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Verizon blames federal rules for broadband holdup

Company is holding back high-speed fiber service out of fear that it will have to lease the links to rivals at below its own cost.

Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
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Declan McCullagh
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ASPEN, Colo.--Verizon Communications would like to wire tens of millions of homes in the northeast United States with high-speed fiber connections but is being stymied by arcane federal regulations, the company's president said Tuesday.

Lawrence Babbio, Verizon's vice chairman and president, said its 30 megabits-per-second Fios service went live in Keller, Texas, on Monday and will be available to more than 1 million homes by the end of the year. But the Federal Communications Commission is effectively preventing Verizon from offering Fios in a long swath of states, stretching from Maine to Virginia, Babbio warned.

"We absolutely have to let the market work," Babbio said at a conference here, organized by the Progress & Freedom Foundation. "The FCC hasn't done their job for the last eight years."

At issue is the interaction between the 1996 Telecommunications Act and a dense series of FCC decisions. If Verizon spends billions of dollars to run fiber to homes in the northeast United States, it could be forced to make those fiber links available to rivals at below its own cost--a money-losing prospect that is preventing the company from offering Fios in those states and the District of Columbia.

The explanation lies in a fluke of history: Verizon grew out of the combination of GTE, Bell Atlantic and Nynex. Because GTE is not a former Bell company, the areas it used to serve--including California, Florida and Texas--aren't covered by a heap of obscure regulations.

But the old Bell Atlantic and Nynex territories in the northeast are subject to different rules. That's why Verizon is offering Fios only in California, Florida and Texas. "We cannot run the risk of having fiber unbundled," Babbio said, referring to the Telecommunications Act's requirements that Verizon offer deeply discounted "unbundled" access to its fiber loops.

Even given those limitations, Babbio predicted, 2.5 million homes will have Fios available by 2005, with the number "possibly going to 3 (million) to 4 million."

Babbio also said Verizon is keenly interested in offering "a video channel to the home" that, when combined with Fios, could be a "turning point for our own businesses."

The FCC already has voted 3-2, with the pair of Democrats objecting, to immunize fiber from many regulatory burdens levied by one section of the Telecom Act. But because of a regulatory twist, another section is giving Verizon headaches--and the FCC has not acted to clear things up.

"While the FCC did agree to not apply the unbundling regulations to new fiber in a decision last summer under one section of the communications act, perhaps the new fiber nevertheless would have to be unbundled under a different section of the communications act," said Randolph May, a senior fellow at the Progress & Freedom Foundation. "In effect, one positive decision was partially negated by the lack of a clear decision on the application of another section."

May added: "It's important that the commission once and for all decide that new investment in fiber should not be unbundled."