Key FCC broadband rules expected soon

In February, the FCC released a bare outline of its vision for the future of the high-speed Net market, as part of a sweeping review of regulations governing competition across the phone industry. Exposing deep-seated divisions within the agency, commissioners split on a host of issues, leaving many companies unsure exactly what was coming.

On Monday, Commission Chairman Michael Powell at last indicated that the details of the decision would likely come this week, possibly Thursday. But even if every company in the business is eagerly awaiting the results, analysts say the market certainty that most crave will likely remain elusive.

"The folks who are really salivating over the final wording are all the regulatory lawyers," said Joe Laszlo, a telecommunications analyst for Jupiter Research. "On both sides the lawyers are raring to go as soon as they can figure out which parts of the order can be challenged."

At stake are network upgrade and investment plans that could affect billions of dollars in capital spending by both cable companies and the Baby Bells. With little certainty about how the rules are written, or how susceptible they will be to legal challenge, companies have varied widely in making plans for the future during the six-month wait.

Verizon Communications has already made plans to seed much of its existing network with fiber-optic connections, potentially dramatically increasing the speeds of Net services. But those plans are contingent on the rules being released this week or soon afterwards falling in line with the company's expectations, executives said.

"We're in the planning stage," said Susanne Geyer, Verizon's senior vice president for regulatory affairs. "We have made a number of business decisions, but those were premised on what that order says."

SBC Communications, by contrast, says it's been holding back on DSL investments until it sees the order. The company has given no specifics on what its plans might be.

"In general, we plan to move forward; we want to move forward," SBC spokesman Dave Pacholczyk said. "We want to have rules in place to let us do that."

Covad, one of the last remaining independent providers of DSL service, and much smaller, has already seen its business model change somewhat, even before seeing the final version of the order. Because the Bells will no longer be required to give the company access to "line sharing" provisions, it is turning to alternative local phone providers such as AT&T and Sprint in order to pursue its service.

Those and other companies' rights to lease local telephone lines are being upheld by the FCC, and most major markets have alternative phone companies in one form or another, Covad executives said.

"It hasn't changed our strategy as much as it has accelerated it," said Patrick Bennett, executive vice president at Covad. "We've always had in our game plan that we would move more to (working with alternative phone companies) and rely less on line sharing."

Triennial Review
The order in question is the FCC's Triennial Review, one of the largest components of a sweeping re-evaluation of much of the body's telecommunication regulations, in part aimed at spurring advances in broadband and other future technologies.

The proposed changes encompass a host of regulatory arcana, but the most controversial aspects can essentially be boiled down to deciding how much the big local telephone companies will be forced to share their networks--both voice and Internet--with potential rivals.

The former Baby Bell phone companies have long argued that they are regulated far more strictly than are cable companies, which are now ahead in offering high-speed Internet service in the United States and are beginning to move more aggressively into voice services. If phone companies are to invest more heavily in faster Net connections, and in bringing DSL connections to more regions, the regulatory playing field has to be leveled, they contend.

But what the Bells want is a broad change in rules forcing them to sell potential competitors such as AT&T or Covad wholesale access to their telephone lines and DSL service. Those companies, as well as consumer groups, say that giving the Bells what they want would reduce competition, potentially eliminating downward pressure on prices.

The February vote on a broad assortment of related issues found the FCC badly split on how these questions should be resolved. Chairman Powell had publicly said his intention was to reduce regulation facing the Bell companies significantly. But other commissioners disagreed sharply.

The final decision, as released in outline by the commission, fell somewhere in the middle. The big local phone companies will still be required to lease portions of their networks to competitors who want to offer phone and DSL service. But some existing rules, such as those regulating line sharing--a way of sharing telephone lines between companies that allowed contenders like Covad to offer cheaper DSL--will be eliminated.

Under the outline, the local phone companies were given broader powers over new, faster broadband technologies such as fiber-optic lines. In hopes of persuading the large companies to invest more in those modern technologies, the commission said that they would not have to share access to those lines with any rivals.

All of those decisions, and a host of related ones more finely targeted to voice services, remain sketchy until the actual rules are seen, however. An FCC spokesman declined to say exactly when the final details were expected.

The final rules will be closely scrutinized by all of these players, almost certainly taken to court by one or both sides, and examined by a Congress that has been bitterly critical of much of the FCC's recent action, analysts said.

In the end, the final results will probably come out somewhere in the middle, strengthening the phone companies' hands, which may help them increase the speed of their investment somewhat.

"Less competition is almost always a bad thing," Jupiter's Lazslo said. "But I'm more optimistic than I was in February. There still might be enough competition between cable and phone companies to provide some benefits for consumers."