing copper wire and high-speed services, such as digital subscriber lines. But the Bells would not have to provide discounted access to new cables that deliver next-generation, high-speed offerings.

By contrast, FCC Chairman Michael K. Powell has proposed to free the Bells from having to provide many of the key elements of their networks to competitors at deep discounts, taking state regulators pretty much out of the picture. He also proposed that the Bells keep their new high-speed cables to themselves, forcing competitors to install their own equipment.

Yet three of the five members on the Republican-controlled commission -- buoyed by a battery of letters in the last two weeks from groups across the political, economic and business spectrum -- have decided that competition in the phone industry simply hasn’t progressed enough to push deregulation as far as Powell wants.

At the same time, the industry sources said, the three commissioners are willing to take the regulatory shackles off very high-speed lines to let the Bells invest in new fiber-optic cable without fear that they will be forced to lease them to their rivals at deep discounts, as they are with regular copper lines.

“The Bells have been saying that the regulations are hindering investments and innovation,” one of the sources said. “They don’t want to spend on capital equipment if they are going to be forced to share it, especially at prices below their cost. This proposal would give them the future of telecommunications, but they have to invest to get the benefits.”

The sources cautioned that allegiances and details may shift as the commission works behind closed doors until its meeting Thursday, when members are expected to vote on the proposals they develop.

But by the time the public comment period closed Thursday night, one Republican and the commission’s two Democrats had agreed on a fundamental framework, the sources said. The three were Kevin J. Martin, who was part of President Bush’s transition team; Michael J. Copps; and Jonathan S. Adelstein.

Under their plan, the sources said, the FCC would provide new guidelines to the states and turn over to them the day-to-day decisions on enforcing competition rules and wholesale prices for existing voice and data lines. That would include DSL services up to the speeds now widely available. At higher speeds on newer equipment, the Bells would be free from regulations and could lease to competitors at market rates -- or not at all.

With the economy sluggish, Wall Street in the doldrums and the telecom industry in a protracted downturn, many are looking to the FCC for changes that would ignite the industry, if not the entire economy.

But some analysts and economists recently have questioned whether the Bells are poised to do much spending even if they could get the regulations on copper lines removed as well.

Early this week, Ivan Seidenberg, chief executive of Verizon Communications Inc., told a conference that even with a favorable ruling, it probably wouldn’t be spending much more on capital improvements for the next 18 to 24 months.

And BellSouth Corp. in Atlanta acknowledged Friday that although regulatory actions are important in the long term, it is slack demand that is driving the amount spent on new equipment at present.