Telecom Act's Progress May Put FCC on Defensive in 1999

Posted: 11/15/1998

Telecom Act's Progress May Put FCC on Defensive in 1999

By Kim Sunderland

Critical legislative proposals will be introduced early in 1999 that could put a stranglehold on how the Federal Communications Commission (FCC) oversees the Telecommunications Act of 1996, Capitol Hill sources say.

These proposals "could evolve ... into a wholesale effort to rewrite the Telecom Act," United States Telephone Association (USTA) President Roy Neel said during a press luncheon Sept. 22. "The best outcome would be for the commission to come around to a different way of thinking."

The Senate Commerce Committee plans to hold hearings regarding different aspects of the Telecom Act, "particularly the Section 271 application process," confirms Commerce press secretary Pia Pialorsi.

Section 271 is the 14-point checklist used to determine whether a Bell operating company (BOC) can get into long distance.

Headed by Sen. John McCain, R-Ariz., the Commerce Committee also will hold hearings on "reauthorizing the FCC next year, looking at every bureau" as part of renegotiating the Telecom Act.

McCain is disappointed with how the Telecom Act has been implemented and "believes it's important to update the FCC to make it promote efficiency and reflect changes that have been taking place in the industry," Pialorsi says.

Specifically, McCain thinks that the FCC's implementation of Section 271 has been "the most problematic, obstructive regulatory obstacle of the act," she says.

"There will be aggressive oversight of the FCC next year, how it's implemented the act and how it's organized and handles its staff," USTA's Neel said following a personal meeting with McCain Sept. 22. "And there will be possible reconsideration of portions of the act."

Carol Ann Bischoff, vice president of legislative and regulatory affairs for the Competitive Telecommunications Association (CompTel), says Congress is supposed to oversee how the act is implemented, so this talk isn't surprising.

But, she adds, "We do need to do an FCC reauthorization, and we're likely to see many others involved in this issue next year."

Association for Local Telecommunications Services (ALTS) spokesman Jim Crawford, meanwhile, says "[At ALTS,] we think the Telecom Act is working fine."

"Competition is thriving," he adds.

Crawford calls the entire issue "typical political noise" and says it's "far-fetched" to think that the act would be rewritten.

However, the FCC also may take shots next year from Sens. Mike DeWine, R-Ohio, and Herbert Kohl, D-Wis., who have commissioned a General Accounting Office report on the status of local competition in the telecom industry.

Rep. Tom Bliley, Jr., R-Va., chairman of the House Commerce Committee, also is concerned with the lack of progress in local competition.

"The FCC has gotten it wrong in assessing competition in the local market," Neel said during the luncheon. "Competition is nominal at this point and the FCC should start backing out of micromanaging the economics of this marketplace."

The biggest gripes USTA has against the FCC are its implementation of the Interconnection Order, which heads to the Supreme Court this fall, and the commission "stalling on approving long distance entry for the BOCs," USTA spokeswoman Michelle Tober said recently.

(The FCC appealed the 8th U.S. Circuit Court of Appeals' ruling on interconnection pricing mechanisms to the U.S. Supreme Court last year. The High Court is expected to issue a ruling this term, which begins in October.)

William Kennard, chairman of the FCC, said in a statement that "The Solicitor General of the United States [has] filed a petition for a writ of certiorari with the Supreme Court challenging the 8th Circuit's decisions in Iowa Utilities Board vs. FCC and People of the State of California vs. FCC. Among other issues, we have asked the court to clarify the jurisdictional boundaries on the scope of this agency's rulemaking authority."

While DeWine and Kohl also have talked about new legislation to alter the Telecom Act, their plans "would probably regulate the Bells more," Tober says, "and we don't agree with that."

In general, USTA wants the FCC out of Telecom Act oversight, but would "like to get all 271 applications approved first," Neel quipped at the luncheon.

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 incumbent local exchange carriers and a handful of other well-financed services providers," says Ernie Kelly, president of 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 use 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, essentially has 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."

WinStar Win on Contracting Rules Could Set Stage for $300 Million Federal Services Niche

By Gail Lawyer

WinStar Communications Inc.'s successful challenge of a government contracting program in federal claims court could break open a multimillion-dollar niche for competitive local exchange carriers (CLECs). Some CLECs already have made strides in winning smaller individual government contracts. But the Metropolitan Area Acquisition (MAA) program run by the U.S. General Services Administration (GSA) represents at least $300 million worth of local telecommunications business up for grabs by competitive carriers.

Earlier this year WinStar filed a protest claiming the GSA had violated statutory mandates for preferences to multiple-award contracts in New York under the MAA program. The MAA program is the basis for government agencies to purchase local telecommunications services. Services provided under the MAA program are set to begin early next year, initially in New York, San Francisco and Chicago. Another 25 cities nationwide will be targeted after that. The GSA originally said it would only award one contract in each market. WinStar protested the plan because it reasoned that all services in a metro area, under a single contract, could only be provided by large ubiquitous carriers, and smaller CLECs would have a difficult time winning the entire contract. The GSA wouldn't comment on the court's ruling. The agency has until mid-November to appeal the court decision. WinStar, along with Ameritech Corp. and Bell Atlantic Corp., are the only three carriers that have been prequalified to provide service under the MAA program. But several more carriers are close to finishing the prequalification process, says Dennis Fischer, commissioner of the GSA's Federal Technology Service, which oversees the MAA program.

Several CLECs experienced in government contracting say they were daunted by the requirements of having to provide all services across a metropolitan region under the MAA program. "That's why we opted out of MAA. We didn't want things that were too big to swallow," says Heather Sirr, major federal accounts manager for GST Government Systems Inc., a division of GST Telecommunications Inc. For the past 2 1/2 years, GST has been providing local telecom services, such as private lines, Internet and dialtone, to military bases and other government agencies. GST has won more than 200 contracts during that time. As GST gains more government contracting experience, and if multiple contractors are ultimately allowed, Sirr says GST likely will go after some of the MAA business.

Government contracts are a good way for competitive providers to gain a predictable revenue stream, carriers and industry analysts say. "The real lucrative aspect of government business is that the government is a good, steady customer," says Maureen Rhemann, managing partner with Houston-based consultancy Telecommunications & Business Strategies Group Ltd. Co. "Where [CLECs] have a cyclical or volatile marketplace, it's nice to have a steady cash flow."

However, CLECs have to keep in mind that, because of competitive bidding, returns for providing service to government agencies typically are less than those made on commercial service offerings. "Margins are traditionally less; probably about one-half to one-third less," Rhemann says, noting that margins for government services run about 2 percent to 8 percent. Government contracting at GST, for example, is one of the company's smallest sales channels and the margins are decidedly lower than what it would make selling the same services to business customers. But, Sirr says, "we're never completely giving something away."

Intermedia Nabs Bell Atlantic as Frame Relay Customer

By Gail Lawyer

Intermedia Communications Inc. put another notch on its lipstick case when Bell Atlantic Corp. became the third Baby Bell to sign up for the competitive local exchange carrier's (CLEC's) national frame relay service. Under the more-than-four-year deal, Bell Atlantic will be able to provide facilities-based data transport services beyond its historical boundaries in the Northeast and mid-Atlantic states.

Earlier this year, US WEST Inc. and Ameritech Corp., entered into similar agreements with Intermedia. Initially, the Bells and Intermedia are jointly marketing the service to large business customers. But the Bells see their agreement with Intermedia as a way to instantaneously become competitive once they have received approval to provide in-region long distance service.

"We are assembling the national ubiquity and products--both voice and data--our customers require. This agreement with Intermedia strengthens our 'reach' and the product set we can offer our customers," says Al Binford, president and CEO of Bell Atlantic Communications Inc., the Bell company's long distance subsidiary.

The scope of Intermedia's reach is impressive. The company is perhaps the largest network-to-network interface (NNI) provider, which allows it to connect with other data networks around the country. "We were into data networking very early," says Jim Geiger, Intermedia's senior vice president and chief marketing officer. "And because we were regional and in the Southeast, we had to create relationships to extend our reach. We became NNI experts." Currently, Intermedia has more than 700 NNIs, which reach 95 percent of the population, Geiger says.

Analysts believe that Intermedia is in a unique position to provide Bell companies data transport services because it has local networks in the top 35 markets in addition to its national data network. "The fact that Bell Atlantic signed this deal with Intermedia even after announcing its merger with GTE (which has its own national fiber backbone and Internet/data business) speaks volumes about the value of Intermedia's network assets and business skill sets," said James Henry, associate director at Bear, Stearns & Co. Inc., in a recent research report.

Revamp Collocation Regs, CompTel Says

By Kim Sunderland

To further competition in the local market, collocation must be uncaged and reformed, according to a new white paper by the Competitive Telecommuni-cations Association (CompTel).

Requiring that the equipment of competitive local exchange carriers (CLECs) be installed in cages in the central offices (COs) of incumbent LECs (ILECs) is an antiquated method of collocation that should be re-examined, CompTel says.

The collocation arrangements now offered by the ILECs are "complex, costly and slow to provision primarily because of the ILECs' insistence on isolating each entrant to its own dedicated and caged environment," CompTel says.

"The time has come for a change," CompTel President Russell Frisby said during a conference call with reporters Sept. 24. And "this paper attempts to put forth solutions."

The ultimate solution, CompTel suggests in its paper, would be to eliminate the cage requirement, a decade-old rule implemented by many state regulators and backed by the Federal Communications Commission (FCC), and make "cageless collocation" a standard physical collocation arrangement.

This in turn would speed up collocation and reduce CLECs' costs, CompTel says, adding, "uncaged collocation space can accommodate far more collocation customers than a caged environment."

The association recommends that regulators consider two forms of cageless collocation: shared space collocation, which would establish a shared area dedicated to the collocation of CLEC equipment, and common space collocation, which would allow new entrants to collocate their equipment within the same conditioned space as the ILEC, "separated by only whatever delineation [is] needed to establish a clear demarcation between the ILEC's and CLEC's equipment."

Bell Atlantic Corp. recently proposed offering a "shared space" arrangement in New York, and both US WEST Inc. and BellSouth Corp. allow CLECs to collocate equipment in common areas without cages.

"Regulators should be concerned with the speed, efficiency and utility of collocation because it will determine the choices and prices paid by consumers," according to CompTel's paper.

And either cageless option, CompTel adds, should result in lower costs associated with construction, paying or training ILEC technicians or ILEC charges. "Most importantly, these options allow the CLEC to remain independent from the ILEC for the quality of service (QoS) as well as the types of services the CLEC provides its customers," CompTel says.

CompTel also recommends regulators set "national consensus practices" for ILECs (see chart on page 14).

Joseph Gillan, a CompTel consultant and co-author of the paper, says "the ILECs should do some systems work [because they] must catch up to the way the rest of the industry operates."

CompTel filed its roughly 40-page white paper Sept. 25 along with its comments on the FCC's notice of proposed rulemaking on high-speed networks. The paper also was released to state regulators and federal lawmakers.

For a copy of "Uncaging Competition: Reforming Collocation for the 21st Century," call CompTel at (202) 296-6650, or visit the organization's website at www.comptel.org.

CompTel's Recommended ILEC Practices

• Improve available space, such as by providing a detailed floor plan of the central office (CO)
• Allow CLECs to purchase caged space in more flexible increments
• Conduct "prerequest" site surveys to identify offices with potential limitations on collocation
• Remove restrictions on equipment type and use
• Remove restrictions preventing shared collocation space
• Reduce the cost and price of providing collocation

Two Bells Toll for ITSP Access Payments
While a Third Joins the NextGen Ring

By Gail Lawyer and Brandy Pfalmer

The Bells are weighing in on both sides when it comes to Internet Protocol (IP) telephony.

After months of loose threats, two Bell operating companies (BOCs) came through on their promises to assess access charges on the long distance traffic carried by IP telephony providers. Within a week of each other, BellSouth Corp. and US WEST Inc. sent letters notifying IP providers and competitive local exchange carriers (CLECs) that they had 60 days to transition their traffic over to the Bell companies' access services.

Meanwhile, Bell Atlantic Corp. announced it will terminate calls from Internet telephony settlements provider ITXC Corp. in IP format beginning later this year in the New York metropo- litan area.

"There is an ironic contrast between the actions of BellSouth and the actions of Bell Atlantic," says Tom Evslin, ITXC chairman and CEO. "BellSouth seems to be saying, 'I have a God-given right to collect a toll on all of this traffic; whether I add any value or not, whether the marketplace accepts my toll or not.'"

Industry analysts, IP telephony providers and CLECs question the motives behind BellSouth's and US WEST's recent moves relating to access charges, since revenue from IP long distance is barely a blip on the radar screen. Of BellSouth's $4 billion in annual revenue from access, it's estimated that less than $1 million could be derived from IP long distance providers, says Jonathan Haller, principal analyst at Current Analysis Inc. "BellSouth is executing its regulatory strategy to make life as difficult as possible for the Internet service providers (ISPs) and CLECs. And they're trying to force the Federal Communication Commission's (FCC's) hand in defining an 'integrated service provider,'" Haller adds. US WEST--not known as a leader in the regulatory arena--is riding on its Bell brethren's coattails, he suspects.

The Bell companies, though, may be running scared of the potential growth of the nascent IP telephony industry, suggest some competitors. For instance, US WEST cites studies that show about 13 percent of all toll traffic will be provided over IP networks by 2000.

IP telephony providers and CLECs alike are already strapping on their gloves to fight the plan. They say there are no rules from the FCC that require IP long distance service to be subject to access charges.

"The Bells are pulling out a public policy position," says Cindy Schonhaut, senior vice president of government and external affairs at ICG Netcom, a CLEC that just introduced a 5.9 cent-a-minute IP long distance offering. "They're trying to goad one of us into a lawsuit."

The reason for assessing access charges, says BellSouth, is that it does not consider these long distance over IP services to qualify under the FCC's definition of "information services." "Long distance communications completed [via the Internet or IP technology] do not have the characteristics of 'information services.' Instead, they have the characteristics of telecommunications services," BellSouth said in a letter posted on its website that it reportedly sent to an IP telephony company and five CLECs that have IP telephony customers in the BellSouth region. The telco would not name the companies it contacted.

BellSouth and US WEST's formal plans come after initially suggesting this spring that they were going to start charging IP telephony providers for access to their local network, just as they do traditional circuit-switched long distance companies. Those comments were made as the FCC submitted its April 10 report to Congress on access charges and universal service reform issues. The FCC's report, however, did not specifically say that IP telephony providers are subject to access charges. The report did note that some phone-to-phone IP long distance services bear the characteristics of telecom service. But the FCC said in absence of a full record on the topic, it would make decisions on a case-by-case basis if the issue was put before the commission.

The six providers cited by BellSouth will have until early this month to transition their traffic to the telco's access services from local exchange services, says Ernest Bush, BellSouth's vice president of federal regulatory. If carriers do not respond, then BellSouth will send out another letter indicating that 60 days from that point the telco will begin measuring each IP telephony provider's usage and begin sending out bills. "There won't be service disconnection," Bush says. BellSouth likely will seek collection through court action, he adds.

US WEST sent letters to 10 IP telephony providers, which it would not identify. The telco will be working with those companies through mid-November to transition their traffic to access services. If it doesn't receive cooperation, US WEST will examine its legal options, says Kenneth Gitten, director of switched services at US WEST. "But our first choice is negotiation," he adds. New IP providers in US WEST territory shouldn't expect to be able to receive the telco's local exchange service. "We won't fill any new orders for local exchange service," Gitten says. "We don't plan to sell them something they shouldn't have. They should be purchasing access services."

Small Carriers Aim to Build Internet Peering Group

By Gail Lawyer

Trying to meet the private peering requirements set by large Internet network providers is something akin to shooting at a moving target while blindfolded, say smaller carriers. And using the public Internet peering points is no bargain either. Those sites are congested by multiple users and can cause service quality to degrade, carriers say. But now there are some long-haul network operators and competitive local exchange carriers (CLECs) that are seeking to reroute traffic from public peering sites and, in the process, increase service quality and reliability through brokered private peering agreements.

Eight companies banded together early this year to create the Brokered Private Peering Group (BPPG), a non-profit organization that will create and maintain private peering points. The founders include e.spire Communications Inc., Electric Lightwave Inc., Epoch Networks, Exodus Communi-cations Inc., ICG Communications subsidiary Netcom On-line Com-munications Services Inc., Savvis Communications Corp., Williams Communications Group and WinStar GoodNet. Several other carriers and equipment vendors also have expressed interest in being part of the BPPG, says Matt Bross, chief technology officer and staff vice president at Williams. By the first quarter of 1999, the group hopes to have set up nine regional peering points across the United States to offload traffic from the nation's existing network access points. Currently, the carriers are working out the details of governing the non-profit group and how to raise the seed money to start the organization. The initial investment for the private peering consortium will be about $20 million to $30 million, says Anurag Lal, vice president of data & Internet product management at e.spire.

The BPPG companies believe their plan will break down the barriers now faced by small Internet carriers. These barriers include the varying terms for network ubiquitousness, number of peering locations and technical competencies set by the large backbone providers. In addition, by requiring that carriers peer at the asynchronous transfer mode (ATM) level, the BPPG believes that service quality will be greatly enhanced. "We're blending together the benefits of the public exchange with the benefits of private interconnect," Bross says.

The BPPG isn't the only group bouncing around the concept of private peering. According to Bross, the group is working with other companies that had separate, but similar, plans to see if they can arrive at an end result that suits all interested parties.

Having peering points that support quality of service (QoS), via ATM technology, across networks is essential for companies that want to offer their customers premium Internet protocol and virtual private network (VPN) services, says Melanie Posey, research manager with International Data Corp. "It's just business survival for them," she adds. "This is a way for them to avoid the public points and paying lots of money to UUNet."

"The move to a professional, internally managed infrastructure is great," says Joel Maloff, principal at consultancy Maloff Group International and chief operating officer at the Internet Operations Center. However, many industry watchers believe that the success of the BPPG depends on whether it can gain acceptance as well as peering status from the large Internet backbone providers, such as WorldCom Inc. subsidiary UUNet Technologies Inc. and Sprint Communications Co. Efforts are under way to discuss the peering relationship with UUNet, say BPPG members.

NEWS BRIEFS

Ameritech Corp.'s and US WEST Inc.'s business agreements with Internet protocol (IP)-based telephony provider Qwest Communications International Inc. are unlawful, the Federal Communications Commission (FCC) has ruled. Under terms of those agreements, the Bell operating companies (BOCs) had offered their local customers packaged local calling and Qwest-brand long distance services. But when competitors complained that the BOCs hadn't received the FCC's authorization to provide in-region long distance services, the deals were suspended pending an FCC review.

Beginning next year, customers will be able to purchase asymmetrical digital subscriber line (ADSL) services from SBC Communications Inc. along with Dell Computer Corp.'s Dimension desktop personal computers (PCs) with ADSL modems through a single transaction with Dell. SBC's Pacific Bell business now offers ADSL to customers throughout California.

Frontier Corp. is building a network management system that will enable customers to manage their own traffic on the Frontier Optronics Network from any web browser. With the rollout of Frontier's network service architecture by second quarter 1999, customers will be able to provision bandwidth as needed.

EUnet International B.V., a Qwest Communications International Inc. subsidiary, has launched EUnet Multimedia Network Services (EMNS), the first pan-European Internet broadcasting network. EUnetLive and EunetOnDemand enable corporate customers in Europe to broadcast video, data and voice to a global audience.

Williams Communications Solutions will distribute MCK's remote access EXTender systems. EXTender provides access to the complete feature set of a corporate private branch exchange (PBX) or key system and data network.

DIGEX, the Internet service provider (ISP) business of Intermedia Communications Inc., has released a new performance monitoring tool called NetScanner QoS. It allows customers to monitor the performance and use of their Intermedia/DIGEX connection, inclusive of their local loop. If packet delivery rates are not at least 90 percent, customers can apply online for credits.

WinStar Communications Inc. has completed the integration of its voice and data networks as part of the nationwide deployment of its facilities-based telecommunications services. It has collocated data switches, which provide asynchronous transfer mode (ATM) and frame relay as well as Internet connectivity, in each market where it has a Lucent Class 4/5ESS-2000 voice switch.

After several delays, this month should bring the long-awaited debut of Iridium LLC's $5 billion global satellite telephone service. Meanwhile, Globalstar Telecommunications Ltd. has pushed back plans to begin its commercial service to third quarter 1999 due to the failed launch of 12 satellites.

Share this article: Email, Slashdot, Digg, Del.icio.us, Yahoo!MyWeb, Windows Live Favorites, Furl
Add this article feed to: RSS, My Yahoo, Newsgator, Bloglines