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FCC broadband proposal draws criticism

As federal regulators prepare to issue new rules governing high-speed Internet access, AT&T and MCI WorldCom warn a pending proposal could dry up investment in voice systems.

As federal regulators prepare to issue new rules governing high-speed Internet access, AT&T and MCI WorldCom are warning that a pending proposal could dry up investment in voice systems.

The Federal Communications Commission has proposed that Bell companies, such as SBC Communications and Bell Atlantic, be allowed to offer high-speed Internet access to consumers and businesses through separate subsidiaries, or else be forced to "unbundle" their high-speed lines and lease them to competitors. The commission has said it hopes to stimulate investment in broadband technologies by deregulating the Baby Bell subsidiaries.

But late last week, AT&T, MCI WorldCom, Qwest, and the Competitive Telecommunications Association sent a letter to state utility regulators, apparently in an attempt to enlist their help in opposing the FCC proposal.

In that letter, the long distance companies warned that allowing the Baby Bells to set up new less-regulated subsidiaries to handle the data and Internet business could drain investment out of the existing networks.

"The FCC proposal creates affirmative incentives to cannibalize the old [company] by migrating activity into the new [subsidiary]," the long distance coalition wrote.

Since the new "advanced services" subsidiaries would not be as tightly regulated, the Bell companies could "freeze or eliminate" their old services in favor of the new companies, the coalition added. If this happened, state regulators could be left with little power to control the Bells' actions in traditional telephone service, the long distance companies warned.

According to officials of the National Association of State Regulatory Commissioners, the letter mirrored some state concerns already expressed to the FCC.

"These concerns are not necessarily fatal to approval of the FCC proposal," said Bob Rowe, a Montana state public service commissioner and chairman of the NARUC Communications committee. "But we intend to ask the FCC to make a detailed response to the issues [the letter] raises."

But the Bell companies dismissed the notion that they would drain their existing companies of investment capital to fund new data subsidiaries.

"We have a tremendous investment in copper lines, and in our physical plant," said David Schlosser, a spokesman for SBC Communications. "We can't abandon our customers by transferring assets into unregulated subsidiaries."

If the Bells wanted to move assets to less-regulated businesses, they could have done so with their wireless divisions, Schlosser noted. But this has not happened, he said.

SBC, along with most of the other big local phone companies, joined with a coalition of computer companies last month to lobby the FCC to allow them to set up the separate data subsidiaries to offer high-speed Internet access without giving discounted line access to their competitors.

Despite the uncertainty ahead, few of the Baby Bells have waited for regulators to make the decision before going ahead with their high-speed Internet plans.

SBC Communications announced broad plans Tuesday to accelerate rollout of DSL services in California and in its 5-state Southwestern Bell territories. The company also announced new pricing for the service in a move targeted at breaking into the home market, analysts said.

Bell Atlantic and America Online said yesterday they would work together to bring DSL service to many AOL subscribers on the East Coast, starting next summer. US West also has said it is stepping up its DSL rollout plans this year.

The FCC is expected to make its final decision on its proposal January 28. Telephone companies have identified this as one of the biggest issues facing them this year, as the rules will determine how they will be able to compete in the high-speed Internet access market.