Public Interest Debate Moves to Center Stage

Posted: 11/1998

Public Interest Debate Moves to Center Stage

By Carol L. Bowers

With the regional Bell operating companies (RBOCs) closer than ever to satisfying the
Telecom-munications Act of 1996’s 14-point checklist for in-region long distance entry,
the debate is about to shift from whether they’ve satisfied the law’s requirements to
whether it would be in the public interest to let them offer in-region long distance
services.

If the RBOCs thought the definitions of the checklist points were built on shifting
sands, the concept of the public interest test, undefined by the law of the Federal
Communications Commission (FCC), is bound to be more like quicksand.

Already Bell company opponents such as the Competition Policy Institute (CPI) have
started a movement to get the FCC to define the term as meaning customers, both business
and residential, would have a "realistic choice" of buying local telephone
service from companies other than the RBOCs.

Specifically, CPI has argued that the commission has not addressed the public interest
question and should do so. Moreover, CPI says, the concept of realistic choice should be
applied to mean that at least 50 percent of subscribers have a realistic choice of an
alternate telecommunications carrier.

MCI WorldCom Inc.’s response highlights the importance of the debate. Officials say,
"To paraphrase an old doctor joke, checklist compliance only determines whether ‘the
operation was a success,’ while the public interest test considers whether or not ‘the
patient died.’"

Even more critical is the fact that other companies and associations filing comments in
the CPI proceeding have upped the ante slightly, urging the FCC to consider making the
public interest test a two-pronged standard of "realistic choice" and the U.S.
Department of Justice’s "fully and irreversibly open to competition" standard.

WorldCom Inc., for example, argues that the realistic choice standard should not
predominate in any FCC public interest analysis. "Instead, in WorldCom’s view, both
the U.S. Department of Justice and the [CPI petitioners] appear to provide separate, but
complementary, templates for satisfying the various factors that likely will need to be
examined and weighed by the commission," the company writes in its filing, adding
further that no RBOC petition for long distance entry "should be granted unless and
until it has met both of these public interest standards."

The Telecommunications Resellers Association (TRA) holds similar views, arguing that
despite the deregulation efforts to date, "the BOCs continue to control roughly 98
percent to 99 percent of the local markets they serve."

"Even in the state of New York, which is generally cited as the most competitive
local market in the nation, [Bell Atlantic Corp. claims] that the ‘total market share’ of
competitive local exchange companies (CLECs) is a mere 3 percent," TRA argues in its
filing. "The million-dollar question is why local competition has not emerged."

Predictably, the RBOCs are howling. BellSouth Corp. officials argue that the CPI
petition "is nothing more than another attempt by the incumbent long distance
carriers to delay further RBOC entry into the in-region interLATA (local access and
transport area) markets from which they are foreclosed. This is an exercise in redundancy.
The existence of the requisite open local market is established by satisfaction of the
competitive checklist."

SBC Communications Inc., in its filing, denounced CPI as "a covert trade
association" that "has never received ‘any funding from actual consumers.’"

"CPI’s petition not only reflects the self-interest of incumbent long distance
carriers … but also repeats arguments the commission has already rejected," SBC
stated. "In its [rejection of Ameritech Corp.’s application to offer long distance
service in Michigan] the commission dismissed arguments that when considering Track A
applications, it can demand that competitive local exchange carriers have some minimum
geographic penetration or market share."

The Track A provision allows a RBOC into long distance service if no other competition
has emerged; Track B allows a RBOC into the business if there is proof the company has
opened its market to competitors.

There are other problems with CPI’s petition, too, according to the Texas Office of
Public Utility Counsel and the Consumer Federation of America, which filed joint comments
in the proceeding.

Calling the CPI arguments "very thin," the two consumer groups say the
proposal would "weaken, not strengthen, the likelihood of vigorously competitive
local markets." Instead, the groups argue, the FCC should take the opportunity to
clarify how it will apply the standard.

Overall, however, the filings on both sides also fail to address one of the very real
problems of competition: how to reach the rural areas. "Most important … is that
the actual application of the public interest test be flexible enough to accommodate
states, like Maine, where it may be unrealistic to expect any significant amount of
competition in some areas of those states," writes the Maine Public Utilities
Commission.

D.C. Circuit to Re-Examine Bill of Attainder Case

By Kim Sunderland

On the heels of a ruling by the 5th U.S. Circuit Court of Appeals dashing the Bell
operating companies’ (BOCs’) hopes of providing long distance services, a federal appeals
court panel has opted to take a closer look at the situation.

The U.S. Court of Appeals for the D.C. Circuit Sept. 25 said it has major problems
concerning the constitutionality of the interLATA (local access and transport area)
restrictions mandated in Section 271 of the Telecommunications Act of 1996. A decision by
the court could have far-reaching implications on how local and long distance telephone
services are purchased, and the BOCs now are infused with newfound hope.

Judges Harry T. Edwards, David B. Sentelle and Patricia M. Wald heard oral arguments in
BellSouth Corp. et al vs. Federal Communica-tions Commission (FCC)–in which BellSouth
appealed an FCC order rejecting its petition to provide long distance services in South
Carolina. The FCC also has rejected BellSouth’s 271 application in Louisiana, citing
non-compliance with Section 271’s competitive checklist requirements in denying both
applications.

The judges said they would not "rubber stamp" previous rulings, including the
5th Circuit’s September decision against three BOCs that wanted Sections 271-275
overturned as unconstitutional bills of attainder. The 5th Circuit’s ruling reversed a
1997 New Year’s Eve decision that said sections 271 and 274 of the Telecom Act were
unconstitutional. A bill of attainder prohibits the infliction of punishment on a specific
individual or group without the benefit of a judicial trial; the Constitution bans bills
of attainder.

BellSouth contends parts of the Telecom Act constitute a bill of attainder. SBC
Communications Inc., Bell Atlantic Corp. and US WEST Inc. also have argued that portions
of the Telecom Act discriminate against the BOCs because they don’t apply to other local
phone companies.

Such restrictions are an unconstitutional punishment, said BellSouth attorney Laurence
Tribe during arguments. He also had represented SBC, US WEST and Bell Atlantic in their
case.

The long distance provision "excludes a handful of named companies" from
being able to provide long distance services, as do other companies, Tribe said.

AT&T Corp. and the FCC defended the Telecom Act during the hearing. FCC General
Counsel Christopher Wright said the law doesn’t punish the Bells because open-market
requirements actually have made it easier for them to provide long distance services
compared to a Consent Decree that had shut them out of the business.

"If you are not making someone worse off, it’s not punishment," he said at
the hearing.

Two of the judges, however, said that as a judicial matter, that argument has no
bearing on the constitutionality of the Telecom Act’s provisions. And all three judges
weren’t convinced by the FCC’s argument that BellSouth’s 99 percent-plus market share
retention in South Carolina should not allow it to provide long distance services.

"It won’t do you any good to mention that," Judge Sentelle told Wright,
"because Congress didn’t mention that" in the act.

If BellSouth prevails in the D.C. Circuit, the company could offer local and long
distance services throughout its nine-state region without government approval, a ruling
that also could apply to Ameritech Corp. and US WEST, who have joined the case. At press
time, no date for a decision has been set.

IXCs Push for IntraLATA Presubscription

By Jennifer Knapp

Long distance carriers are beginning to turn up the pressure on state utility
commissions as the Feb. 8, 1999, date for nationwide implementation of intraLATA (local
access and transport area) presubscription approaches. Half of the states have yet to
adopt rules for implementing intraLATA dialing parity, which allows consumers to access
their long distance carrier of choice when making an instate long distance phone call by
dialing 1+ before a phone number.

Telecommunications Resellers Association (TRA), the Washington-based trade group
representing resellers of telecommunications services, sent letters to 25 state public
utility commissions Sept. 9 asking that procedures be implemented immediately to institute
intraLATA toll-dialing parity.

This is the "last bastion of the [Bell companies’] monopoly dominance of the toll
market," says TRA President Ernie Kelly. "If these states are going to have
these initiatives in place by the effective date, they need to get the ball rolling
now."

According to Federal Communi-cations Commission (FCC) statistics, the Bell companies’
share of the intraLATA toll market was more than $7 billion last year.

The regional Bell operating companies (RBOCs) claim it is unfair to make them open
their local toll call markets until they are allowed to compete in the interstate long
distance market as well.

"If you are a customer selecting a long distance company, you are more inclined to
pick a long distance company that can provide you with full service that does not stop at
an artificial boundary," says Paul Miller, spokesman for Bell Atlantic Corp. "If
Bell Atlantic is not able to carry your call from Richmond, [Va.] to Los Angeles, you
probably are not going to select Bell Atlantic as your long distance carrier. It puts us
at a distinct disadvantage."

To date, however, none of the Bell companies have met the requirements set forth by the
Tele- communications Act of 1996 as prerequisites to entry into the long distance market.

According to TRA, 25 states have yet to institute toll-dialing parity or are in the
preliminary process of doing so. These are Alabama, Arkansas, California, Idaho, Indiana,
Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Missouri, Montana, North Carolina,
North Dakota, Nebraska, Nevada, Ohio, Oklahoma, Oregon, South Carolina, South Dakota,
Tennessee, Texas, Virginia and West Virginia.

According to state regulatory consultants Harbor Consulting Group Inc., Gig Harbor,
Wash., proceedings are ongoing in Alabama, Kansas, Maryland, Massachusetts, North
Carolina, Texas, Virginia and Washington.

In addition to TRA, Competitive Telecommunications Association (CompTel), Washington,
has weighed in on proceedings in Virginia, Massachusetts and Maryland, all Bell Atlantic
region states.

Bell Atlantic is a curious case, says Terry Monroe, vice president of state affairs for
the CompTel. "They are fighting [presubscription] in Virginia, Maryland and
Massachusetts, but they already have it in the other states in their region."

It appears, however, that in these instances, the commissions largely agree with Bell
Atlantic’s position.

"The policy in Virginia, to date, has been that Bell Atlantic would not have
presubscription until we are permitted into interLATA long distance," Miller says.
"That has been our position throughout our region, but it just so happens that in
Virginia and Maryland, the commission agrees with us," he adds.

In a related issue, AT&T Corp. filed comments with the Virginia State Corporation
Commission (SCC) opposing Bell Atlantic’s "Big Deal" promotion, which gives
special service discounts to customers who sign up for both local and regional long
distance. The RBOC says AT&T is "unhappy that the Big Deal will make Bell
Atlantic’s local and regional toll service less expensive, thereby making it more
difficult for AT&T to compete."

AT&T’s comments to Virginia SCC state that Bell Atlantic is locking up its
customers with this deal before there is any competition in that market.

"The benefits of [the Big Deal] are only available on the condition that the
customer subscribes to both local and toll," says Gordon Diamond, spokesman for
AT&T. "AT&T feels it would work to the detriment of Virginia customers
because it deprives them of any benefits of local toll competition, if and when that does
happen."

Resale of Advanced Services Critical, ILEC Competitors Tell FCC

By Khali Henderson

The ability to resell advanced services is critical to telecommunications carriers’
ability to compete over the long term, the Telecommunications Resellers Association (TRA)
told the Federal Communications Commission (FCC) in comments filed Sept. 14 on a Notice of
Inquiry (NOI) on deployment of advanced services under Section 706 of the
Telecommunications Act of 1996. However, an FCC proposal to allow the incumbent local
exchange carriers (ILECs) to offer advanced data services through a separate subsidiary
would relieve ILECs of that obligation.

"The problem is that achieving the capability to offer advanced services will be
prohibitively expensive for all but ILECs and a handful of other well-financed services
providers," says Ernie Kelly, president of the TRA, the Washington-based trade group
representing resellers. "Most carriers, especially smaller ones, will gain access to
advanced services only by purchasing them from wholesale incumbent LECs."

In its comments, TRA urged the FCC to enforce the legal obligation of ILECs to provide
their telecommunications services, including advanced services that typically utilize
digital subscriber line (DSL) or packet-switched technology, to other service providers at
wholesale rates.

The ILECs have argued that their provision of advanced services should not be regulated
at all. In comments filed on the NOI, the United States Telephone Association (USTA), the
Washington-based LEC trade group, urged the FCC to permit market forces to drive
deployment of advanced data networks.

While the FCC is unlikely to do that, it has made a proposal that, for resellers, has
essentially the same result. In a separate but related Notice of Proposed Rulemaking
(NPRM), the FCC proposed that the ILECs be allowed to offer advanced services under a
separate subsidiary that would not be subject to interconnection, unbundling and resale
obligations of the regulated company under Section 251(c) of the Telecom Act.

"The end result for resellers is the same," notes David Gusky, TRA’s vice
president. "A lot of small carriers will be shut out."

In comments filed Sept. 25 in the NPRM, the Competitive Telecommunications Association
(CompTel), Washington, said that if the FCC relieves ILECs of such obligations, it could
undo much of the progress it has made in encouraging local competition.

CompTel member Westell Inc. also filed comments in support of requiring resale of
ILECs’ advanced services. Gwen Rowling, director of business and government relations for
the Austin-based company, says that for Westell, the availability of unbundled network
elements (UNEs) and resale is important to its continued ability to service its imbedded
customer base. In contrast to other newly established carriers that might be able to
target metropolitan markets selectively, Westell’s base includes subscribers from smaller
towns as well as large cities.

"We have a customer base that is ubiquitous in a state," Rowling says.
"We may have customers in a place where a CLEC is not going to put up facilities. If
the ILEC is allowed to shield its services under a separate subsidiary, we may not be able
to offer advanced services to those customers. And the incumbent LEC will be their only
choice."

In its comments, USTA said the commission should refrain from erecting any regulatory
barriers such as separate subsidiary requirements, unbundling and resale obligations that
place incumbent local phone companies at a competitive disadvantage. USTA also stated that
such regulations serve as disincentive to the deployment of advanced telecommunications
networks, and they delay the availability of innovative products and services.

New York PSC Upholds Anticompetitive Petition Against Bell Atlantic

By Jennifer Knapp

Upholding the Telecommunications Act of 1996, the New York Public Service Commission
(PSC) ordered Bell Atlantic Corp. to stop charging its business customers a penalty for
switching service providers.

The order answered a petition from Waltham, Mass.-based CTC Communications Corp.
regarding Bell Atlantic’s January decision to charge contracted customers a
termination-of-service charge should they choose to continue service with a reseller.

The New York PSC said Bell Atlantic’s activities violate sections 251 (b)(1) and 251
(c) (4)(b), which state it is the duty of telecommunications providers "not to
prohibit, and not to impose unreasonable or discriminatory conditions or limitations on
the resale of its telecom services."

Bell Atlantic’s charge was a monopolistic response to the loss of customers, says
Telecommunications Resellers Association (TRA) Director of Industry Relations Andrew Isar.
TRA, the Washington trade group representing telecommunications resellers, favors CTC’s
petition against the regional Bell operating company (RBOC), whose only recourse against
loss of business is to compete on the merits of its service, Isar says.

In July, CTC had won a favorable ruling from the Massachusetts Department of Public
Utilities for an identical petition, but Bell Atlantic received a stay on the motion on
the grounds that the RBOC did not have enough time to respond to the hearing, says John
Pittenger, executive vice president of finance for CTC. A second hearing on the petition
has been held in Massachusetts, and a decision currently is pending.

CTC also is awaiting decisions for emergency relief petitions against Bell Atlantic in
Maine, New Hampshire, Vermont and Rhode Island, Pittenger says.

FCC Seeks to Reduce Billing Confusion

By Kim Sunderland

Proposed in the name of consumer protection and in response to massive complaints, the
Federal Communications Commission (FCC) may adopt rules that govern the bills of
telecommunications companies.

The FCC has issued a Notice of Proposed Rulemaking (NPRM) outlining three guidelines
and seeking comments on proposals that would follow these guidelines. Comments are due
sometime in early November, 30 days following the NPRM’s publication in the Federal
Register.

"Consumer confusion over telephone bills has significantly contributed to the
growth of telecommunications fraud, such as slamming and cramming," the FCC stated in
CC Docket No. 98-170, released Sept. 17. "Each month, the Commission’s Call Center
receives approximately 10,000 inquiries from consumers with questions about charges on
their bills."

With a growing number of service providers offering an increasing array of options,
consumers generally are clueless when they read their phone bills and "must have
adequate information about the services … and alternatives available to them," the
FCC stated in its docket.

The FCC’s NPRM includes three guidelines proposing those telephone bills:

• Be clearly organized and highlight any new charges or changes to consumers’ services.
• Contain full and non-misleading descriptions of all charges and clear identification of
  the service provider responsible for each charge.
• Contain clear and conspicuous disclosures of any information consumers need to make
  inquiries about charges.

The commission seeks comment on whether bills should contain a separate page or section
highlighting changes, including the addition of a new provider or new charge; whether
telcos should present separate categories of services in separate sections of the bill;
and whether bills should contain a separate section summarizing a customer’s current
status of services.

Other proposals include that each charge on a phone bill be accompanied by a brief,
plain-language description of the service rendered, and that the name of the service
provider clearly be identified in association with its charges.

The FCC also seeks comment on whether it should prescribe "safe harbor"
language for use by companies that pass on universal service or access charges to their
customers, and, if so, what language might be appropriate.