DSL providers find some good news in FCC order

Providers of DSL services that compete with the regional Bells found some unexpected good news in the final language of a Federal Communications Commission order governing competition among phone and Internet service providers. DSL providers said the FCC action may prevent price increases from being passed on to customers.

The final language of the FCC’s so-called triennial review, released late Thursday, changes the rules on how the regional Bells must share their telephone lines with competing DSL providers, but the final language isn’t as bad for those independent DSL providers as they anticipated after the commission first voted on the rules Feb. 20.

The order sets the rules on what parts of the regional Bells’ telephone networks must be shared with competitors at discounted prices, and based on the commission’s February vote, the independent DSL providers expected that their discounts for line sharing with the regional Bells on residential DSL services would be phased out over a three-year period. But the final order allows DSL providers such as Covad to grandfather in their current residential customers at the current discounted rates paid to the regional Bells. The FCC may examine that issue again in a proceeding that begins in 2004.

“It’s certainty better than what we could’ve had,” said Charles Hoffman, Covad president and CEO. “It’s a good thing for consumers and our partners as well.”

Hoffman still called the DSL portion of Thursday’s order “fundamentally flawed,” but he said his company is pursuing commercial agreements with the regional Bells over line rates paid for new customers, whose line-sharing discounts are phased out under the FCC order. About 40% of Covad’s current 453,000 customers are residential customers; the discounted rates DSL providers pay for business-customer lines are unaffected by the FCC order.

The FCC order also preserves arrangements DSL providers have with Bell competitors such as AT&T, called line-splitting. Line splitting is similar to line sharing except that under line splitting, access to the residential line is “split” between the DSL provider, such as Covad, and a competitive voice provider, such as AT&T, rather than being “shared” with the regional Bell. Typically, those split lines are purchased by the competitor from a regional Bell.

The four regional Bells have largely taken a “wait-and-see” attitude about the order. Both Verizon and Qwest  said they needed time to digest the 576-page document.

“Our initial review suggests that the FCC made the right decision in the area of broadband communications — taking a pro-investment and pro-competitive approach to the deployment of new facilities,” said Steve Davis, Qwest senior vice president of public policy, in a statement. “That’s good for consumers and good for economic development.”

The regional Bells have argued that the FCC, by requiring them to share their DSL lines with competitors, gives them little incentive to make improvements to their broadband networks.

Other parts of the FCC’s order, which will require the regional Bells to share parts of their telephone networks with competitors at discounted rates, is unfair, Davis added. “We remain disappointed with the majority’s decision to allow other companies, notably AT&T and MCI, to continue to use our network at below-cost rates rather than invest in facilities of their own,” Davis said in the statement. “It’s unfair to Qwest customers that they continue to be forced to subsidize these giant corporations. We will work with each of our state commissions to do what the FCC was charged with doing, but failed — eliminate these subsidies wherever possible, as soon as possible.”

State public service commissions will have the power to decide whether the Bells should continue to offer discounted rates to competitors on switching facilities in the home and small-business markets.

Because of such complaints from nearly all those impacted by the FCC order, FCC staff and others are predicting that legal challenges await the FCC order. Courts have twice rejected FCC attempts to pass a set of rules governing competition among telephone and Internet service providers since the U.S. Congress passed the Telecommunications Act of 1996.

The FCC order allows the regional Bells to refuse to share fiber-based networks with competitors at discounted rates, but that doesn’t make sense when some neighborhoods, and even some homes, are served partly by cooper loops and partly by fiber loops, said Thomas Koutsky, vice president for law and public policy at Z-Tel Communications, a Bell competitor serving about 250,000 customers in 46 states.

Lawsuits from fellow competitive carriers are “almost unquestionable,” Koutsky said. “There are so many mistakes in here that virtually everybody is going to have some kind of gripe,” he added. “We may be counting lawsuits in the dozens by this time next month.”

Z-Tel has a DSL line-splitting agreement with Covad, and Koutsky said the FCC’s decision to grandfather in existing DSL customers to the discounted rates made sense. “That was to prevent an immediate price increase,” he said.

The Computing Technology Industry Association (CompTIA) cheered the FCC’s decision to end the discounted DSL line-sharing rates, saying it hopes the FCC action will spur increased broadband offerings for consumers.

But Tom Santaniello, manager of U.S. public policy for CompTIA, said it’s now up to the regional Bells to push broadband forward. “The FCC’s rules make the incumbent telecom providers’ obligations clear — in return for an unregulated broadband market, incumbent companies must aggressively boost deployment of their broadband offerings,” Santaniello said in a statement. “We call on Congress and the FCC to strictly monitor the results of these new rules to ensure that the investment promises made by the incumbent providers are kept, and that the new rules don’t ultimately close the book on broadband competition for Americans.”

Others gave the FCC order mixed reviews. The order will provide some certainty for the telecommunications industry, after six months of waiting after the FCC vote, said Dana Frix, a telecom lawyer with law firm Chadbourne & Parke.

“There are fewer surprises here than I expected,” said Frix, who has represented Bell competitors. “There’s been one big question — how far off the reservation would (the FCC order) go in six months?”

The release of the order should spur investment in the telecom industry from Wall Street, Frix predicted. “I’ve already had phone calls from clients saying, ‘I’ve been putting X deal on hold. Based on what you know so far, does this deal make sense,'” Frix said Friday morning. “It’s 9:10 a.m., and those calls already are coming in.”

But the order seems to push fiber as the best technology for telephone service, and that focus on one technology may mean the order is outdated quickly, Frix said. “This order has a fetish for fiber,” he said. “It does not talk about, it does not anticipate any other types of technological advances.” He also criticized the 576-page order for what he called a “surprising lack of technical and operational details.”

The order seems to be purposefully not specific about technology changes anticipated on services such as DSL and how the Bells and their competitors should deal with those changes and resolve conflicts, Frix added. “They seem to be saying, ‘We hope that we are causing a lot of changes in the network, and the changes will have legal ramifications, but we aren’t going to give you much guidance at all,'” Frix said. “It says, ‘We want technology to change,’ but it doesn’t anticipate what the legal effects will be.”

Four of the five FCC commissioners took issue with parts of the order. Commissioner Michael Copps defended the telephone portions of the order while saying the decision will “choke off competition for broadband.”

“Today, we preserve essential tools to foster voice competition in the local market,” Copps said in a statement released late Thursday. “We accord the states an enhanced role to ensure that voice competition continues to grow. These actions will help us secure lower prices and higher quality services for American consumers.”