Bells Get Busy Signal on Data Dereg

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Washington-With strong backing in some corners of Congress but equally stiff opposition in others, the four Baby Bells are lobbying to be freed from long-distance-entry restrictions in exchange for providing high-speed Internet access in rural and high-cost areas.

The Telecommunications Act of 1996 kept the Bells out of long-distance sales until they open their local markets. But the Bells said the ban should not apply to data services because lawmakers in 1996 had no idea that the Internet explosion would stoke such strong consumer demand for high-speed data.

At a recent Senate hearing, United States Telecom Association president Roy Neel pitched the data-deregulation idea, claiming local phone companies need maximum regulatory freedom for there to be any hope that advanced services will reach rural communities on the wrong side of the "digital divide."

But a Cox Communications Inc. executive told the Senate Communications Subcommittee a different story, contradicting Neel's version of rural America going unserved by broadband providers.

David Woodrow, Cox's executive vice president of business development, said the No. 5 MSO is rolling out cable-modem service in communities with as few as 2,500 subscribers in lightly populated states like Utah, Nevada and Kansas.

Of the 10 million households now assed by Cox's wires, Woodrow said, 50 percent have high-speed Internet access. By 2004, he added, nearly all Cox homes will have the same.

"Our networks don't discriminate.as to what kind of customer you are. It's a broadband network that goes to virtually every home passed that we serve," Woodrow said in response to the digital-divide issue.

He added that Cox's investment-$5 billion so far and climbing to $10 billion in four years-demonstrated that Congress struck the right balance in the 1996 law.

"We think the act is working extremely well," said Woodrow, who also testified for the National Cable Television Association.

Neel outlined support for the approach taken in a House bill (H.R. 2420) sponsored by Reps. Billy Tauzin (R-La.) and John Dingell (D-Mich.). That measure would allow the Bells to provide data long distance immediately, but it would deny entry for voice services until they can demonstrate to the Federal Communications Commission that their local networks are open to competition.

"Removing [long-distance] restrictions on data, and not voice, is absolutely critical," Neel said. "The critical thing is to act now."

Since 1996, only one Baby Bell in one state-Bell Atlantic Corp. in New York-has won long-distance-entry approval from the FCC.

Tauzin, appearing before the same panel, said he supported data deregulation because the Bells needed the financial incentive to build out rural areas that have higher cost structures. If the Bells can't make those investments, he added, rural areas will be trapped, relying on less than state-of-the-art technology.

"You will be out of business unless you move to the center where those broadband connects can be accommodated," Tauzin said. "Removing the regulations lets the companies deploy."

Neel's and Tauzin's position didn't go unchallenged.

Some lawmakers said the 1996 law provided an adequate road map for the Bells to attain the kind of regulatory freedom they want: If they want to compete in long distance-either voice or data-all they have to do is open their local facilities to competitors.

The law kept the Bells out of long-distance to ensure that they didn't use their monopoly position to undermine competitive markets.

"You've got to look at the other side of the coin. Your bill continues to lock out the long-distance companies from competition because the other people haven't opened theirs to competition," Sen. Ted Stevens (R-Alaska) told Tauzin.

Tauzin said the 1996 law was about voice communications, and the ongoing voice-services debate shouldn't stop Congress from creating new rules to address the data revolution. "We shouldn't let that fight stand in the way of America getting data services," he added.

Stevens warned that data deregulation wouldn't be a small subsegment of the market, claiming that 90 percent of the phone companies' traffic would be data in three years. "Your bill takes 90 percent of traffic and lets it loose" from the long-distance restrictions, he added.

Montana public-service commissioner Bob Rowe, president of the National Association of Regulatory Utility Commissioners, said he did not support divorcing data from voice services, adding that the Bells were fully capable of opening their networks. "It's hard work, it's intensive work-it can be done," Rowe testified.

Rowe's comments put him at odds with Senate Communications Subcommittee chairman Conrad Burns, a Republican who also hails from Montana. Burns wants the FCC to data-deregulate the Bells under section 706 of the 1996 law-a provision Burns sponsored that calls on the FCC to promote the rollout of broadband if company efforts are flagging.

"I will not allow 706 to be dismantled by FCC inaction," Burns said at the top of the hearing.

In responses to Stevens'views, Neel countered that regulators move too slowly and that the 1996 Act failed to anticipate the Internet explosion. "If you are willing to wait a long, long, long, long time, then these problems will be solved," Neel said.

Sen. John Kerry (D-Mass.) said he was not convinced that Bell deregulation would accelerate broadband. He supports extending tax credits to spur broadband deployment.

"I am not convinced yet that the argument is well made that lifting the [long-distance] restrictions is somehow going to promote large-scale deployment of broadband services," Kerry said.

Bell competitors-start-ups called competitive local-exchange carriers-spoke out against data deregulation.

Stephen C. Gray, president and CEO of McLeodUSA, a competitive local-exchange carrier in Cedar Rapids, Iowa, said his company's $2 billion investment in local phone markets would be put at risk.

"Letting these guys into the data business now in a totally deregulated fashion ensures that we will not have effective, irreversible competition long-term," Gray said. "If we move too quickly to deregulate these mega-Bells, I will assure you that you will knock out quite a few CLECs."

In a statement released after the hearing, Senate Majority Leader Trent Lott (R-Miss.) said he would not support changing the 1996 law. The requirement that the Bells open their local networks before entering long-distance markets was "the foundation of the 1996 Act and must remain so," he said.

Kerry's tax-credit proposal will be introduced next week, a Senate source said. Meanwhile, similar bills began to surface last week.

Sens. Jay Rockefeller (D-W. Va.) and Olympia Snowe (R-Maine) are planning to introduce a bill that would provide a 10 percent tax credit for three years to companies that install broadband facilities in rural areas.

To qualify, the companies must serve communities that are at least 10 miles away from cities or towns with 25,000 people or more, and the communities cannot be located in counties with population densities of 500 people or more per square mile.

Cable operators, wireless providers and phone companies would be eligible to participate, provided that their services have download speeds of 1.5 megabits per second and upstream speeds of 500 kilobits per second. The tax credit jumps to 20 percent for two-way speeds of 10 mbps.

Last week, Sen. Byron Dorgan (D-N.D.) introduced a bill with Minority Leader Tom Daschle (D-S.D.) that would create a $3 billion fund to provide 2 percent-interest, 30-year loans to finance broadband infrastructure by any company.

Neel and Tauzin said they would resist tax breaks and loans as a first option. "Why do we have to start addressing tax subsidies before we loosen the regulation and let it happen in the marketplace?" Tauzin said.

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