AT&T Corp., MCI Inc. and a band of other U.S. telecommunications companies likely have an enormous decision to make in the coming weeks or months: what to do about millions of local residential and small business phone customers.
FCC Chairman Michael Powell has circulated a draft of proposed rules among his fellow commissioners that would give competitive phone companies leasing the incumbent local networks six months to pay higher regulated wholesale rates, transition to another network or negotiate commercial agreements with such incumbents as BellSouth Corp. and Verizon Communications Inc. after the order is published in The Federal Register, according to sources familiar with the proposal.
That means consumers and small businesses could lose an option for local phone service or get stuck with bigger bills if competitors passed on the higher network costs.
Between now and the day the commissioners vote, however, the proposed rules could change slightly or even considerably.
“I strongly believe there will be substantial changes to the chairman’s proposal and for the better for the competitive industry,” says Peter Karoczkai, vice president of sales and marketing with InfoHighway Communications Corp.
Karoczkai also points out the order will not take effect until after the written order is released, which he anticipates will be months after the commissioners vote. The last time the FCC voted on wholesale regulations, it took the agency another six months to release written rules in a voluminous document that went before the U.S. Court of Appeals for the District of Columbia Circuit.
“The key thing is people should not panic,” says Karoczkai, who adds it is almost certain the new rules will be appealed.
FCC spokesman Mark Wigfield also says competitors would be able to support their customers at existing wholesale rates beyond six months if the incumbents were unable to help them move all their customers to another network within that time period.
Ever since the federal appeals court rejected FCC rules in March, telecommunications companies have been considering different options to support their residential and business customers. InfoHighway, the New York-based telecommunications provider to businesses in the Northeast and Mid-Atlantic, is among those companies but it has not finalized its strategy.
“We want to see what the FCC rules look like before we pull the trigger on any final decision,” Karoczkai says.
AT&T, which leases the incumbent networks to offer local residential phone service, revealed months ago it is planning to retreat from the traditional residential phone market, but noted it would still support existing customers. At the end of the third quarter, the company supported just under 4.5 million local residential phone customers. An AT&T spokesperson was not available Thursday to comment on the proposed FCC rules.
MCI also was not available Thursday to comment on the proposed rules.
MCI reports that 3.5 million customers subscribe to The Neighborhood, its unlimited local and long-distance calling plan. The company offers The Neighborhood to residential and small business customers exclusively over the incumbent networks controlled by the four Bells: BellSouth, Qwest Communications International Inc., SBC Communications Inc. and Verizon.
The draft of proposed rules circulating among FCC commissioners Kathleen Abernathy, Kevin Martin, Jonathan Adelstein and Michael Copps could be voted on as early as Dec. 15, although there are reports that date could be pushed back a week.
The FCC is preparing new telecommunications rules after the federal appeals court in the District of Columbia said the agency did not have the authority to delegate rulemaking authority to the states, which were in the process of determining which local phone markets were competitive as defined by federal regulators.
The court also cast “serious doubt” on the ability of the FCC to require the Bells to offer unbundled switching at discounted so-called TELRIC rates, Wigfield says. Switching is a core part of the platform known as the UNE-P competitors use to deliver local residential phone service over the incumbent networks.
“We are trying to produce an order that will be sustained by the U.S. Court of Appeals,” Wigfield says.
The proposed rules endorsed by Powell hold ramifications beyond the residential and small business markets: They also will establish telecommunications providers’ access to parts of the Bell networks – specifically transport and high-speed local loops – necessary to provide phone and data services to larger businesses.
“As it stands today, the order will make it somewhat tougher for CLECs to penetrate the small and medium-sized business market,” says Medley Global Advisors analyst Jessica Zufolo in a research note analyzing the proposed rules. “However, the Bells will still be required, under certain conditions, to provide access to DS-1 loops.”
The proposed regulations do not include a provision for line sharing, a rule Powell and other commissioners previously have endorsed, according to sources. Line sharing has allowed high-speed Internet providers like Covad Communications Group Inc. to share a portion of the local phone line with Verizon and the other Bells, although the rules are being phased out under the FCC’s 2003 order.
