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Baby Bell Follow Up

More analysis on the FCC’s ruling.

Never in my six years at this job have I seen so many strongly held views as I see in the telecom sector after the recent FCC ruling. I wrote about this last week and, perhaps because of the confusion surrounding the ruling, I don’t think I quite achieved clarity. So bear with me as I take another stab at it.

The ruling disappointed everyone,except me. FCC chairman Michael Powell had been stating that he would give the Bells what they wanted–an end to so-called Unbundled Network Element-Platform (UNE-P) at their discretion. In layman’s terms, it would mean that the Bells would no longer be forced to lease their lines to small local competitors at wholesale prices. We were all expecting the ruling two weeks ago, but there was a last-minute delay. It turns out the delay was because of a palace coup in which Republican FCC Commissioner Kevin Martin delivered a counter-proposal to the Powell proposal that keeps the current rules in force for a time and gives the states discretion over how line leasing would eventually be negotiated between the Bells and their local competitors over a three-year period.

There are so many facets to this story, I hardly know where to begin. Let me start with the Bells themselves, who have spent countless millions of dollars lobbying for an end to the UNE-P regulations ever since the 1996 Telecom Act, not to mention billions in fines for violating the law. During the Clinton administration, this lobbying took place mostly in the Republican-controlled House, but also in the Senate. During the Bush administration, much of the lobbying moved down the hill to the FCC. Everything was leaning toward victory for the Bells as recently as two weeks ago, when presumably the Bells could send their lobbyists home and folks like Louisiana Representative Billy Tauzin would have to start picking up lunch tabs again.

The Bells’ argument was tired. They claimed that, without deregulation, they could not extend the range of DSL by creating more central offices through fiber optic solutions. What they really meant was, they wouldn’t do such a thing unless the FCC rolled back the regulations. Of course they could do it; they could have always done it. In our state we have a competitive local exchange carrier (CLEC)–Onvoy–that now has the most extensive fiber network in the state. Rather than spending all its money lobbying for a better regulatory framework in which to operate, Onvoy went ahead and built the network. In case you haven’t noticed, fiber is cheap these days, and Onvoy was able to use existing conduit, making the build out very cheap, at least by 1999 standards.

The Bells said, “We’d be damned if we would build a fiber network only to have to lease it to our competitors at cost. So we’ll hold the whole economy hostage unless you return us to monopoly status.” They talked about the economic impact of not adopting their favored solution–layoffs and continued malaise in the infotech sector. Though it was a tired argument, they were persistent, and they always picked up the lunch tab. Tauzin promises to fight the FCC on this, using all the same rhetoric. We’ll see how far that goes on the Hill.

All this lobbying brought the Bells in a position to win. And they would have, were it not for an unlikely hero. Martin was appointed commissioner by President Bush, for whom he had done yeoman’s work in Florida counting hanging chads as part of the Bush legal team. His wife is on Vice President Cheney’s staff and the Cheneys and the Martins socialize. From the outside, you would think he would be the last guy to oppose Chairman Powell’s plan. But he did, despite the fact that he probably won’t be invited back to the vice president’s mansion for martinis in the new state-of-the-art bunker any time soon. Why did he do it? Well he’s been mum about his reasons, saying only, “In the end, I had to vote my conscience.” I guess profiles in courage span political parties.

I can only speculate about what his conscience is, but I think he’s just being coy for the sake of political damage control here. First of all, he didn’t just vote, he spearheaded a new draft of the plan and convinced the two democrats on the FCC to support it. Again, the plan specifically put the power of unbundling in the hands of the states. The states have the most to gain or lose from broadband. Take my state, where by law commissioners could have kicked Qwest out for all its anticompetitive behavior and its unfair business practices. Instead, because of the turmoil that would have caused, they settled for a fine and an ultimatum–shape up or ship out. So far so good, but with Powell’s version of deregulation, it’s back to square one with a company whose former executive team has just been indicted for fraud. So giving states like mine (and most states west of the Mississippi) control over the telecom landscape makes sense.

In the end, Martin went against President Bush and the entire Republican leadership to craft a plan that makes sense and gives everyone a fair chance to make or break their businesses over the next three years. I think it will stimulate growth in the beleaguered telecom sector without punishing hardworking CLECs like Onvoy or ISPs like VISI, or giving Bells like Qwest a get-out-of-jail-free card.

James Mathewson is editor of ComputerUser magazine and

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