Posted: 08/2002

BOC Busters
FCC, Competitive Carriers Suit Up for
271 Enforcement

By Kim Sunderland

Now
that Bell operating companies (BOCs) have received numerous Section 271
approvals to provide in-region long-distance service, regulatory enforcement
looms overhead like a "focused nonterminal repeating phantasm" — a
little slippery and difficult to pin down.

The situation may not call for the
firepower of a positron collider, but if competitive carriers thought it was
tough getting the BOCs to prove they had opened their local markets to
competition — a prerequisite to obtaining Section 271 approvals — their
efforts in enforcement portend to be just as brutal. Luckily competitive
carriers won’t be going it alone. The FCC has stepped forward with an enhanced
plan to monitor how the BOCs adhere to their market opening promises, and the
commission pledges that once a BOC is granted permission to provide in-region
long-distance service, it will be watched regularly and stridently.

"As additional [BOCs] receive
authority to provide in-region long-distance service, the FCC is entering a new
phase of Section 271 enforcement," said FCC Chairman Michael K. Powell in
June. He added, the FCC is committed "to ensuring that the [BOCs] do not
abuse their local market dominance once they receive long-distance
authority."

To accomplish this, the FCC’s
Enforcement Bureau (EB) has established the Section 271 Compliance Review
Program. As the BOCs receive authority to provide long-distance service within
their regions, the staff of the newly formed review team will monitor on a more
structured and systematic basis the companies’ compliance with the market
opening conditions of Section 271 of the Telecommunications Act of 1996. This
program augments the EB’s existing Section 271 oversight and enhances the
bureau’s ability to identify and act upon noncompliance. "FCC staff will
continue to review performance monitoring data and will serve as points of
contact for state public service commissions, competing carriers, and other
interested persons," Powell said.

The review team includes attorneys,
auditors and other professionals in the EB’s investigations and hearings
division who will implement the review program for each newly filed Section 271
application. The team also will monitor the BOCs’ ongoing performance in states
where the FCC has granted Section 271 authority. Oversight responsibilities are
divided according to BOC region, with a dedicated group maintaining
responsibility for each region. In scrutinizing BOC performance data and other
information, the team will determine whether documentation indicates a BOC is
meeting its Section 271 obligations. The process will include regular compliance
reviews six and 12 months after approval, with specific attention paid to any
concerns the FCC may have raised when it approved the a BOC’s Section 271
application.

For example, Qwest Communications
Interna-tional Inc. has filed a Section 271 application covering five states in
its region, since finalizing the regional independent test of a 13-state
operations support system (OSS). (Arizona did not take part in the test.) The
company gave itself an "A+" on these tests, but analysts and
competitors say work remains to be done, including on some software "change
management" issues that were not resolved during the OSS testing, as well
as on performance assurance plans intended to prevent Qwest’s backsliding once
it gains long-distance entry. The FCC will consider this data during the
approval process, likely include it in any ruling on the multistate
long-distance application, and then use that information for future enforcement
purposes.

The regulatory timing is crucial as
the incumbent carriers continue to gather Section 271 approvals like they’re
picking summer wildflowers in a field.

In January, the FCC approved
long-distance for Verizon Communications Inc. in Rhode Island, New Jersey,
Vermont and Maine. BellSouth Corp. received its first Section 271 approval to
cover Georgia and Louisiana. The incumbent has a five-state application pending
for Alabama, Kentucky, Mississippi, North Carolina and South Carolina. FCC
action on that application is due by Sept. 18. The five-state application
pending for Qwest, covering Colorado, Idaho, Iowa, Nebraska and North Dakota,
must garner FCC action by Sept. 11. During the remainder of the summer and into
the fall, Qwest plans to file similar applications for long-distance authority
in nine other Western states where it provides local service.

Obviously, the number of Section 271
approvals keeps growing, resulting in a more difficult job for competitors and
regulatory enforcers. Sources say the work is manageable. For example, if the
new EB compliance review team determines that a BOC may not be in compliance, it
will "initiate an investigation and, if warranted, take or recommend
appropriate enforcement action," says an EB spokesperson. Such action could
include a fine, an order to halt service or even revocation of long-distance
approval.

"I believe the fast and furious
pace of 271 approval signals that unfettered competitive access to the Bell’s
network is a reality," says Robert Saunders, director of The Eastern
Management Group Inc. "Enforcement will be the most important aspect of
regulation as we move towards universal long-distance approval."

Saunders says enforcement in Texas
and New York clearly has shown financial penalties and the BOCs’ desire to avoid
the appearance of impropriety is a strong mechanism for keeping access open and
market share growing. "Regulation does not stop when 271s occur and the
Bells seem content to continue to ‘keep within the lines’ after approval,"
he says.

Powell’s first order of business
upon assuming the FCC chairmanship was to change the penalty structure so the
commission would have some teeth, Saunders adds. "Putting together a team
with a focus on enforcement is important especially if we are going to keep
regulators in charge of smoothing over disputes," he says. "Allowing
FCC experts, rather than lawyers, to fix the problems is definitely the way to
go."

But some competitive carriers wonder
if the new program is just another layer of bureaucracy that could end up
slowing down the regulatory process. "We are cautiously optimistic about
the commission’s new Section 271 enforcement effort," says Jason Oxman,
vice president and assistant general counsel for Covad Communications Co.
"We fully support and appreciate the commission’s addition of a top caliber
team of dedicated legal and accounting personnel to support this new
initiative."

But Oxman adds this program is only
the first step in the process. The commission must follow through with thorough
and decisive enforcement action to protect consumers and competitive carriers,
he says. "Merely announcing intent to take enforcement action is not enough
to deter anticompetitive Bell company behavior," he says. "The Bell
companies must learn that thwarting competition and consumer choice will have
swift and severe consequences. We will be looking to the commission’s
Enforcement Bureau to make good on this promising initiative by proving it has
the resolve to act."

Affiliate Rule May Sunset

In related Bell long-distance
action, the FCC also has initiated a rulemaking proceeding (Docket No.: WC
02-112) for BOCs already providing in-region long-distance services. The FCC is
in the process of gathering comments on whether the rules should expire, be
extended, or whether the FCC should adopt alternative safeguards.

Currently, the Telecom Act and the
FCC’s implementing rules require a BOC to provide in-region long-distance
services through a separate corporate affiliate. The rules bar long-distance
affiliates and the BOC from jointly owning transmission and switching equipment
and require the affiliate to post on the Internet a record of all transactions
with the BOC. The Telecom Act also places safeguards on the BOC, such as
requiring it to provide unaffiliated carriers the same goods, services,
facilities and information at the same rates, terms and conditions that it
provides its own separate affiliate.

Under Section 272 of the Telecom
Act, the separate affiliate requirements expire on a state-by-state basis three
years after a BOC is authorized to provide in-region long-distance services in a
particular state, "unless the commission extends such three-year period by
rule or order."

The FCC, which is taking reply
comments in this proceeding through Aug. 12, plans to determine the following:
Whether the statutory separate affiliate and related requirements of BOCs should
sunset; Whether, and, under what conditions the separate affiliate and related
requirements established by Congress should be extended by the commission, and,
if extended, whether the commission should adopt a nationwide rule or proceed on
a case-by-case basis; and To the extent the costs of the separate affiliate and
related requirements outweigh the benefits, what, if any, alternative safeguards
should apply to a BOC’s provision of in-region, interLATA services.

The first sunset review of Section
272 would apply to Verizon’s provision of long-distance in New York, which will
sunset in December, absent action by the FCC. Competitive carriers are expected
to lobby for extending the sunset rule in order to retain the status quo.

Who Ya Gonna Call?

Any person with information
indicating a BOC may no longer be in compliance with Section 271 may contact
Maureen F. Del Duca, deputy chief of the FCC’s investigations and hearings
division, at +1 202 418 1420.

Separate from the Section 271
Compliance Review Program, any person may file a formal complaint under sections
208 and 271(d)(6) of the Telecommunications Act regarding BOC noncompliance with
Section 271. The EB strongly recommends that any person contemplating filing
such a complaint first contact Radhika Karmarkar, deputy chief of the market
disputes resolution division, at +1 202 418 7330.