Another Win for Bells Is Expected

Having won major victories this year to limit competition for home telephone service, the regional companies that own the nation’s local phone networks want to fine-tune the regulations -- which could make it tougher for rivals serving businesses.

The companies, including California’s leading local carriers, SBC Communications Inc. and Verizon Communications Inc., say that all they are doing is seeking clarifications of decisions made by the Federal Communications Commission.

Competitors contend that the companies’ goal is to add the small and medium-sized business market to the residential market they already control. That, competitors complain, will leave customers with few choices and higher prices.

The rivals will probably lose a crucial battle today. The FCC, responding to a BellSouth Corp. request, is expected to deny them the right to lease the high-speed fiber optic lines that reach into residential neighborhoods.

The effect could be severe for the several hundred rivals that built their operations around past FCC rulings and statements and the Telecommunications Act of 1996, which requires dominant phone companies to open their networks to competition.

“The profound disconnect between the pro-competition statements of the commission and its decidedly anti-competitive policies continues to widen,” managers of eight institutional investors wrote last week to FCC Chairman Michael K. Powell.

The investors, including giant Kohlberg Kravis Roberts & Co., contend that the FCC’s actions this year run counter to past votes and Powell’s own statements, and put at risk billions of dollars they poured into small competitors to the Baby Bells, the regional companies that emerged from the breakup of the old AT&T; Corp. monopoly.

Investments flowed in after the Telecom Act and FCC rules promised to break up the Bell monopolies. The act requires the Bells to lease their lines and certain equipment to competitors, which would then build their own facilities as they secured enough market share to justify the expense.

But in March, the Bells won a court order that threw out rules enforcing the act. The Bush administration and the FCC decided not to appeal.

Now the Bells are trying to “short-circuit the goal of the Telecom Act,” charged Christopher McKee, executive director for regulatory affairs at XO Communications Inc. in Reston, Va.

Since 1996, XO has built an extensive network. But it needs to lease from the Bells the high-speed, high-capacity copper lines that go from its equipment to its 180,000 customers in Los Angeles and 69 metro areas. Duplicating that last-mile connection for so-called T-1 and T-3 lines serving businesses is financially prohibitive, said McKee.

Today’s expected FCC decision would be tough on XO and also would blur the lines between business and residential markets, said Jason Oxman, general counsel for the Assn. for Local Telecommunications Services, the trade group for competitive carriers.

It would be “a complete 100% reversal from the rules the FCC laid down just last year,” Oxman said.

That’s not how the Bells see the situation. They don’t want to invest in high-speed fiber optic lines unless they can be assured that they won’t be forced to share those lines with rivals, especially at low regulated rates.

Verizon sees the small-business market as part of the mass market. The company’s studies show that its competitors are focused primarily on large businesses in concentrated areas where they have been building their own networks, like in downtowns and business parks.

“In the top 50 metropolitan areas, there are on average 20 separate networks deployed by competing providers,” said Mike Glover, Verizon deputy general counsel. “They have been able to win a substantially larger share of that market than we have.”

Verizon is the most aggressive Bell in deploying high-speed fiber optic lines. It plans to take it to each home -- some 2 million by the end of next year -- because of an FCC decision last year that freed the Bells from having to share the fiber lines that run to residences.

That decision is being broadened, though in ways that may not be apparent. “It’s the classic thing where the FCC is making decisions that have enormous impact but the language is embedded in such technical matters that the average consumer doesn’t have a clue what’s going on,” said an agency employee who asked not to be identified.

On Aug. 9, for example, the FCC approved a Bell petition to designate apartment buildings that house some businesses as coming under last year’s fiber-to-the-home rule -- meaning that non-Bells can’t serve businesses in such buildings with high-speed services.

XO and others fear that after the Aug. 9 decision, a favorable ruling for BellSouth today would free the Bells from having to share lines whenever fiber passes by businesses located in primarily residential areas. Worse, they worry, they would be barred from access to small businesses whenever the Bells use those high-speed lines to provide Internet protocol technology, which sends data and voice in packets like e-mail.

And if the FCC approves two Verizon petitions that are pending, rivals say, that would seal the fate of the sharing requirements. Verizon wants the relief the court granted on leasing obligations to be applied to a separate section of the Telecom Act, which imposes similar requirements in return for allowing the Bells to offer long-distance service. Verizon’s Glover said the relief the Bells won in court in March shouldn’t be contradicted by the Telecom Act.

That would be “the worst of all possible worlds,” said Bruce Fein, a former FCC general counsel. “We’ve come full circle from the 1996 act, back to where the Bells have a lock on local service and rapidly are achieving the same on long-distance and broadband.”