AT&T chief challenges shifts at FCC, Capitol Hill

WASHINGTON--AT&T Chief Executive C. Michael Armstrong came to Washington on Wednesday and played the spoiler.

On the fifth anniversary of the passage of the Telecom Act, AT&T's chief executive dismissed the increasing number of senators and congressmen who would like to reopen the legislation, particularly to aid Baby Bell companies like SBC Communications in their efforts to provide long-distance data services.

Armstrong's appearance here may have served as an initial shot across the bow of those who would like to refashion or further deregulate the telecommunications industry. AT&T's primary foes have long been the Baby Bells that were once under its wing, since they operate as quasi monopolies in the local phone business. It is no surprise Armstrong took his arguments to the capitol.

"Pure and simple, we are being pushed out of the (local phone) market by the inflated prices the Bells are charging" AT&T to interconnect to their networks, Armstrong said.

He also called on the Federal Communications Commission to be more aggressive in enforcing regulations on Baby Bell companies, a day after the FCC's new chairman, Michael Powell, hinted he'd like to see that industry further deregulated.

Armstrong's speech to a packed gallery of reporters and lobbyists at the Washington Press Club served as a significant statement by the head of one of the country's largest telecommunications companies that, despite regulation, competition in the local phone and high-speed Internet markets has not arrived. He even left his audience with a threat as to what could happen if the Bells are not dealt with more severely.

"If nothing changes, we will be forced to shut down our local phone service business in New York and Texas," two states where Bells have been granted long-distance entry, he said.

When wholesale rates charged to AT&T are as much as three times higher than the retail rates the Bells are charging customers, "we lose money...And we cannot continue to lose money to force competition. We can't afford that, and nobody in the industry can afford that."

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While much of Armstrong's speech focused on the now-ancient debate of local phone competition, he also noted that Bells now control 75 percent of the DSL (digital subscriber line) market. Pointing to faltering companies such as Covad Communications and Northpoint Communications, Armstrong said other companies have tried to compete head-to-head with the "monopolist" Bells, and now "many of them are flat on their financial backs."

"This all would be ludicrous if it weren't so scary," Armstrong said. "The Bells' monopoly power throws a dark shadow over the entire telecom industry."

Still, Armstrong played politics, saying he had a good relationship with the FCC and "I don't mean to blame them" for the lack of competition in the local phone and DSL markets.

But the answer doesn't rest just in more aggressive enforcement of pricing and interconnection regulations for Bells, he said. No, the other half of the puzzle is lifting regulations on "companies that would compete against them--like the cable companies," of which AT&T recently bought two.

Armstrong repeatedly called for the removal of the "outdated regulatory cap" that prohibits cable operators from having an interest in cable systems serving more than 30 percent of the U.S. homes. He argued that if that were lifted, AT&T could offer more cable-modem and cable-phone service to consumers, increasing broadband and phone competition.

Last fall, AT&T General Counsel Jim Cicconi walked many a congressional hallway in an eventually futile attempt to have that cap overturned by Congress. Asked after Armstrong's speech if he would be making the rounds again on that issue, he said "I wouldn't assume that."

Cicconi pointed to Powell's discussion with reporters Tuesday, where he said that in general he is opposed to "prophylactic ownership restrictions" such as the cable ownership cap. Powell hinted that the FCC might do away with that cap, as well as ones on broadcasters and wireless spectrum owners.

"We have bigger fish to fry on the Hill," Cicconi said, referring to efforts by the top members of the House Commerce Committee to reintroduce legislation to allow Bells to enter the long-distance market with data services.

"A lack of high-speed broadband services in this country is now threatening to stifle e-commerce and our New Age economy," Rep. Bill Tauzin, R-La., said Wednesday. He said he aims to remove "regulatory roadblocks" not taken out with the Telecom Act five years ago.

Asked how AT&T can call for more open Bell networks when AT&T still has its cable systems closed to competing ISPs (Internet service providers), Armstrong said that when AT&T's exclusive contracts with Excite@Home and Road Runner expire next year "we are going to invite all the content providers we can find."

AT&T "won't be doing that to appeal to Washington," he said. "We're doing that for self-interest and greed. We want the highest network traffic we can."

Armstrong said the Boulder, Colo., test of eight ISPs with 300 AT&T cable customers is going well, and the company plans to start a new trial in Boston this June with "tens of thousands" of consumers.