FCC vote spells uncertainty for phone competition

Monday, February 24, 2003

ast week's Federal Communications Commission vote on phone and Internet competition was supposed to herald a new era of clarity in the turbulent telecom industry.

Instead, the decision revealed an amazing amount of discord within the FCC and spells even more uncertainty for consumers and investors.

The nation's phone giants moaned that the FCC failed to drop outdated rules that let competitors use Bell networks at discounted prices. Consumer groups praised the decision because it preserves the ability of long-distance carriers like AT&T Corp., Sprint Corp. and WorldCom Inc. to offer local service.

But consumer groups also complained that the phone companies won dangerous power over the future of Internet access, closing out smaller providers and guaranteeing higher prices for residential users.

For now, all that is certain is that the future of communications in America will be played out, once again, in the courts. Congress could step in, but many observers says that appears unlikely anytime soon with so many other issues dominating Washington these days.

"The surprise is not so much that we did not achieve what we hoped to on so many issues," said Thomas Tauke, top lobbyist at Verizon Communications Inc., the nation's biggest phone company. "The surprise is the disarray within the FCC and the resulting lack of a coherent legal and policy philosophy."

Felt on Wall Street

The confusion was felt on Wall Street. Shares of the four major phone companies were ravaged after Thursday's FCC vote but rebounded Friday, except for SBC Communications Inc., which fell 2 percent in afternoon trading.

Shares of Bell rivals also gained Friday, with Sprint's land-line division up 4 percent and AT&T stock rising 2 percent.

The FCC was faced with an extraordinarily complex task -- to reconsider, by a court-ordered deadline, its enforcement of the 1996 Telecommunications Act. Two earlier sets of rules had been rejected by federal judges.

One major ruling Thursday was that state regulators will decide where, and at what price, Bells must make parts of their networks available to rivals in order to ensure competition.

This marked an unusual defeat for FCC chairman Michael Powell, who advocated eliminating the network-sharing requirements altogether. Powell agrees with the Bells that competition for local phone service is vibrant in many forms, including wireless phones, e-mail and cable and Internet technologies. But Republican Kevin Martin, a former campaign aide to President Bush, sided with the commission's two Democrats for a 3-2 majority.

Telecom analyst Phil Jacobson of Network Conceptions LLC said he was surprised that Powell, son of Secretary of State Colin Powell, wouldn't compromise on a position that probably was politically untenable, considering that the existing rules let Bell rivals provide local service on 10 million phone lines.

"It hurts his credibility for really being able to accomplish much," Jacobson said. "It shows that he doesn't just have a self-righteous attitude -- he has a self-righteous attitude even when he's not right."

'Everyone is mad at you'

But others called Martin's approach was a cop-out.

"We're going to have this hodgepodge of 50 different regulatory fiefdoms, unless the courts strike this all down," said Adam Thierer, director of telecommunications studies at the Cato Institute, a libertarian think tank.

Martin acknowledged that the process had been difficult for the FCC and himself personally. He said no matter how the FCC had voted, it would have been challenged in court.

"If everyone is mad at you, maybe you got it right," he told a Georgetown University conference. "That definitely feels like that's true today."

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