2000: A Telecom Odyssey
All Planets Align around Enforcement
By Kim Sunderland
Posted: 01/2000
The tides are shifting, compelling telecom industry forecasters to predict the onslaught of a regulatory wave that crests at a new point. It's called enforcement.
"We are moving into the post-implementation phase of the Telecommunications Act," says FCC Chairman William Kennard. "We're transitioning away from implementing the rules of the Act, to making sure the rules are enforced and consumers are protected." The FCC (www.fcc.gov) really doesn't have a choice; it has to keep up with the fast-changing telecom industry, soon to be shaken up by Bell in-region long distance entry. Bell Atlantic Corp. (www.bell-atl.com) was expected to receive FCC approval for its 271 petition last month, and SBC Communications Inc. (www.sbc.com) is expected to be close behind with its bid to offer long distance in Texas.
"The most important regulatory issue for everybody in 2000 ... will be Bell entry into long distance," says John Nakahata, a telecom attorney with Harris, Wiltshire and Grannis LLP (www.harriswiltshire.com). "2000 is looking like the year Bell entry actually begins to happen. Operations support and other customer care-related checklist items will be of critical importance to CLECs. But Bell entry will also likely change the marketing environment for everyone, as the LATA becomes an historic footnote."
"The big fallout of the BOCs getting into long distance will be how the big providers get directly involved in Internet service," says consultant Jeffrey J. Binder, president of Jeffrey Binder & Co., Brookline, Mass. "When it all shakes out, telecom carriers will absorb the ISP functions." Nakahata adds that a "critical sleeper issue" will be how the FCC and Congress continue to deal with the blurring of boundaries between traditional telecom services and information services. "The FCC's challenge will be to avoid the temptation to apply old-style regulation to the new economy," Nakahata says.
On Capitol Hill this year, competitors will be watching issues such as broadband legislation and merger oversight--not to mention the presidential election. Probably one of the most controversial issues for CLECs concerns broadband. While several initiatives failed to reach a vote in Congress during 1999, they will return with vigor this year. One piece of legislation sure to be pushed forward with might is proposed by Congressmen W.J. "Billy" Tauzin, R-La., and John Dingell, D-Mich., which would deregulate high-speed data and Internet access services. The Internet Freedom and Broadband Deployment Act of 1999 (H.R. 2420) would prohibit the FCC and states from regulating such services by amending Sections 251 and 271. Specifically, the Sec. 251 amendment would void the unbundled access and resale obligations that apply to voice services for any high-speed data services offered by the ILECs. The Sec. 271 amendment would add Internet services and high-speed data connections to the list of services an RBOC can offer "as incidental long distance without prior FCC approval," says David J. Markey, BellSouth Corp.'s (www.bellsouth.com) vice president of governmental affairs. "The regulations being imposed on local telephone companies will result in more costs and fewer customers served," Markey says, echoing the sentiments of the Bells and GTE Corp. (www.gte.com) in support of the Tauzin-Dingell measure. "There is no good public policy reason to regulate the advanced services of local telephone networks under theses competitive circumstances."
Meanwhile, the cable open access issue sits in the 9th U.S. Circuit Court of Appeals where it will be determined if localities have the authority to require cable TV companies to make high-speed Internet access over their networks available to unaffiliated ISPs. New FCC rules clarifying how telco advanced services (i.e. DSL) are classified has implications for cable open access. For instance, according to Scott C. Cleland, managing director of Legg Mason Precursor Group (www.leggmason.com), if advanced services are deemed telecom services, then the FCC can regulate them. The BOCs want them labeled as an unregulated service called "information access." Policy makers, Binder says, now will have to rethink their asymmetrical decisions and aim instead for some sort of regulatory unity.
Another issue worth noting is the speed with which the FCC approves Bell in-region long distance entry in states other than New York. "Long distance is no longer a great business, but entry will allow the Bells to put together enticing bundles and thus will provide them with ammunition to defend their turf from upstart CLECs," says Don Bilson, an equity analyst with Formula Fund Management, a New York-based hedge fund. "The days of cherry picking Bell Atlantic's best customers in New York may be drawing to a close."
In 2000, the CLECs are very concerned with preventing the Bells from backsliding on their promises once they're been permitted to provide long distance service in their regions. Up until establishment of the FCC's new Enforcement Bureau last November, enforcement really didn't exist. "We've got good rules, but we've had no way to effectuate them," says Jonathan Askin, vice president of law for ALTS (www.alts.org), the CLECs' lobbying group. "The new Enforcement Bureau will give teeth to the Telecom Act." ALTS likewise is shifting its focus to enforcement, Askin says, and the group plans to monitor Bell company compliance with the FCC's rules.
Enforcement is the next phase of regulation for the FCC. The commission has written most of the Act's rules, so it now must protect them. This progression also is part of Kennard's plans to restructure the federal agency along functional lines, making it leaner, meaner and more proactive.
"We're moving away from just thinking about problems, from just figuring out policies and rules and writing 50-page papers," says David H. Solomon, chief of the new Enforcement Bureau. "We have to be much more responsive because the market is changing so rapidly." Solomon says the bureau will track information, determine trends and single out the bad actors that aren't complying with the law. "And there will be serious consequences," he says. "We're going to go after them." This includes levying fines and assessing other anti-backsliding penalties. The Enforcement Bureau primarily is responsible for enforcing the Telecom Act, as well as FCC rules, orders and authorizations. The bureau's four divisions oversee specific issues as slamming, cramming, public safety and technical issues, as well as any investigations being handled by the bureau.
Still, there are telecom industry experts who aren't entirely convinced the FCC can handle enforcement. "If enforcement means minor regulatory tweaks and wrist slapping," says Insight Research Corp. (www.insight-corp.com) President Robert Rosenberg flatly, "then somebody missed the point. Enforcement surely will be a joke." Some Republican members of Congress, in fact, won't look kindly upon FCC enforcement measures that resemble the 30 conditions placed on the SBC/Ameritech Corp. merger (www.ameritech.com). There could be clashes on this front if the Republicans feel the FCC is treating the ILECs unjustly. Already, Sen. John McCain, R-Ariz., chairman of the Senate Commerce Committee and presidential contender, plans to hold committee hearings on mergers this year to determine if they're in the public interest.
The CLECs are tracking local access initiatives, number depletion and rate center consolidation, interconnection renegotiations, network configurations, DSL deployment, pricing flexibility and OSSs. Access to buildings is another hot topic. "It seems to me as if a real tension is building between the CLECs and landlords who want a piece of the telecom revenue stream," says Bilson. "I can see this issue escalating. This could be a real dicey issue for the FCC since it will surely garner a lot of attention from congressional oversight committees."
Another pending appeals court decision expected in 2000 will come from the D.C. Circuit, which will determine whether dial-up calls to ISPs are interstate or local. Such calls originated by one LEC and terminated by another don't require reciprocal compensation under Section 251(b)(5) of the Telecom Act, says Cleland, "but absent a contrary federal rule, states may require reciprocal compensation under their own authority." CLECs argue that the calls are local, which means they're owed reciprocal compensation. The ILECs call the traffic interstate and therefore believe the states can't require reciprocal compensation. Cleland says the case also raises the key classification issue for dial-up Internet calls (are they exchange access or telephone exchange services?), which may have implications for the classification of telco advanced services.
The jury's still out on reciprocal compensation, Bilson says. "The D.C. Circuit ruling this year could be a huge setback for the CLECs and especially those who have already booked millions of dollars of reciprocal compensation, which is a big money issue and one that a few CLECs simply cannot afford to lose," he says.
Another interesting appeal before the D.C. Circuit regards collocation. The court will hear oral arguments Jan. 31 on whether the FCC's March 1999 collocation rules exceed the agency's authority. Specifically at issue is whether the FCC can require ILECs to allow collocation for switching and enhanced services equipment, cross-connects between CLECs, cageless collocation and construction on land adjacent to COs. The FCC rules greatly reduce the cost of CLEC entry, Cleland says, including data CLECs.
Roy M. Neel, president and CEO of the U.S. Telecom Association, formerly the United States Telephone Association, (www.usta.org), however, says the FCC is applying public policy inconsistently as it takes a passive approach toward the cable industry in its deployment of broadband services, compared to the commission's "heavy-handed and invasive action by demanding the sharing of the local loop."
