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FCC chief Powell undercut by ruling; telecom compromise offers a mixed bag

Thu, 02/20/2003 - 7:00pm
D.C. Denison

Copyright 2003 Globe Newspaper Company

The Boston Globe...02/21/2003

In a setback to FCC chairman Michael Powell, the agency issued a compromise ruling yesterday that does not deregulate the telecom industry as broadly as he wanted and sends key competition issues to state regulators.

For consumers in Massachusetts, the ruling could lead to greater choice of local residential phone service companies and possibly better prices and services. But the decision could limit choices for high-speed Internet access and lead to higher fees.

"Overall the ruling will be good for the consumer in the short term because it continues to allow for local competition," said Judy Reed Smith, president of Atlantic-ACM, a Boston telecommunications research and strategy consulting firm.

Baby Bells like Verizon, the major local service provider in Massachusetts, took a beating yesterday on the stock market as investors felt that overall these companies lost more from the decision than they gained. AT&T shares also declined, but not as much.

In a 3-2 vote that overruled its chairman, the Federal Communications Commission ruled that state officials will help determine when to relax rules requiring Baby Bells to rent their local telephone lines to rivals at deep discounts. Powell wanted the FCC on its own to simply lift the network-sharing requirement in all but the most sparsely populated rural areas.

In Massachusetts, the decision falls to the Department of Telecommunications and Energy, which is chaired by Paul B. Vasington, a Republican who was appointed by former acting governor Jane Swift in May 2002. He declined to comment.

AT&T said the decision could speed the company's plans to sell local service in the state. "It's a very positive ruling," said Mike Morrissey, AT&T's vice president of law and government, eastern region. "It keeps alive our plan to offer local service in Massachusetts."

Local phone giants like Verizon did win one victory: The FCC voted that they should not have to share new high-speed communications networks that they build.

That could spur major telecommunications companies to increase their investments in fiber-optic networks, possibly generating much-needed business for depressed telecommunications equipment suppliers.

On the issue of DSL, the FCC decided existing copper lines need only be shared with high-speed Internet competitors if these providers are prepared to offer voice services as well.

The decision could favor established local telephone companies, such as Verizon, and hurt already troubled independent DSL providers like Covad Communications Group Inc., which do not currently offer voice service.

The downside of the ruling, said Smith, the telecom consultant, is that the competitive players will be relegated to voice and copper, as opposed to fiber and data, "which are the growth end of the business."

The new rules won't go into effect until they are formally published sometime over the next few weeks. The decision will also probably face legal challenges, which may further delay implementation.

The financial markets indicated investors believed that on balance the ruling was a setback for the Baby Bells. At the close of trading, local regional carrier Verizon Communications Inc. fell $ 1.84, or 5 percent, to $ 34.76. SBC Communications Inc. of San Antonio fell $ 1.73, or 7.5 percent, to $ 21.30 and Atlanta's BellSouth fell $ 1.54, or 6.9 percent, to $ 20.60.

However, just about every player expressed unhappiness. Wayne E. Huyard, president of the MCI mass markets division for struggling telecommunications firm WorldCom, praised the "strong role" for state authorities in deciding access to local service. "Unfortunately," he said, "changes in the FCC's rules regarding broadband are highly detrimental to competition."

Tom Tauke, senior vice president of public policy and external affairs for Verizon, said that while the commission "appeared to have moved in the right direction" on broadband, the decision to give regulatory decision-making to the states was "a recipe for continued disarray in the industry and more litigation."

In a rare dissent by an FCC chairman, Powell also expressed disappointment in the local access part of the ruling. "There are some immensely important achievements in this order that have long been objectives of mine — namely, substantial broadband relief," he wrote in a statement. "Yet, regrettably, there are some fateful decisions as well, which I believe compromise some important principles to which I adhere unwaveringly."

To Atlantic-ACM's Smith, the mixed responses are a sign that the FCC did its job. "That's the proof of a good compromise," she said. "All the players have something to be unhappy about."

D.C. Denison can be reached at denison@globe.com.

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