Telco Ruling Might Not Shift Battle Lines Much


When it comes to the Federal Communications Commission's long-anticipated triennial review order spelling out broadband competition rules for the dominant regional Bell operating companies, the devil may be in the details — and in legal briefs.

While the 576-page ruling issued last week appears to clear the way for the RBOCs to reignite their next-generation broadband network build-outs, questions about language — and a flurry of expected legal challenges — mean it probably won't alter the broadband competitive environment for some time.

The Aug. 15 ruling provides the detail to the FCC's preliminary findings issued in February. Among other things, the order requires RBOCs to continue sharing existing copper-based local phone lines with competitors offering narrowband and broadband services.

But it also allows the RBOCs to build out next-generation fiber-optic networks without opening them to competitive telco providers. That would be a major victory for the Bells, which have long argued they should not be forced to share next-generation networks with rivals who did not pay for the improvements, other than through limited access fees.

In hybrid copper-fiber networks, the commission ruled that although incumbents must still provide competitors access to hybrid fiber-copper digital loops for standard time-division multiplexing (TDM) traffic, they are not required to share any of the more modern packet-switching functions those networks may support.

The order also allows states to decide where to allow unbundled service, based on the local competitive climate.

While FCC Chairman Michael Powell disagreed with his fellow board members on the issue of line sharing for older, copper-based networks, he fell in line with them when it came to next-generation fiber-based networks.

"Today's decision makes significant strides to promote investment in advanced architecture and fiber by removing unbundling obligations consistent with a faithful application of Congress' impair standard," he noted in a statement. "Consistent with the statute, the Order removes unbundling obligations that have applied to last mile 'fiber-to-the-home' deployments."

It's a good-news, bad-news situation for Covad Communications Inc., the last remaining nationwide competitive local-exchange carrier.

Covad is happy the ruling still requires RBOCs to share copper and hybrid fiber-copper lines with competitors, and the fact that it won't be allowed onto all-fiber systems should not hurt business, according to CEO Charlie Hoffman. Nor is Covad worried that the limitation on the hybrid fiber-copper networks to just TDM for DSL delivery will be ruinous to its business.

"There is plenty of growth left in broadband," Hoffman said. "The line-splitting thing is a huge opportunity for us, as well as we believe we will get commercial agreements with the Bells.

"Obviously, they could use revenue as well, and a commercial agreement I would much rather have than be subject to the next triennial, biennial or whenever the FCC decides to review something."

But Covad and a cadre of competitive digital subscriber line Internet-service providers are not pleased with a provision that would eliminate line sharing — in which an incumbent provides voice service while allowing a competitor to offer data service — in favor of line splitting, whereby competitive voice and data providers would have to pair up to buy and share a line. Plans are in the works to file a motion for a stay of the triennial rules in U.S. District Court.

"We've done a good job of getting line splitting to replace line sharing, but that's a customer that has chosen to leave their Bell company behind and has chosen an AT&T or MCI for competitive voice," Hoffman said. "But that's not the whole universe of customers, like we had with line sharing."

The order also faces challenge from the Consumer Federation of America, which turned out a sour appraisal last week.

"Essentially what the commission has done on the broadband side is to eliminate the unbundling requirement," said Mark Cooper, CFA's director of research. Saying the commission has done so in violation of federal statute, "on that point, we believe the only option is a litigation strategy."

Given the ruling's complexity and the potential legal challenges, the RBOCs' reaction was decidedly cautious. As with its Bell peers, BellSouth Corp. has fully analyzed the weighty order, and there are already some question marks, said Bill McCloskey, director of media relations.

But even with that, the RBOCs are continuing to explore next-generation fiber technology — Verizon Communications Inc., BellSouth Corp. and SBC Communications Inc. recently issued a joint request for proposals related to FTTH projects.

"I think demonstrates that while regulation will never catch up with technology, we at least are going down the technology path, so when the regulatory roadblock is cleared, we are more or less cleared for takeoff," McCloskey said. "So we are continuing with that RFP — that's not wrapped up yet — and until the courts either do or don't take the case and all that stuff, we'll be in a bit of limbo."

Industry observers also think the immediate impact from the ruling may be muted, as RBOCs wait for the outcome of legal challenges and to see how the states will come down on unbundling issues.

"One of the things it may inspire the Bell companies to do is maybe be a little more aggressive with marketing DSL, especially in places where they can offer a bundle," said Joe Laszlo, senior broadband analyst at Jupiter Research. "As the threat of competition on their own networks becomes less and less an issue for them, I think they are beginning to grow more and more focused on the next threat, which is the threat from cable operators — and especially the ones that have been the most progressive in rolling out voice service of their own."

Nor can they risk waiting for legal decisions while cable competitors to charge into voice and broadband, according to Forrester Research senior analyst Charles Golvin.

"I don't think that they can realistically link these two things together, because they have to be moving forward with their deployment plans irrespective of the outcomes of various regulatory processes are," he said. "If the decision ultimately comes to the one they don't want, they are going to be so far behind that whatever they spend won't matter."

In the end, the triennial review may not shift the balance much on the broadband battlefield.

"You expect one of these decisions to come out and, OK, it's a decision — there's a little bit of certainty, there is a little bit of guidance and direction, so people can start making plans about how they want to invest in their network and what services they want to offer," Laszlo noted. "But really, this is just one move in a game that is going on, and it's going to be a while before all of the challenges from all sides work their way through the courts."