Source: FCC to dress 'naked' DSL

Agency is expected to up-end rules that force BellSouth to unbundle its DSL service from its phone service, a source tells News.com.

U.S. regulators are expected to up-end state public utility rules that force BellSouth to let customers buy its high-speed Internet service without having to also sign up for its local phone offering.

As early as Monday, said a source familiar with the situation, the Federal Communications Commission could suspend public utility commission regulations in California, Florida, Georgia, Kentucky and Louisiana that forced BellSouth to sell DSL, or digital subscriber line, service separate from its local phone service. In the past, the two services had been inextricably linked.


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Such a decision would send a strong message to other state utility commissions that might be considering similar rules, the source said.

The expected FCC decision would have a profound effect on the few thousand people in the four states who now get "naked" DSL from BellSouth. It would also affect the millions of homeowners who would go with a separate DSL offering given the chance, insiders believe. The possible precedent for the Bells--BellSouth and the nation's three other top phone and DSL providers--could even affect cable operators that sell broadband and telephony on fiber-optic networks, services that are much faster than the Bells' DSL.

Among other things, BellSouth and its supporters have warned of the possibility of slightly different naked DSL rules in all 50 states, which would slow broadband growth in the United States and undermine BellSouth's incentive to invest in the service and the underlying network. BellSouth also points out in FCC filings that some states have opposed naked DSL rules.

Proponents of the state rule believe naked DSL keeps the Bells in check, competition thriving and broadband prices under control.

Naked DSL "protects the ability of consumers to make choices about their local service provider," Alabama utility regulators wrote to the FCC, in support of the state rules. "Contrary to BellSouth's claim, the state commission orders are protecting their local customers' rights to choice among local voice carriers."

A BellSouth representative said any decision would affect the 8,000 people who have purchased naked DSL from BellSouth since 2002, when the first of the naked DSL rules went into place. The representative offered no further comment on any possible decision.

The Bells are mixed on naked DSL. Qwest has been selling naked DSL for months. Verizon Communications has said in the past that it intends to voluntarily sell a DSL-only service, but its self-imposed deadline has passed and there's still no offering. "In the past, we have always provided DSL with a phone number," Verizon Chief Executive Ivan Seidenberg recent told the Senate Judiciary committee. "That?s the way we provide service. In the future, we are in the process of working through the mechanics of offering a DSL line without a phone number."

In its ruling, the FCC is expected to claim sole jurisdiction over DSL, leaving state public utility commissions to fill the role of consumer advocate, the source said. The FCC is also expected to rule that BellSouth isn't required to provide its competitors with wholesale or retail broadband services on a standalone basis, or as part of phone service the companies buy using FCC rules known as unbundled network elements, or UNE. Under the UNE rules, the FCC, and not BellSouth, sets the rates in order to keep the four Bells' networks open to competitors.

Aside from users of naked DSL services, an FCC decision would also affect "cord-cutters," a group of about 20 million U.S. residents who don't have local phone lines and go solo instead with their cell phones. As a result of the possible FCC ruling, cord-cutters would have to buy a local phone line in order to get DSL.

Providers of voice over Internet Protocol, or VoIP, software, which lets an Internet connection serve as a telephone line, will also feel some pain, for the same reason as cord-cutters. VoIP calls are meant to replace the Bells' phone lines; and while they're possible with a dial-up connection, most VoIP operators require a broadband connection in order to make full use of their offerings. As a result of an FCC ruling, some VoIPers would get DSL and a local phone line from a Bell, should a cable operator's more expensive broadband be unavailable in their area.

VoIP operators don't need to build a network of connections to every home. Rather, as in the case of top U.S. commercial VoIP provider Vonage, they need only require that subscribers bring their own broadband service. It's this class of VoIP provider--those that don't own facilities--that are expected to feel the deepest effect from the decision.

"Standalone broadband, one could argue, may be a necessary prerequisite for independent, non-facilities-based VoIP providers to provide any competitive pressure on landline local service prices," argues James Ramsay of the National Association of Regulatory Utility Commissioners.

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