In a regulatory blow to competitive carriers yesterday, the Florida Public Service Commission (PSC, www.floridapsc.com) voted against structural separation of BellSouth Telecommunications Inc. (www.bellsouth.com).
The Florida PSC decided against pursuing AT&T Corp.'s (www.att.com) petition to require structural separation of BellSouth's wholesale and retail operations in the state because it said it lacked the authority to do so. Interestingly, though, the PSC's own staff earlier this month recommended to the full commission to pursue the idea of structural separation, among others, because it might actually have the jurisdiction to do so.
Because of the full commission's opposition to staff's recommendation, "the decision is kind of surprising," says Robert A. Saunders, senior analyst with The Eastern Management Group Inc. (www.easternmanagement.com), a New Jersey-based consulting firm focused on the communications industry.
But the PSC really didn't see a compelling reason to advance the idea of structural separation, Saunders explained, because not only does it lack jurisdiction over the issue, but the PSC also fears that BellSouth's costs associated with such a requirement ultimately would be passed on to Florida's residential consumers.
"The commission therefore didn't see a tangible reason to force the issue," he said. "It didn't want to see customers' bills increase."
The original petition (Docket No. 010345) was filed by AT&T Communications of the Southern States Inc., TCG South Florida, and MediaOne Florida Telecommunications Inc. The latter two companies now are part of AT&T.
According to PSC staff notes, AT&T alleged that BellSouth's anticompetitive behavior in the state results from an inherent conflict of interest. Namely, its contradictory roles as both the operator of the local telephone network that virtually all alternative local exchange carriers (ALECs) rely upon, and its role as the principal competitor of those same ALECs in the retail markets.
AT&T argued that to remedy this conflict of interest, BellSouth must be separated into two distinct wholesale and retail subsidiaries.
"Clearly, the statutes provide that the commission must promote competition and prevent anticompetitive behavior," the Florida PSC's staff said in its recommendation. "If, in fact, structural separation is the only means to accomplish that mandate, then by necessary implication, the commission has the authority to order structural separation."
However, the PSC's staff also said that it was, at this time, "unable to determine: whether structural separation is the only means to eliminate alleged anticompetitive behavior; whether structural separation is necessary to promote competition; and/or whether structural separation will eliminate alleged anticompetitive behavior in the best interests of the public."
It recommended that the full commission set hearings and continue its investigation. "Only then will staff be able to make an informed recommendation on whether structural separation will promote competition in Florida," the staff said.
But BellSouth's arguments seemed to hold more weight with the PSC than those of the PSC's staff and the state's local competitors.
BellSouth argued that no statute granted the PSC the authority to order structural separation. BellSouth also said that each state commission in which BellSouth operates could conceivably order the BOC to create nine separate forms of corporate organization, which would constitute an impermissible burden on interstate commerce.
Moreover, BellSouth said that splitting up the company while not requiring the other ILECs or ALECs in Florida to undergo structural separation and the costs associated with that separation, would not be competitively neutral.
"Structural separation is an anti-consumer concept and we are encouraged that the commission recognized its pitfalls," said BellSouth-Florida President Joe Lacher in a statement yesterday. "The PSC has been very proactive in its efforts to open the Florida market, and has addressed the concerns and issues that the competitors have sighted as possible barriers to entry."
Prior to Florida, AT&T's structural separation initiative was defeated in Illinois, Maryland, Pennsylvania (partly defeated), and Virginia.
"Structural separation is part of an ongoing campaign by AT&T and some other competitive local companies to distract and delay BellSouth's entry into Florida's long distance market," Lacher said. "This concept has been rejected by every other state that has considered it."
The Florida PSC staff recommendation is available online at: http://www.floridapsc.com/agendas/01101604.html#REC1.
