Bells Now Aim for Rivals to Use Gear

The Baby Bell companies that control the nation’s local telephone networks apparently like to keep their friends close -- and their enemies closer.

Reversing their long-held disdain for the competitors that lease Bell networks and equipment to provide local phone service, some of the Bells now want to bind rivals to those facilities and prevent them from installing their own gear.

The apparent about-face is infuriating regulators, people familiar with the situation said Thursday. The Federal Communications Commission has spent nearly eight years trying to get AT&T; Corp., MCI Inc. and others weaned off Bell gear and onto their own facilities.

“The Bells have been adamant about calling this use of their facilities ‘parasitic competition,’ ” said one of several people at the FCC. Said another: “But in reality, they want to keep you caged in for as long as possible.”

For their part, the Bells insist their position hasn’t changed.

The dispute stems from a provision of the Telecommunications Act of 1996, which aims to break up local phone monopolies. Bell companies such as SBC Communications Inc. chafe under the Telecom Act’s requirement that they lease their networks and equipment at regulated rates.

SBC Chairman Edward E. Whitacre Jr. has argued that leasing the entire platform of services “is not real competition” and that the industry needs, among other things, “real facilities-based competition.”

But in SBC’s negotiations for a lease deal with Talk America Holdings Inc., sources said, SBC is proposing a requirement that the small Virginia-based firm use SBC’s network for nearly all of its phone traffic, discouraging it from installing its own equipment and preventing it from leasing from other providers.

MCI said it faced a similar demand last fall from Verizon Communications Inc. in talks that have since halted.

On Monday, FCC Commissioner Kevin J. Martin requested information about the SBC-Talk America negotiations. SBC publicly attacked Martin for seeking the information and demanded the return of documents Talk America sent him.

Martin and Gabriel Battista, Talk America’s chief executive and chairman, said they believed regulators had the right to monitor the talks.

“I asked them, to the extent possible under their nondisclosure agreements, to provide information related to provisions that contradicted our facilities-based policies,” Martin said. He wouldn’t disclose any information about the documents.

Battista said the companies’ nondisclosure provisions allowed government officials to review contract terms to “determine who’s been operating in good faith” since a March 2 decision by a federal appeals court put pressure on the industry to negotiate contracts.

The court threw out FCC competition rules but stayed the order until June 15 to give the agency and the industry time to ink lease deals.

Talk America, Battista said, already had been to Wall Street to check on financing for its plans to install its own switches in the Detroit area.

FCC Chairman Michael K. Powell has been a vigorous proponent of facilities-based competition and has called for competitors to install their own equipment, such as the switches that connect calls and provide features such as call-waiting.

Neither Powell nor his aides were available for comment.

Spokesmen for SBC, Verizon and BellSouth Corp. insist that they are not changing their position. And they say they are not trying to prohibit competitors from migrating to their own switches and other gear from Bell platforms that consist of the lines and equipment needed to provide phone service.

But they, along with Qwest Communications International Inc., the only Bell holding open negotiations with rivals, say they want to attract as much traffic to their own facilities as possible.

“Our argument has not been that we want them off our network,” said Dave Pacholczyk, spokesman for SBC, California’s dominant phone company. “We just want a fair price for our network. What we’ve had is the [regulated wholesale] regime with rates below our costs, and that doesn’t give us or competitors incentives to invest.”

Verizon spokesman Eric Rabe said the company wanted to encourage wholesale business because it wanted to keep its network full of voice and data traffic, “but we’re not requiring competitors to put all their customers on the [platform].”

They and a BellSouth spokesman emphasized that opening offers in successful talks typically are negotiated to terms that both sides can accept.

SBC went a step further Thursday. In an open letter to competitors, the company said it was willing to engage in private talks without confidentiality agreements, which would allow either side to divulge proposals.

“We’re just trying to show that we’re flexible,” Pacholczyk said.

H. Russell Frisby, president of the competitors’ main trade group, said many rivals were ready to accept SBC’s offer to waive nondisclosure agreements. “This negotiation process is desperately in need of some sunshine,” he said.

Richard E. Burk, chief executive of tiny NII Communications Inc. in San Antonio, said he would ask SBC in negotiations Monday to waive the nondisclosure provision so he could show regulators the kind of terms being proposed. NII serves 13,000 small businesses in four states, including California.

Being limited to SBC’s facilities is fine for Sage Telecom Inc., which signed the first deal with a Bell and, with SBC, has been trying to keep it secret by claiming it is not subject to filing and public inspection requirements of the Telecom Act.

Sage serves residential customers in rural and suburban areas in 11 of SBC’s 13 states, including California. With customers spread out, Sage can’t justify buying expensive switches and other gear, though it has its own voicemail features, said Robert W. McCausland, a Sage vice president.

“Our business plan all along has been based on using SBC’s facilities,” he said.