Assurance Sought on Telecom Rivalry

A key member of Congress has asked federal antitrust officials to explain how they will be able to ensure that the regional Bell companies will keep local markets open to rivals if the Federal Communications Commission makes wholesale changes to the rules governing phone competition.

In a letter to the Justice Department, Rep. F. James Sensenbrenner Jr. (R-Wis.) expressed his fears that the rule changes being contemplated by the FCC would stifle competition in the fledgling market for local phone service. He also said the plan under consideration by the FCC could compromise the Justice Department’s antitrust enforcement efforts.

The letter, a copy of which was obtained by The Times, reflects mounting unease among some lawmakers and industry experts that drastically altering the rules would leave consumers dependent on a handful of local phone monopolies that probably would try to raise prices.

The FCC, as part of a yearlong review, is weighing a recent proposal by Chairman Michael K. Powell that would relieve the Baby Bells of a requirement to sell parts of their networks to rivals at deep discounts. The Bells contend that they aren’t allowed by regulators to charge enough to cover their costs.

The commission is expected to decide on Feb. 20 what to change in the current regulations.

Sensenbrenner, chairman of the House Judiciary Committee, which oversees competition and antitrust issues, said in the letter that eliminating those basic requirements “might encourage the re-monopolization of the regional markets.”

Others also have raised antitrust concerns. In December, Reps. John Conyers Jr. (D-Mich.) and Zoe Lofgren (D-San Jose) called on Justice to launch an antitrust investigation of the failure -- possibly the refusal -- of the Bells to compete against one another.

On Wednesday, conservative legal scholar and former FCC general counsel Bruce Fein also weighed in. In a letter to the FCC, Fein questioned whether the Bells had misled commissioners on a key argument and, thus, violated antitrust laws.

Fein said the Bells have argued that current rules give them no incentive to invest in new fiber-optic cables and technology for advanced services, such as very high-speed digital subscriber line, or vDSL, products. But they have suggested that they would make such investments in exchange for lighter FCC regulations.

However, Fein said the Bells’ own research has shown that they plan to find new ways of exploiting existing copper wires rather than investing in costlier new fiber-optic cables.

“The entire proceeding before the FCC totally pivoted on the stated assumption that once the Bells got these rules eliminated there would be new investment,” Fein added in an interview. “But they don’t plan to build anyway. They misled the commission.”

Executives for the Bells disputed Fein’s characterization.

“I don’t think anybody is misleading anyone,” said Paul Mancini, assistant general counsel at SBC Communications Inc., California’s dominant local carrier. He said new investment would occur if the Bells were freed from regulations by the FCC, but it wouldn’t happen immediately.

Under the Telecommunications Act of 1996, the monopoly carriers must unbundle their network elements -- including switches, transports and local lines going to homes -- and price them separately for competitors to lease at regulated rates. Once they open their local markets to competition, they can obtain approval to provide long-distance service.

Sensenbrenner said in his letter that the continued availability of the Bells’ systems to competitors at regulated wholesale rates was a big part of the reason the Bells received approval to enter the long-distance market.

He asked the Justice Department to explain how competition would thrive and how antitrust authorities would be able to monitor conditions. He also questioned whether Justice should have a role in the FCC’s current review. A reply is expected by the end of the week, a Judiciary Committee aide said.

The Bells have been highly critical of the FCC’s rules, saying they shouldn’t be forced to lease their equipment to competitors at rates that lead them to lose money.

What’s more, SBC’s Mancini noted, the telecommunications act is aimed at eventually fostering competition among companies that use their own equipment, so rivals such as AT&T; Corp. and WorldCom Inc.’s MCI also should be buying their own switches, not simply taking advantage of the Bells’.

Mancini also maintained that SBC and other Bells are not monopolies because they have plenty of competition. He noted that SBC, for one, goes up against other Bells in wireless and business markets.

Meanwhile, the Bells say they also face strong competition from the wireless phone and cable industries, which are less stringently regulated.

Not everyone buys the Bells’ position. “If you amend the rules to favor the Bells and disfavor their competitors, will you assist in perpetuating the monopoly at both local and long-distance levels?” asked Matthew L. Cantor, a New York antitrust lawyer.

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Gains and losses

Baby Bells gained twice as many customers as they lost once they were allowed to compete in the residential long-distance phone market.

In millions of customers*:

*--* Local Residential residential long-dist Company lost gained Verizon -2 +6.86 SBC -2.8 +4.13 Bell South -0.7 +0.7 Qwest -0.2 0 Total -5.7 +11.69

*--*

* As of August 2002

Source: Yankee Group