Two Weddings and a Funeral?

Last month the FCC and DOJ approved the mergers of SBC-AT&T and Verizon-MCI, opening a new chapter in the history of this industry.

To get the FCC’s green light, these industry giants had to agree to offer naked DSL, backbone peering and net neutrality, and freeze special access and UNE rates, among other stuff. (For more on what this all means, see my Web exclusive Q&A “A ‘Buy-Side’ Attorney Comments on Merger Requirements, Special Access” with attorney Colleen Boothby, at http://www.xchangemag.com/webexclusives/5bh114146.html)

While the things SBC Communications Inc. and Verizon Communications Inc. offered up to get clearance for these deals include some good news for competitive carriers, there’s a question looming as to what will happen after two or three years’ time to CLECs and others that rely on these RBOCs to reach their customers.

You see, as part of these merger approvals, the newly enlarged RBOCs agreed to freeze special access rates for 30 months after the mergers close and freeze UNE rates for two years after the mergers close. CLECs, which had been sweating it over the prospect that their rates could go sky-high following the mergers, were pleased.

XO Communications CEO Carl Grivner recently told me that AT&T Corp. and MCI Inc. traditionally have offered far lower wholesale pricing for access than the RBOCs. But that could all have gone away quickly had the rate freezes not been a condition of the mergers. Surprisingly, the FCC this time took a balanced approach that actually considers the competitive ramifications of what the big incumbent telcos are doing.

In addition to the rate freezes, competitive service providers like XO and Eureka/InfoHighway were happy with the wire center recalculation rules laid out in the merger approvals.

Raul Martynek, president and CEO of Eureka/InfoHighway, says these merger conditions address many of the issues companies like his own have been espousing and also indicate that the RBOCs don’t see the CLECs as a significant threat. Instead, he says, the incumbent telcos are more worried about their cable TV competitors — and possibly newcomers like Google and others — in the residential market (which, I might add, got a promise of net neutrality, backbone peering and naked DSL out of SBC and Verizon as part of the merger terms).

So everybody’s happy, right?

Well, for a while anyway.

CLECs and other competitive carriers that rely on incumbent networks to reach their customers still are holding out hope that the FCC will use the next 24 to 30 months to address special access beyond the freeze-timeframe set out in the merger conditions. CLECs and their customers say special access rates are outrageously high and that the merger conditions — which freeze and don’t lower them — do nothing to address that.

But the prospects that the FCC — which has a record of favoring the incumbent telcos based on the “intermodal” competition many others say has not materialized in a significant way — will help manage special access and UNE pricing seems slim. That, and the fact that the FCC has two Democrats, two Republicans and one open seat that could be filled at any time, indicate these pricing issues remain a steep uphill battle.

Until next time,

Paula Bernier

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