FCCs advanced telecom inquiry another tug-of-war

FCC`s advanced telecom inquiry another tug-of-war

The FCC`s inquiry is buffeted by last-minute winds, where a former White House deputy counsel argues for a 1- to 10-Mbit/sec communications standard while a powerful senator endorses xDSL technology.

By Stephen N. Brown

When the Telecommunications Act became law in February 1996, it included an instruction to the FCC that within "30 months and regularly thereafter" the agency hold hearings and determine "whether advanced telecommunications is being deployed to all Americans in a reasonable and timely fashion." That instruction is carried in Section 706, the Advanced Telecommunications Incentives portion of the Telecom Act. The law further says, "If the Commission`s determination is negative, it shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market."

The FCC began hearings last August but ended the inquiry by deciding the issue in the affirmative by a unanimous vote on Jan. 28. The commission telegraphed its conclusion well before its final decision was due. FCC Chairman William Kennard alluded to the commission`s decision when he told a group of reporters in early January that "the pace of change for advanced telecommunications in the marketplace will be even quicker in 1999 than in 1998." This statement clearly implied that the "pace of change" was neither unreasonable nor untimely. The commission`s intent was so predictable that it provoked an effort by outside parties to get the FCC to reconsider its position. One effort focused on high-speed communications normally associated with fiber optics while another effort focused on xDSL technology.

The "high-speed" effort took the form of a report by Wallman Strategic Consulting (Washington, DC). Authored by Kathleen Wallman, a former deputy assistant and deputy counsel to President Clinton, the report told the commission, "Advanced telecommunications capability that meets the definition and intent of Section 706 is not being deployed in a reasonable and timely fashion, and the Commission should...articulate a standard that will obtain for the public dramatic increases in speed and quality of transmission, not the smaller improvements that have become the focus of the debate." Any other decision "risks giving up too much too soon for too little," said Wallman. She also made a recommendation that should lift the hearts of fiber-optic enthusiasts: "The minimum profile that meets Congress` Section 706 goal of robust, high-speed, bidirectional transmission, [is] transmission...at the rate of 1 to 10 Mbits/sec over a sustained period of time."

Anticipating that critics of high-speed communications would complain it is too expensive, the report says, "If equipment to provide capability [at]...1 to10 Mbits/sec bidirectionally can be deployed at approximately the same cost as equipment capable of providing narrowband voice (56 kbits/sec), then the advanced telecommunication capability, which is at least 20 times faster, is priced at reasonable cost." Wallman agreed that if even higher-speed equipment could be deployed for the same cost as narrowband equipment, then such high-speed equipment should be considered as being priced at reasonable cost. This logic is a clear rationale for an infrastructure rebuild; the very highest-speed equipment should be deployed if its price is the same or less than narrowband equipment.

This sounds like the report endorsed fiber-optic technology, but even though the author says the report "was written in the course of consulting work with Corning," Wallman backs away from an endorsement, saying the report "is not intended to be fiber-centric." But the report also says, "Any version of xDSL that meets the definition of advanced telecommunications capability [1 to 10 Mbits/sec] cannot be deployed to all Americans in their homes without a major investment to upgrade the local loop, an investment that few companies appear willing to make under current conditions."

The report suggests that the "current conditions" could be improved if the FCC "identif[ied] incentives and deregulatory changes that...could...aid" deployment of advanced capability. The most prominent federal regulation that local companies would like to undo is the so-called competitive checklist that must be met before a local company can enter the long-distance market. More than one year ago, BellSouth and other local phone companies challenged Section 271 of the Act as unconstitutional. They lost their case in a lower federal court, and the Supreme Court refused to hear their appeal.

The long-distance voice services market looks less and less like an incentive for the local companies. Long-distance rates from many providers are well under 10 cents a minute and dropping; thus, the potential profit margin for the local companies is far less now than it was two and three years ago. xDSL data services are the new frontier. At least one local company, US West, has said it sees long-distance entry as a necessary condition for expanding DSL data services (see Lightwave, October 1998, page 12).

The link between xDSL services and long-distance entry was taken up again by Senator Conrad Burns (R--Montana) in his letter to the FCC. The senator, the second-ranking member of the Senate Commerce Committee, told the agency, "I urge the commission to make a negative determination in the...inquiry." If that determination were made, then by law the remedy is to "remov[e] barriers to infrastructure investment." According to the letter, the barrier was the agency`s "deplorable error in requiring the [local companies] to provide advanced services through a separate subsidiary" rather than allowing the companies to provide the services through their existing corporate structure. Burns went on to say, "I fear that such a requirement...will limit the deployment of xDSL exclusively to businesses and high-income households....Most Americans will be left behind. There is absolutely no need for regulation."

Burns` remarks were criticized by the Information Technology Association of America, a trade group of Internet service providers, who said that while the senator "has established a laudable record on...most high-tech issues...Section 706 should not be used as a Trojan horse to gut the pro-competitive requirements [Section 271] of the Act." Burns` point might have been more persuasive if the companies had shown they were being harmed by the FCC, but that does not appear to be the case. In May 1995, BellSouth`s stock price was about $55 a share. It split 2 to 1 in November 1995 and then split 2 to 1 again in December 1998. In less than four years, the stockholders have enjoyed a return of almost 300%, without the company gaining entry to the long-distance market and without deploying much advanced capability. The stock price has increased so rapidly that it is difficult to imagine how the company could be made more profitable by further deregulation.

The stock price`s rapid increase could reflect the notion that there is little competition in the local company`s market. This possibility is clearly considered by Section 706`s language, which says that if advanced telecommunications is not being reasonably and timely deployed, then the FCC must "accelerate deployment...by promoting competition in the telecommunications market." Thus far, the agency has rejected all local companies` petitions to enter the long-distance market because they have not met all the conditions on the competitive checklist of Section 271. Moreover, FCC Chairman Kennard`s 1999 agenda includes several goals, one of which says, "Allow the Regional Bell Operating Companies into the long-distance market when they have opened their own local markets to competition, as required by law."

National policy is again going through contortions: According to the FCC, local markets are not yet open to com petition. But advanced communications services are being timely deployed; if they were not, then the FCC would have to take steps to reduce barriers to infrastructure investment and promote competition. In the meantime, at least one senator sees advanced services primarily in terms of xDSL technology and cable modems--not in the speeds recommended by Wallman, who described the FCC`s Jan. 28 decision as an "aggressively optimistic view of the future." She is right because neither the telephone nor cable industries are contemplating 10 Mbits/sec as a standard or even occasional bidirectional service speed for ordinary users. The commission has the option of revisiting these issues again, but if in the face of such huge contradictions it concludes advanced telecommunications is being timely deployed, then apparently such capability always has been and always will be timely deployed. q

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