Bell Foes Seek FCC Relief
Three weeks after winning unusually swift approval of stopgap telephone competition rules, Federal Communications Commission Chairman Michael K. Powell is under pressure to change key elements in an effort to help the companies that compete with the Baby Bells.
The temporary rules -- which haven’t yet gone into effect -- would govern the extent to which the Bells must share their equipment with rivals. The FCC approved them to fill a void created this year when a federal appeals court threw out regulations that were designed to spur competition in local phone service -- and were credited with saving residential and business customers $16 billion a year.
Under the interim rules, companies such as SBC Communications Inc. and Verizon Communications Inc., two of the regional Bells that emerged after the breakup of onetime giant AT&T; Corp., would be required to freeze the wholesale lease rates they offer to competitors for six months.
If final rules weren’t adopted by then, the Bells would be able to impose limited rate hikes covering their rivals’ existing customers and raise prices dramatically for new customers.
Powell has told colleagues that he wants to amend the interim rules to allow providers of high-speed Internet access to ride the Bells’ lines into homes, and to keep fast, high-capacity business lines available to Bell competitors at low prices. Rivals serve 29% of the small-business community in major metropolitan areas.
The Bush administration, and investors that have poured billions of dollars into the rivals, are urging the chairman to provide some relief for competitors.
“The rules have been significantly changed since we all made our investments,” said James H. Greene Jr. of Kohlberg Kravis Roberts & Co., which has invested more than $1 billion in Bell rivals such as NuVox Communications Inc.
Last month, Kohlberg Kravis Roberts and other major investor groups sent four letters to Powell that asked the FCC to keep making high-capacity lines available at low prices. Without that help, they said, their companies would be destroyed.
The commission has been bitterly divided over telephone competition rules, and Powell is trying to focus on items that have appealed to most commissioners, one insider said. But he has been facing recalcitrant colleagues and procedural hurdles.
“There’s a whole lot of skirmishing going on inside the commission,” said Washington lawyer Bruce Fein, a former FCC general counsel.
He and others said the lack of support for competition in the interim rules helped persuade AT&T; to phase out its consumer business last month and put MCI Inc. on the edge of quitting too.
The FCC adopted the interim rules by a 3-2 party-line vote July 21. Powell wants them to be amended to include the high-speed and high-capacity provisions.
Powell also is trying to get both the interim regulations and the proposed amendments issued at the same time, pushing to get both out by Friday, Fein and others said.
He needs the support of Democratic commissioners Michael J. Copps and Jonathan S. Adelstein, who aren’t buying into his program yet. They view Powell as intent on abolishing local land-line phone competition and restoring the Bells to regional monopolies.
The Bells are angry because the FCC hasn’t allowed them to take advantage of their appeals court victory. They have agreed to hold the line on price hikes only until the end of the year, and they may challenge any rules that restrict them further.
“This is somewhat frustrating,” said Paul Mancini, assistant general counsel of SBC, California’s dominant local phone company. “The commission voted on these interim rules, and we would like them to come out now. This whole thing has been an excruciatingly slow process.”
The interim rules would freeze for six months the wholesale rates that the nation’s four regional Bell companies could charge rivals for leasing Bell lines and equipment. Powell believes he can get new rules out by the end of the year. Should the FCC take more than six months to approve them, competitors would face the most onerous provisions of the interim rules.
Increases covering existing customers of Bell rivals would be limited to $1 per month for an ordinary telephone line. The price for the high-capacity lines used by existing business customers would go up by 15%.
But prices rivals would pay for new customers would be based on so-called market rates, which could mean that prices would rise by 300% to 500%, said Jessica Zufolo, telecom analyst for Medley Global Advisors in Washington, D.C.
The problem is that there is no competitive marketplace that sets wholesale rates, Fein said. “Now, we’re going back to monopoly pricing,” he said.
With three months to go until the presidential election, the Bush administration wants to keep a lid on any public outcry that might result from price hikes after the freeze ends.
Meanwhile, influential investors in Bell competitors don’t want to face another bust in the telecommunications industry.
In their letters to Powell, the investors pointed to the huge price increases that would be allowed for high-capacity lines.
They said their companies “operate on thin margins in highly price-sensitive markets, and they simply could not absorb such dramatic cost increases or pass them along to customers in the form of increased rates.”
Damage caused by such hikes “would be a disgraceful waste of capital investment,” according to the letter.
The investors’ pointed remarks also bode ill for an industry that already has lost billions of dollars struggling through years of economic woes brought on by falling demand, bad management and outright fraud.
“I don’t know if we’re looking at another telecom bust, but equity investors will take a long, hard look at investing in companies with business plans that can be so affected by changes in government regulations,” said Jake E. Jennings, vice president for regulatory affairs at NuVox, a Greenville, S.C., firm serving 37,000 business customers in 14 Midwest and Southeast states.
