Telcos Need 'Naked’ DSL

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Washington— SBC Communications Inc. and Verizon Communications Inc. are required to provide “naked” digital-subscriber-line service for two years under merger conditions adopted by the Federal Communications Commission Oct. 31.

SBC agreed to the requirement in order to gain FCC approval of its merger with AT&T Corp., and Verizon agreed to close its merger with MCI Inc. The companies have one year from closing to offer naked-DSL service, the agency said in a statement.

In theory, the provision of naked DSL would mean consumers would not have to buy local phone service as a condition of purchasing DSL, freeing them up to experiment with a different voice provider, including cable voice-over-Internet protocol service.

Cord-cutters — customers who rely exclusively on a wireless phone service — could pay for a home DSL line but not for local wireline phone service from either SBC or Verizon.

NO PRICE CAPS

But the FCC’s naked DSL merger condition appeared largely hortatory because the agency has no plans to regulate the a la carte price of DSL.

Without price caps, SBC and Verizon are free to price naked DSL so high that customers would overwhelmingly purchase a less expensive voice-data bundle by default.

“You might surmise that [the merger condition] will be toothless if [naked DSL] remains unregulated,” said Randy May, senior fellow and director of communications policy studies at the Progress & Freedom Foundation in Washington, D.C.

Consumer advocates were disappointed about the lack of price controls on naked DSL.

“Clearly, we would have wanted stronger pricing provisions,” said Mark Cooper, research director of the Consumer Federation of America.

FCC chairman Kevin Martin and commissioner Kathleen Abernathy voted to approve the two mergers. Michael Copps and Jonathan Adelstein, the FCC’s two Democrats, voted to concur, a gesture designed to signal their concerns without blocking the deals outright.

With the FCC evenly divided politically, Copps and Adelstein used their leverage to extract several short-term conditions from SBC and Verizon that Martin and Abernathy were forced to accept.

“I do not believe that all of these conditions imposed today are necessary,” Martin said. “I believe that the affected markets would remain vibrantly competitive absent these conditions.”

According to the FCC, SBC and Verizon promised to make naked DSL available to all DSL customers, not just new ones. Although Verizon has been offering DSL to some extent on an a la carte basis, SBC has not been doing so.

The FCC plans to examine the effect of the naked DSL condition in an annual report.

“I hope we will have the good sense to find it anti-competitive if the price for standalone DSL is not significantly less than the price for bundled voice and DSL,” Copps said.

Cable companies, including Bright House Networks, have complained that the bundling of DSL and local phone service has impeded competition because customers won’t experiment with different voice providers if they are forced to drop their DSL service. Cable and phone companies have clashed on this issue in numerous state proceedings.

Christopher Savage, a Washington cable attorney with Cole, Raywid & Braverman who represents Bright House Networks, said the FCC’s decision to require naked DSL should mean that state-level disputes with SBC or Verizon are “moot for a little while.”

When the FCC deregulated DSL in August, it promulgated nonbinding behavioral principles on providers of high-speed Internet-access providers, such as allowing consumers to access any lawful Internet content of their choice.

TWO-YEAR COMPLIANCE

In approving the mergers, the FCC mandated SBC’s and Verizon’s compliance with the principles for two years.

On Oct. 27, the Justice Department cleared both deals, subject only to consent decrees that require the firms to divest local fiber-optic-network facilities serving business customers in hundreds of buildings in 19 cities.

Copps and Adelstein, disappointed with DOJ’s review of the deals, said they pressed hard for tougher conditions on SBC and Verizon.

“These conditions provide only a bare minimum. I can’t say we made lemonade out of lemons, but we did the best we could. More would clearly have been better,” Copps said.

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