Competitors Hang Tough in 1999’s RegulatoryFight Club

Posted: 12/1999

Competitors Hang Tough in 1999’s Regulatory
Fight Club
By Kim Sunderland

A new millennium stretches out before the telecommunications industry, beckoning like a
bright light on a stormy night, drawing the long distance wholesale competitors and
resellers forward into another regulatory age. Looking back over their shoulders as they
switch off the light on 1999, the carriers reflect on 12 months in which federal
regulators basically treated them fairly well, albeit not as well as in previous years.

"1999 was both challenging and rewarding for local competitors," says Robert
McDowell, vice president and assistant general counsel for the Washington-based
Competitive Telecommunications Association (CompTel), which represents facilities-based
competitors. "There has been a lot to stay on top of this year, but we have survived
and moved forward."

Access to capital to develop infrastructure and expand business, for example, has been
a major challenge for competitive carriers, explains Mitchell F. Brecher, partner in the
Washington law office of Greenberg Traurig. "The competitive segment of the industry
has fared the way it should have fared," he adds. "Some companies have grown and
prospered. Others have not done so well."

This year’s national regulatory decisions have had everything to do with that. The
Federal Communications Commission (FCC), validated with renewed authority from the U.S.
Supreme Court’s unbundled network elements (UNEs) remand, pretty much issued a major
decision monthly that affected telecom carriers worldwide. And the frenzy never let up.
With Bell Atlantic-New York’s (BANY’s) in-region long distance application being all but
wrapped up, competitors face another tough year once they finally make it through 1999.

Odds-makers say BANY will begin providing in-region interLATA (local access and
transport area) services in 2000 following FCC approval. This is challenging because then
the Bell will begin paying itself its own access charges, which interexchange carriers
(IXCs) also pay to the Bells for terminating traffic. "This could be 30 percent to 40
percent of the cost of long distance," CompTel’s McDowell says. "And because the
issue of revenue neutrality hasn’t been changed or challenged by the FCC, we see the Bells
in a unique position to ‘price’ below costs, while competitive IXCs won’t be able to do
so." BANY, and any other Bell company approved to provide in-region long distance
service, then basically will be putting money back into its own pocket.

Some comfort for competitors may come from a possible court stay of the FCC’s ruling.
Word on the street in Washington is that one of the nation’s largest IXCs will petition a
federal court to delay the FCC’s ruling on BANY’s application until it’s fixed any
remaining network problems. Competitors have contended that BANY is close but not close
enough to satisfying all of the Telecommunications Act’s competitive checklist
requirements.

Such tangled issues prove that wholesale competitors and resellers "just haven’t
been as successful at the FCC this year as they were in 1996, 1997 and 1998," says
Scott C. Cleland, managing director of Legg Mason Precursor Group, Washing-ton. "This
is entirely due to the fact that there’s more competition in the marketplace."

The approval of megamergers–such as that of SBC Communications Inc., San Antonio, and
Ameritech Corp., Hoffman Estates, Ill., and between AT&T Corp. and Tele-Communications
Inc. (TCI), Englewood, Colo.–contributed to this scenario and likely will have more of an
impact down the line, says Fred A. Joyce, principal of Joyce Telecom Group LLC, Colorado
Springs, Colo. But overall, Joyce says, "it looks like [FCC Chairman William E.]
Kennard and the FCC are holding the line on the Telecom Act, and that will be a major
benefit to the CLECs (competitive local exchange carriers), resellers, ISPs (Internet
service providers) and all telecom competitors."

One benefit is that the FCC this year has continued to ease collocation restrictions
that increased upfront costs and precluded uses of certain switching equipment, explains
John T. Nakahata, partner with the Washington law firm Harris, Wiltshire & Grannis
LLP. "The FCC has also made clear that it intends to see the loop and the subloop
unbundled, and to require operations support systems (OSSs) that allow those elements to
be transferred smoothly between incumbents and competitors," he adds. On the other
hand, FCC policies on advanced services, particularly no unbundling for alternative
networks and no unbundling of digital subscriber line access multiplexers (DSLAMs), pushes
carriers toward at least some facilities investment for advanced services. "Resellers
that want to continue to participate in high-growth advanced services will need to be
looking ahead," Nakahata says.

CompTel has petitioned the FCC to reconsider this year’s UNE decision. "The
decision isn’t really good for us," CompTel’s McDowell says. "The fact that
DSLAMs aren’t on the [new UNEs] list is very troubling. That essentially means that any
broadband service has been taken off the table for competitors, and that’s the future of
competitive telecom, who can provide these services more cost effectively and efficiently.
It’s as if we’ve been shut out of the game." In general, McDowell adds, 1999 was a
year in which there was a huge net gain for the regional Bell operating companies (RBOCs).

Increased competition hasn’t been all bad, though. "This has been a good year for
telecom competitors," Joyce says. "Lots of new options for infrastructure-based
services have surfaced, such as Level 3 (Communications Inc. Omaha, Neb.) and Qwest
(Communications International Inc., Denver). And in most cases, the companies that operate
efficiently, which bring value to the marketplace and which have quickly seized on new
opportunities, have performed best," Brecher says. What happens next year, he adds,
is another story entirely.