News

Bells Rebel At FCC Internet Plan

8/09/1998 8:00 PM Eastern

Washington -- Phone companies rejected a Federal
Communications Commission plan unveiled last week as an overly prescriptive approach to
bringing greater bandwidth to homes and businesses craving high-speed access to the
Internet.

Under current law, incumbent phone carriers are subject to
numerous rules forcing them to sell or share parts of their network.

Bell Atlantic Corp. and U S West Inc. asked the FCC to
waive the regulations with respect to their provision of high-speed data services. The
Baby Bells said they would have little incentive to upgrade their networks if competitors
could purchase those services or resell them.

In response, a unanimous FCC approved a proposal that would
spare the phone companies from complying with many regulations if they agreed to operate
advanced data services businesses through separate affiliates. The FCC isn't expected
to vote on adopting the plan for several months.

The FCC's theory is that creation of a separate
affiliate, with its own officers, employees, books and records, would minimize the risk
that a Baby Bell could use its local phone monopoly to undermine competitors like cable
operators and long distance companies in high-speed data markets.

The FCC is "attempting to create a fair and open
playing field so that everybody can get to the American consumer with this increased
bandwidth capacity," FCC chairman William Kennard said.

But U S West Inc. and Bell Atlantic Corp. said the costs
associated with the separate affiliate requirement would more than offset the benefits the
FCC would confer through deregulation.

"Whenever you have to have a separate subsidiary to
start a new service, it almost doubles your cost," said Nanci Bernstrom, director of
federal information for U S West Inc.

"The decision to establish separate subsidiaries
creates one more step that will prevent consumers from realizing the full benefits of an
open and competitive marketplace," Bell Atlantic said in a statement.

FCC commissioner Susan Ness said the Telecommunication Act
of 1996 did not distinguish between voice and data services in such a way as to allow the
FCC to regulate the former yet deregulate the latter when both are offered by an incumbent
phone company as integrated services.

"I do not believe that Congress wrote detailed
amendments to the Communications Act only to address voice, but not data, services,"
Ness said.

When the phone companies filed for relief, the National
Cable Television Association did not oppose the petitions. In a statement last week, NCTA
said it had "no objection" to the FCC's proposal provided that incumbent
phone companies meet their obligation to open their networks to competitors and the Baby
Bells are denied long distance entry until their networks are accessible to competitors.

AT&T Corp. issued a statement saying the FCC's
separate affiliate requirement was insufficient to prevent "the Bell companies from
using their enormous monopoly power to favor their own data affiliate in many ways ranging
from co-location rules to cross-subsidies on pricing." AT&T said "separate
ownership, rather than a separate subsidiary," was necessary to promote competition.

Most cable operators seemed unconcerned about the
FCC's moves.

"It always comes down to the same thing: There are two
wires into the house, ours and the telcos', and if it's a telco wire,
you're talking about DSL [digital subscriber line]," said Alex Best, senior vice
president of engineering for Cox Communications Inc.

"DSL technology continues to evolve, yet nobody is
willing to drive a stake into the ground and say whether or not it will or will not
work," Best added.

Most of the regional Baby Bells have announced plans, which
they describe as aggressive, to introduce high-speed Internet connections to their
business and residential customers via xDSL techniques.

Whether the FCC's proposed rules will help or hinder
the competitive landscape for high-speed data services, however, remains to be seen.
Currently, the two biggest high-speed data providers -- @Home Network and Road Runner --
serve an aggregated 250,000 cable subscribers in North America.

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