FCC May Rethink Phone Changes

The Federal Communications Commission, under heat from Congress for its chairman’s push to scale back key tele- communications regulations, is working on a compromise plan, two industry sources said Friday.

Under the arrangement being discussed, the FCC would preserve competitor access to the Baby Bells’ local phone networks but allow the Bells to exclude their rivals from certain new fiber-optic lines.

The five commissioners have been trying to come up with new rules governing the crucial equipment that competitors can lease wholesale from the four Baby Bells, including SBC Communications Inc. and Verizon Communications Inc., which serve the bulk of California.

The commission’s chairman, Michael K. Powell, has insisted that pricing rules need to be eliminated or altered drastically to allow the Baby Bells to charge competitors such as AT&T; Corp. higher prices for handling local service. This is the only way, the Bells say, that they can meet their costs.

Consumer groups, state regulators, Internet service providers, small businesses and Bell competitors have argued that the FCC should leave the rules alone or alter them only slightly. On Friday, a bipartisan group of lawmakers urged the commissioners to consult with Congress before making any drastic change to the rules.

Sources in Washington said Powell circulated a proposed order among commissioners that essentially would gut the Telecommunications Act of 1996, which was passed to promote competition.

“It’s a reckless and extreme order,” said one industry executive who was briefed on the proposal. “What he opted for was out and out re-monopolization of the telephone industry.”

During the day Friday, the sources said, at least three commissioners began considering a compromise along the ideas proposed by Commissioner Kevin J. Martin in a Dec. 12 speech.

Martin, who also believes that competition would flourish if artificial rates were allowed to float more to market levels, suggested in his speech and in congressional testimony last week that state regulators play an important part in determining how to foster competition.

The middle ground floated Friday would split phone equipment into two categories: existing lines and new fiber-optic cables that handle high-speed connections.

For existing lines, sources said, commissioners are inclined to allow state regulators to continue overseeing rates and other matters that help to spur competition for local service.

But for the new cables connecting homes to central switches, the FCC would allow the Baby Bells to charge what they want -- or to simply exclude their rivals -- above a yet-to-be set bandwidth.

“The battle will be where to set that bandwidth level,” one source said. “This is a compromise that neither the Bells nor the competitors are going to like, but it’s better than what Powell is proposing.”

Under the 1996 law, the Bells’ competitors are allowed a break on pricing so that they can win market share while installing their own local phone equipment for the long term. But the Bells say these companies are simply relying on cheap wholesale pricing instead of building their own networks.