Competitors Criticize Powell’s Proposal

The competitive local phone industry is irate.

FCC Chairman Michael Powell has proposed that local phone companies enter 30 days of talks with the regional Bells to negotiate wholesale rates following a federal court decision that marked a victory for BellSouth Corp. and Verizon Communications Inc.

AT&T Corp. was among scores of phone companies to criticize the proposal, saying it has yet to enter one agreement over the last eight years with a Bell operator that didn’t require government intervention. “While we will seize any opportunity and would be more than willing to make it eight years and 30 days of good-faith negotiations, we are skeptical that such discussions will suddenly bear fruit and result in a competitive marketplace, particularly under the anti-consumer D.C. Circuit decision,” AT&T general counsel Jim Cicconi says.

Speaking March 10 in Washington during the National Association of Regulatory Utility Commissioners (NARUC) winter convention, Powell said if those private negotiations failed, he would propose adopting interim rules. He said he would work with his colleagues to support an 18-month transition period away from the unbundled network element- platform (UNE-P). At stake is the right of phone companies to lease the Bell networks - including their switches used to route the local traffic of small businesses and consumers - at rates state regulators set.

“To absolutely ensure stability and to eliminate the possibility of consumers experiencing significant disruptions, I will work with my colleagues to craft an 18-month moratorium and transition to protect existing UNE-P customers from sudden changes in their service,” Powell said.

The PACE (Promoting Active Competition Everywhere) Coalition was among the groups representing Bell competitors to bash Powell’s proposal. “The chairman’s proposal for a moratorium and transition for UNE-P without benefit of any review or assessment of the factual records being developed in state impairment dockets prejudices this critical issue and calls into question his role as a neutral decision-maker,” the coalition said in a press statement. “The evidence uncovered in the state proceedings demonstrates that the chairman’s premature conclusion is wrong. The chairman’s proposal amounts to a blatant attempt to derail the Supreme Court appeal process.”

BellSouth welcomed Powell’s remarks, saying the Atlanta-based company “is ready to negotiate agreements with CLECs that are serious about offering consumers a sustainable competitive alternative.”

“BellSouth is seizing this opportunity by inviting its competitors to enter into serious negotiations of market-based commercial agreements aimed at benefiting the customer, establishing stability in the industry and allowing real competition to continue throughout its region,” BellSouth said. “The company will negotiate commercial agreements that are reasonable, include competitive rates and advance a free-market environment within the industry.”

Verizon Communications Inc., the No. 1 local phone company, made similar observations. “We agree the time is ripe for the industry to strike commercial agreements,” said Tom Tauke, Verizon’s senior vice president-public policy and external affairs. “Verizon is ready and willing to negotiate. No one in our sector will be well served by several more years of litigation and regulatory wrangling.”

Powell made his speech about a week after a federal appeals court overturned an FCC order delegating authority to state regulators to determine what parts of the local phone network the Bells must make available to competitors at government- mandated rates. Powell was among two commissioners to oppose the regulations, but a majority of commissioners want the U.S. Supreme Court to review the contested rules.

The Office of the Solicitor General within the U.S. Department of Justice is responsible for seeking an appeal before the nation’s highest court, known in legal speak as filing a petition for writ of certiorari. Brad Ramsay, general counsel of NARUC, says the Supreme Court agrees to hear seven out of 10 cases the Solicitor General files for appeal.

The National Telecommunications and Information Administration (NTIA), which advises the White House on policies, has not made a decision on whether to recommend an appeal, according to Ranjit de Silva, director of public affairs with NTIA. A White House spokesman was not immediately available for comment.

Rep. Fred Upton (R-Mich.), chairman, subcommittee on Telecommunications and the Internet under the House Committee on Energy and Commerce, says the appeals court made the right decision by overturning the FCC’s phone regulations and upholding rules deregulating the broadband market. Upton has supported Powell’s position that it is the FCC’s job q not the charge of state regulators - to determine whether local phone companies have the right to lease Bell switches at UNE rates.

“Obviously we’d like to see the court challenges dropped and get the work done - to take the next step in broadband and telephone deregulation,” says Upton spokesman Sean Bonyun.

In speeches at the NARUC winter convention, FCC commissioners Kevin Martin and Michael Copps said the court decision has consequences extending beyond the telecommunications industry because it affects the relationship between state and federal regulators elsewhere, such as the U.S. Fish & Wildlife Service and the Federal Energy Regulatory Commission.

“In striking down any state role, the court said that you are no different than any private organization,” Martin, a Republican, told state regulators. “They said the fact that the FCC had involved state commissions rather than private organizations made no difference. In the D.C. Circuit’s eyes, you are viewed like any other lobbyist. I am troubled by their failure to recognize the traditional federal-state relationship. I think you are different; they did not.”

On March 2, the U.S. Court of Appeals for the District of Columbia Circuit overturned parts of the FCC’s Triennial Review Order, which governs new phone and broadband rules. The court said the FCC was not authorized to delegate rulemaking authority to the states, and it struck down a national finding that phone companies are “impaired” without being able to lease Bell switches used to route local traffic.

Staying its decision for 60 days or no later than the denial of a petition for a rehearing, the court blasted the FCC for failing to write rules that comply with the law.

“This deadline is appropriate in light of the commission’s failure after eight years to develop lawful unbundling rules and its apparent unwillingness to adhere to prior judicial rulings,” the court said.

The day after the ruling, SBC disclosed making an offer to negotiate wholesale phone rates with AT&T, MCI and other competitors throughout its 13-state territory. State regulators set the wholesale rates based on a formula the Bells claim is severely flawed, requiring them to subsidize their rivals.

“Neither of our companies stands to benefit from continued uncertainty in the industry,” SBC Chairman and CEO Edward Whitacre wrote in a letter to AT&T’s top executive, Dave Dorman. “SBC’s offer of private negotiations would enable you to provide certainty for your business operations, and more importantly, allow your company to continue serving its customers in a fully competitive environment.”

AT&T wasn’t impressed.

“SBC’s letter provides a perfect example of the overreaching and anticompetitive nature of the activist D.C. Circuit panel decision,” AT&T spokeswoman Claudia Jones said. “For the sake of all consumers this decision needs to be stayed and reviewed by the Supreme Court.”