Talks on Phone Deregulation Reportedly Stall

Efforts to get Federal Communications Commission Chairman Michael K. Powell to moderate his views on quickly deregulating the local telephone market failed over the weekend, two people familiar with the situation said late Sunday.

If the standoff holds between Powell, who would gut current rules, and a majority led by fellow Republican Commissioner Kevin J. Martin, who wants to keep much of the status quo, it would set up a showdown Thursday when the five-member FCC meets to vote on the issue.

For now at least, the 400-page proposed order that Powell presented more than two weeks ago -- and that was rejected by three of the five commissioners -- officially remains on the table as the commissioners prepare for what they had hoped would be a unanimous vote.

“It’s incredible to be sitting here today and not yet have the chairman’s office rewriting the order with only days to go before the vote,” said one industry source. “Powell is entrenched. He’s dug in and is unwilling to compromise.”

FCC officials couldn’t immediately be reached. The commissioners themselves are in a quiet period leading up to Thursday’s meeting and are not allowed to comment publicly at this point.

Sources said that Powell and Martin had been talking over the weekend to try to reach some accord. But though Powell was willing to make some changes to his proposal in an effort to move closer to the majority, he didn’t move far enough from his basic position to satisfy his colleagues.

Under the Telecommunications Act of 1996, which was designed to spur local phone competition, temporary measures were set up allowing competitors to lease the regional Bell companies’ equipment at deep discounts. The idea was for the Bells’ rivals to gain enough of the local telephone market to then justify investing in their own equipment.

Powell and the majority disagree on how much equipment should be leased at regulated prices and when enough competition has developed to require new local service companies to install their own facilities.

Martin and two Democratic commissioners, Michael J. Copps and Jonathan S. Adelstein, agreed two weeks ago to maintain regulatory controls over such basic elements as switches and lines to homes, forcing the Bells to continue offering wholesale prices to their rivals. Their plan would cover voice and data transmissions that flow over existing copper wires and high-speed digital subscriber lines.

They would give the Bells control over new fiber-optic cables installed to provide advanced services, such as very high-speed DSL. But the three commissioners believe that local competition isn’t robust enough yet to warrant going much further with deregulation.

Powell had initially proposed eliminating many of the elements from regulatory control, thus allowing SBC Communications Inc., the dominant local phone service provider in California, and the other Bells to charge market rates for leasing their networks to competitors such as AT&T; Corp. and WorldCom Inc.’s MCI unit. The hope is that a change now would prompt competitors to buy their own equipment.

The Bells contend that they shouldn’t be forced to lease lines and switches at wholesale prices that are below their costs. They also maintain that the current rules stifle innovation and investment in new equipment and technology.

On Friday, Powell offered to go along with the majority’s overall framework, the sources said. But he called for establishing a presumption that once three competitors install switches in any given market, sufficient competition exists and the Bells should no longer be required to lease their equipment to any firm at regulated rates.

In the end, Martin and his two allies rejected Powell’s overture, according to the sources.

Each switch -- which routes calls and carries features such as call-waiting -- can handle 5,000 to 100,000 phone lines. AT&T;, for instance, has 10 switches in New York City and 150 nationwide, but all are devoted to business customers. The company contends that it doesn’t have enough residential customers to make it practical to install equipment for that market.

Martin, Copps and Adelstein also believed that Powell would create such an onerous standard for state regulators that they would have a difficult time overcoming the presumption of competition, the sources said. That would leave them with no real power in the process. Their only relief would be to go to the FCC to seek a waiver for any particular market.

“The effect of his new position,” one industry source said, “would be the same as his original proposal.”