Justice Department recommends against SBC long-distance

Analysts split on likely FCC final decision on bid for authority in Texas.

By David Rohde
Network World, 02/16/00

The Department of Justice on Monday dealt a setback to SBC's bid to offer long-distance service for users in Texas, though a final decision on the Bell company's bid is not expected until April.

The Justice Department recommended to the Federal Communications Commission that it reject SBC's Texas application. SBC applied to the FCC for long-distance authority on Jan. 10, and the FCC has 90 days to make up its mind.

The FCC, which has the final say, previously has gone against the Justice Department's wishes. Last fall the Justice Department recommended against Bell Atlantic's immediate entry into the long-distance market in New York, but the FCC granted the application anyway in December.

The FCC is also required to consult the public utilities commission (PUC) in each state for which long-distance applications are filed. The PUCs in New York and Texas favored the applications.

Still, the Justice Department's thumbs-down recommendation in Texas may spell trouble for SBC. In Bell Atlantic's case, the Justice Department said the regional Bell operating company had met "most but not all" of the market-opening requirements. In SBC's case, it would only say that SBC had made "substantial progress" in opening its markets.

Specifically, the Justice Department complained that access to local loops by SBC's Texas competitors is not fully "nondiscriminatory." Competitive local exchange carriers have long complained that wholesale prices for local loops in Texas are higher than elsewhere.

Tellingly, the Justice Department also singled out SBC's performance on digital subscriber line circuits, saying it had "concerns" about the availability of interconnection trunks between SBC and facilities-based DSL carriers.

Analysts said they expected the Justice Department's negative recommendation but were split on the effect of a final FCC ruling. A team of analysts from Janney Montgomery Scott said the Justice Department's recommendation "was not particularly surprising, [since] like Bell Atlantic, SBC did not present a perfect record." The analysts said SBC's overall record "looks good statewide" despite some documented provisioning problems with competitors in Dallas and Houston last summer, and gave the FCC a 70% probability of approving the application in April.

Donaldson Lufkin Jenrette took a different tack, saying in a research note that SBC "will likely face rejection" from the FCC in April.

The FCC currently has no other long-distance applications, though BellSouth is expected to file for Georgia soon after the Texas decision. Bell Atlantic has said it may file for Massachusetts, Pennsylvania and New Jersey starting in the summer.