Worst of 2007: FCC Favoritism

The 109^th Congress, in 2005 to 2006, was a bust for the Bells. They lobbied hard for a rewrite of the 1996 Telecom Act and didn’t get one. They did, however, get a double whammy when Democrats took over the House and Senate. And with that, it was obvious the chances of a Bell-friendly rewrite had evaporated.

But the Bells didn’t give up — they just changed tactics.

In 2007, they took their quest for deregulation to the one agency with the power to change the rules: the FCC. And with its 3-2 Republican majority, the commission didn’t disappoint. Early in the year, the FCC overruled local municipalities’ authority when it said franchising authorities can’t unreasonably refuse to award competitive cable franchises. It also deemed broadband wireless an information service. Among other things, that means providers don’t have to share their networks with competitors. (The FCC already has redefined cable, DSL and broadband over powerline as information services, instead of telecommunications services.)

Then the FCC said it would look into whether it should regulate net neutrality. All signs indicate that Chairman Kevin Martin doesn’t think there should be net neutrality oversight, but the nearly 30,000 public comments could change his mind. The FCC has not indicated what it will do next or when, in terms of net neutrality. Of note, though, is that Martin did agree to open one block of the 700MHz spectrum (set for auction in January) to open access obligations. The provision emulates the Carterfone decision of the late 1960s, when the government freed consumers from having to rent phones from Ma Bell.

Next, things really heated up as the Bells ramped up copper loop retirement notices in an apparent rush to beat the clock in case the FCC institutes a stringent review process. CLECs view the retirements as attempts to foil competition; they use the loops to deliver DSL, Ethernet and other services to customers. Again, the FCC only has taken comments on the copper loop retirement matter and hasn’t stated where it stands or how it might vote.

Finally, forbearance petitions remained one of the most controversial issues throughout the year. The FCC has set a precedent for approving Bell requests for regulatory relief on broadband services and, despite Qwest Communications International Inc. re-filing one of its requests because it couldn’t get approval by the 11^th hour, seemed willing to continue the trend. Indeed, the agency gave AT&T Inc. an early Christmas present when it partially granted the carrier’s petition for forbearance from rules governing its commercial broadband services. Of greatest concern to CLECs? AT&T now can price its commercial broadband services as it sees fit and not share those rates with providers using its networks. On the other hand, the FCC did establish a complaints process, presumably to appease competitive carriers that contested AT&T’s petition. The commission said any complaint made against AT&T would have to be resolved within five months. The carrier also must continue supporting public policy initiatives such as E911 and CALEA.

There are two other key Bell petitions pending at the FCC. Verizon Communications Inc. wants relief in Boston, New York, Philadelphia, Pittsburgh, Providence, R.I., and Virginia Beach, Va. The nation’s second-largest phone company has cited the FCC’s approval for Qwest in Omaha as a template for its request. Qwest also has petitions for forbearance pending in Denver, Minneapolis/St. Paul, Phoenix and Seattle.

“Qwest used forbearance to undermine competition in Omaha, and now Verizon and Qwest are using the same tactic in major markets throughout the nation,” William Haas, vice president and deputy general counsel for McLeodUSA Inc., told xchange earlier this year.

The incumbents maintain that forbearance is warranted because they face intense competition from cable, VoIP and even CLEC providers in their biggest markets. The FCC was slated to decide on Verizon’s petition in early December.

The docket for the coming year promises to be just as busy, if not more so, than 2007. Given its track record this year, the FCC appears inclined to keep siding with the incumbents. But, next November could mark a watershed. If a Democrat wins the presidency, all bets are off. Democrats would take over at the commission and who knows what deregulatory decisions they’d reverse.

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