FCC loosens broadband rules

The Federal Communications Commission on Thursday backed away from a sweeping overhaul of the telecommunications industry, but new rules for broadband Internet services could raise prices and lead to a new generation of high-speed links.

Read more about broadband

In a 3-2 vote marked by many layers of dissension, the agency handed FCC Chairman Michael Powell a major defeat in his plans to scale back competition rules set up in the 1996 Telecommunications Act. But the chairman won on one important front: the future of broadband.

Thursday's decision will likely have a major impact on providers of high-speed Internet access, particularly digital subscriber line (DSL) services that use the local phone loop. As a result of the vote, the Baby Bells--Verizon Communications, BellSouth, SBC Communications and Qwest Communications International--will not be required to give their rivals both access and discounted rates for broadband facilities such as fiber-optic networks that they might build in the future.

In addition, the Bells will no longer be required to lease high-frequency portions of their copper lines to DSL providers under so-called line-sharing arrangements, a measure that could boost costs for companies that currently rely on such deals.

The decision does not affect cable, satellite or wireless services, which are typically not bound by the kind of facilities-sharing requirements that rule the local phone industry.

Verizon Senior Vice President Tom Tauke said a legal challenge is most likely. "The FCC clearly blew it. This is not a shining moment for good government," he said.

Despite losing on several other fronts, Powell called the broadband decision "a momentous step" that effectively deregulates the broadband industry. Like almost everything else in the FCC's decision, however, the broadband provisions were hotly debated among the commissioners. For example, while Powell supported the FCC's position on future broadband such as fiber networks, he opposed the decision on line-sharing. In addition, although Commissioner Michael J. Copps supported the decision on local phone competition, he voiced a bitter dissent regarding the broadband provisions.

"We are playing fast and loose with the country's broadband future," Copps wrote. "Today we may be choking off competition in broadband. Consumers and the Internet itself may well suffer."

Winners and losers The FCC decision Thursday will impact the broadband market in different ways. DSL: Elimination of line sharing will likely make service from small companies such as Covad more expensive or impractical. Could increase DSL prices. Cable: No direct effects. If DSL becomes more expensive, cable companies could have room to raise their prices. Next-generation broadband: Eliminating local phone companies' requirement to share future networks could prompt faster deployment of fiber-to-the-home connections, along with fiber-based technologies that help bring DSL to rural and suburban areas. Lack of competition on these advanced networks could keep prices high, however.

Covad Communications will likely take the heaviest hit from DSL deregulation, having made a business from it.

"Today the FCC passed on the opportunity to guarantee that broadband competition continues on a level playing field across the country," Covad CEO Charles Hoffman said in a statement.

Others that may be affected include AT&T, which in a statement praised the provisions regarding local phone service but cautioned that it "will look carefully at the order's provisions affecting the offering of DSL service over fiber loops."

AT&T and Worldcom have built some high-speed networks of their own. Those networks, which are serving mainly business customers, are not affected by the decision.

On balance, Thursday's decision offered a mixed result for the Bells, which had lobbied hard for more drastic steps championed by Powell. The Bells will still have to open up their phone lines to local competitors at the steeply discounted rates the current regulations require, giving local phone competitors such as AT&T a boost.

Also, the states will get more clout in deciding whether the Bells should be required to open up their networks, and in what locations. The FCC had been the only agency with the authority to handle requests to offer service in new markets. Under the new rules, state-level public utility commissions will do most of the deciding instead. States had been clamoring in the past few weeks for just such a decision, and insiders believe their push for power helped topple what had seemed an imminent Powell victory.

At the heart of the tussle was the 1996 Telecommunications Act, which handed the FCC broad authority to undertake a set of rules regarding interconnection and open access to the Bell companies' networks. The law says the Bells must provide access at a price that state and federal regulators can reject as unreasonable or not in the public interest. Another phrase for this is Unbundled Network Elements Platform, which allows companies to compete with the Bells by delivering service without laying their own copper or fiber infrastructure.

On one level, the vote represents the tail end of a high-stakes power struggle at the FCC's 12th Street headquarters between lobbyists for companies such as Verizon and SBC that own local telephone networks and a host of rivals such as AT&T and WorldCom that want to connect to them.

Broadband battle The FCC's painstaking internal deliberations also highlight an ideological conflict between two wildly different views of how to keep broadband prices low and competition robust: Should federal regulations be strengthened or rescinded? The FCC's answer will likely determine not only the winners and losers in the broadband race, but also how much consumers will pay for high-speed access, and how the technologies are to be implemented.

The proposal that won the FCC's support was crafted by commissioners Kevin Martin--a Republican appointed by President George W. Bush--and Democrats Michael Copps and Jonathan Adelstein.

"I believe in limited government," Martin wrote of his decision. "I believe that competition--not regulation--is the best method of delivering the benefits of choice, innovation and affordability to consumers."

He also applauded the new power states have in deciding the future of telephone service in their areas. Martin and his supporters argue that federal regulators are too far removed from individual telephone markets to accurately judge whether to enforce the FCC's competition rules.

"We...recognize that competitors face different operational and economic barriers in different markets," Martin wrote.

The vote followed a bitter political tug-of-war that was enough to postpone the decision on the proposal last week, after sharp differences of opinion emerged between two Republican commissioners. The formal name of the process is the FCC's Unbundled Network Element Triennial Review, and it does not cover cable modems, wireless or satellite connections.

The deregulation camp was led by Powell, a Republican who wanted to relax rules that let competitors of companies like Verizon and SBC demand access to the former Bell networks at a relatively low cost. With that access, rivals can sell DSL or voice telephone service and compete with the Bell companies that own the copper and fiber lines.

As recently as the beginning of February, Powell appeared to have secured a majority of commissioners who were prepared to erase the access requirement entirely. But Powell's proposal lost its support in recent weeks, and the deals holding the agreement in place have unraveled, one source familiar with the situation said.

In a statement, Powell said he was disappointed with some elements of the decision, including the requirement that the Bells still keep their networks open to the competition. "Nonetheless, it is the fair result of a democratic institution in which majority rules," he wrote immediately following the decision.

He also warned the public utility commissions that they now have "an enormous task before them, and I sincerely wish them the very best as they struggle through what the FCC could not."

He also said he was going to be "watching" whether local long-distance companies that lobbied so furiously "will now prove their value in the marketplace and actually deliver the local competition, lower prices and more innovative services that they insisted they would if they prevailed."

Reaction to the decision was sharply divided. The Bells lambasted the commission for continuing to regulate long-distance services, while consumer groups and the smaller phone providers said broadband competition will suffer.

AT&T published a statement praising the FCC's decision on local phone service, while remaining cautiously skeptical of the Bells' new freedom in the DSL market.

For consumers, it's a bleak day, according to the Consumer Federation of America. There are about 40 million DSL subscribers now in the United States, and today's decision will likely choke off any future growth, one consumer group said.

"Today's decision will mean higher prices and fewer choices for consumers in high-speed services," said Mark Cooper, Director of Research of the Consumer Federation of America. "The FCC's action today is highly ironic. The rules the Commission adopted preserve competition for 20th century technology while ensuring monopoly for 21st century technologies."

Bellsouth Chairman Duane Ackerman said in a statement that the continued presence of regulations will put at risk the U.S.'s global "telecommunications leadership."

The decision "will choke the flow of new telecom investment and will jeopardize the economic recovery that must eventually be lead, at least in part, by the tech and telecom sectors," Ackerman said.

"It will impose still more regulation on the ailing telecommunications sector, a sector which has seen losses topping $1 trillion in market value, and job losses of more than 500,000 in the last two years," Ackerman wrote in his statement.