Posted 01/2001
Policy Forum
2001: A Telecom Odyssey
By Kim Sunderland
From a telecommunications policy standpoint, this year will be tougher than the last for local exchange competitors.
During 2001, regulators, lawmakers, politicians, judges and pundits will be dealing with several telecom regulatory issues that stand to change the landscape of local competition. And regardless of what policy emerges, chances are that the speed with which technology changes will continue to move faster than any action by telecom lawmakers.
"The fundamental issue is whether Congress will encourage new technologies, or whether it will accede to interest groups and incumbents and put roadblocks in the way," says Victor von Schlegell, president of ISPhone Inc. (www.isphone.net). "Such roadblocks include regulations, unreasonable taxes and so forth. It would be a great loss to the American people if Congress decided to stifle what is a revolution in telecommunications in the U.S.--a revolution that will provide enormous benefits to consumers and business, and to America's competitive position internationally."
The biggest policy fears facing competitive carriers are that not only will the BOCs continue infiltrating the long-distance market, they stand to gain interLATA data relief this year as well. When this happens, the BOCs will be able to provide voice and data services.
It's also possible this year that the BOCs won't stop at obtaining only in-region long-distance approval. Analysts predict that BOCs will seek to acquire CLECs and ISPs in an effort to gather Internet assets and provide long-distance service out of region.
But data relief for the BOCs won't be a freebie from Congress, which can be expected to cut a deal with the BOCs on behalf of residential long-distance customers, says Cronan O'Connell, executive director of the Internet Service Provider Business Forum (ISPBF, www.ispbf.org), a trade association for the ISP industry. In exchange for the broadband data relief, O'Connell believes that Capitol Hill lawmakers will require the BOCs to keep serving residential long-distance customers that the Big Three carriers may desert as a result of their recently announced reorganizations.
"The Hill will say to the Bells, 'We'll give you data, but you also have to take voice,'" O'Connell explains. "This will ensure that the Bells don't back away from providing residential customers with long distance, which is exactly what AT&T [Corp., www.att.com], WorldCom [Inc., www.wcom.com] and Sprint [Corp., www.sprint.com) are beginning to walk away from.
"The boys on the Hill will want to protect their voter constituencies," she adds. "And those voters have got to have long-distance service."
Long distance isn't a guaranteed business anymore, but entry will allow the BOCs to put together enticing bundles for customers and provide them with ammunition to defend their turf from upstart CLECs.
Such broadband data relief for the BOCs has been pending on Capitol Hill for more than a year. While several initiatives failed to reach a vote in Congress during 1999 and 2000, they will return with vigor this year.
One piece of legislation sure to be pushed forward is proposed by Congressmen W.J. "Billy" Tauzin, R-La., and John Dingell, D-Mich., who are seeking to deregulate high-speed data and Internet access services for the BOCs. 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 of the Telecommunications Act of 1996.
The BOCs complain that existing regulations being imposed on them, or any further regulation, will result in more costs and fewer customers served. In supporting the Tauzin-Dingell measure, the BOCs believe that there is no good public policy reason to regulate the advanced services of local telephone networks under current competitive circumstances.
BOC data relief can be expected early this year, O'Connell predicts, and "then the floodgates will be opened and everyone will be competing in everything by June."
Once that happens, the FCC (www.fcc.gov) will have its enforcement job cut out for it.
Law Enforcement
The FCC's Enforcement Bureau (www.fcc.gov/eb), in fact, has been ramping up for this duty for almost a year. Put into operation by the FCC last summer, the EB really hasn't made a substantial dent in how Telecom Act violators are penalized, according to several CLEC sources.
But this too will change during 2001.
Competitors plan continued lobbying at the FCC and state regulatory commissions to encourage increased enforcement activities. This has to be done to ensure BOC compliance with the market opening provisions of the Telecom Act, says Jonathan Askin, general counsel for ALTS (www.alts.org).
Specifically, stiffer fines are in order. "If there are higher financial penalties, which really hit the Bells' pocketbooks and earnings, then the Bells will listen," O'Connell says. "If their earnings are drastically impacted, that would be the only thing any of them would really listen to."
A new FCC chairman this year--to replace outgoing Chairman William E. Kennard--will make sure the EB has the power it needs to levy such heavy fines, O'Connell predicts.
"The FCC became a more reactive agency in the latter half of 2000, when its agenda was set for it by those companies bringing issues to it," remarks Jason D. Oxman, senior counsel for Covad Communications Co. (www.covad.com). "There must be a rededication to proactive, procompetitive policy, which now has come to a screeching halt."
Oxman describes the year 2000 as "the year of the incumbent LEC as far as the FCC is concerned." For instance, the commission's decisions granting BOC 271 applications is part of the proof that the federal agency "has done everything the incumbent LECs have asked," Oxman says.
Intercarrier Compensation
CLEC compensation for carrying and terminating ILEC and IXC traffic is among the top issues of concern for 2001.
Donald F. Shepheard, vice president of federal regulatory affairs and policy for Time Warner Telecom Inc. (www.twtelecom.com), says that the current regulatory framework for intercarrier compensation is too broad and sweeping to be effective.
"There should be a single regulatory regime for all carriers, instead of the separate fees that are set up for services such as local and long distance," Shepheard says. "It all needs to come together."
Chart: Legislative Regulatory Issues Affecting Competitive Carriers
And while federal policymakers are seriously considering the bill-and-keep compensation model, Shepheard says that shouldn't be embraced to cover everything. Instead, he believes that there ought to be a more sensible model devised that is more economical, eliminates confusion and arbitrage opportunities, and rationally apportions compensation among carriers.
"Economic costs and compensation for those costs should dictate the model," he suggests.
Reciprocal compensation for ISP traffic likewise is a huge issue rolling over into 2001. The BOCs don't want to pay it and the CLECs and the ISPs don't want to give it up.competitors now are going so far as to say that the BOCs' attempts to eliminate it are another of their ploys to undo the Telecom Act.
Much of this issue is being fought out on the state level where interconnection agreements have gotten hung up in the process. The majority of the states so far have sided with competitors and the FCC in support of the BOCs paying reciprocal compensation to ISPs.
Federal lawmakers during 2000 also got involved in the fray and can be expected to take up reciprocal compensation again this year.
Stateside
At the state level, regulators also will grapple with BOC Telecom Act obligations, and "BOC regulation will likely dominate state telecommunications legislative efforts" this year, says Andrew Isar, a principal of regulatory consultants Miller Isar Inc. (www.millerisar.com).
On the legislative side, Isar says he continues to see the BOCs pursuing flexible regulation initiatives at the state level. The issue of BOC regulation will play itself out in various forms, from a full frontal attack on conventional rate-of-return regulation, to more subtle forms of streamlined regulation, such as pricing flexibility for competitive services, he says.
"The RBOCs will continue to chip away at current forms of regulation, chanting their 'symmetric regulation' mantra," Isar notes. "If elimination of rate of return is not yet achievable, the RBOCs will settle for pricing flexibility for competitive services on a service-by-service basis."
BOC 271 applications by far remain the most important item on the horizon for the CLECs in 2001, and quite a few applications are expected to be filed in 2001, says James Bradford Ramsay, general counsel for the National Association of Regulatory Utility Commissioners (NARUC, www.naruc.org). Competitors can expect multiple applications being filed by individual BOCs this year, as well as several FCC decisions.
State regulators also will break new ground this year regarding the relationship between telecom law and the speed of technological advances in the industry, as well as continued convergence throughout the marketplace.
NARUC, for instance, is establishing a Special Study Committee on the Evolution of Telecommunications Tech- nology and Markets. The committee will work in concert with the industry and federal officials in developing a comprehensive approach to ongoing telecom industry changes and the demands those changes place on the industry's legal framework.
"The challenge is to provide clear legislative guidance, sufficient flexibility to respond to circumstances that are different from those envisioned at the time legislation is passed--and, of course, they always are different--and sufficient legal and personnel resources to implement legislative policy," says Bob Rowe, president of NARUC and a commissioner with the Montana Public Service Commission (www.psc.state.nt.us).
Policymakers will likely benefit from revolutionary information gathered by state regulators. "It is essential," Rowe says, "that legislatures and state commissions have good lines of communication and confidence that each is working to serve the interests of their citizens."
The outcome from this state committee and any related federal proceedings will be important in addressing what is considered a critical sleeper issue on how the FCC and Congress continue to deal with the blurring of boundaries between traditional telecom services and information services. The FCC's challenge, sources say, will be to avoid the temptation to apply old-style regulation to the New Economy.
Let the games begin.
