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FCC Extends Discounted Line Sharing

Federal regulations thrown out of court in March designed to foster local telephone competition will remain in place until the end of the year, the Federal Communications Commission (FCC) said late Friday.

If the FCC is unable to draft new regulations by January, the rules will be extended another six months, with price hikes capped at 15 percent.

As part of its triennial review in February 2003, the FCC on a split vote agreed to force incumbent Bells to continue to lease their copper lines at steeply discounted prices to local competitors. The FCC also agreed to allow the incumbents to close off their high-speed lines to competitors.

A little more than a year later, the U.S. Appeals Court for the District of Columbia rejected the copper line-sharing rules while approving the high-speed line regulations. The decision represented the third time since 1996 the courts have quashed some elements of the FCC local competition rules.

The Bush Administration decided against appealing the March decision, hoping the incumbent Bells and their competitors could agree among themselves about line-sharing and access rates. So far, they have not.

"Over a year and a half ago, I dissented from the majority's ill-considered decision to preserve at all costs a repudiated mode of competition," FCC Chairman Michael Powell said in a Friday statement. "I took that position on policy grounds, but my greatest concern was the prolonged uncertainty it would unleash."

In February 2003, Republican Commissioner Kevin Martin teamed up with Democratic Commissioners Michael Copps and Jonathan Adelstein to push the line-sharing plan through against the wishes of Powell and fellow Republican Kathleen Abernathy. Martin and the Democrats felt that the copper line-sharing rules would keep local rates low while meeting the spirit of the 1996 Telecommunications Act.

"I believed, given that this modality had twice before been struck down by the courts, it was a reckless decision that was sure to meet a similar fate, which, in turn, would plunge a fragile market into even further chaos," Powell said.

A dissenting Copps was as blunt as Powell in his statement.

"There is no need to mince words. The current commission is on track to butcher the pro-competitive vision of the 1996 Act," he said. "And it is sticking consumers with higher telephone rates and fewer choices."

Since the 1996 Telecommunications Act passed Congress, the FCC has consistently tried to pass rules generally known as "unbundling," which allow competitive local exchange carriers (CLECs) to lease Bell lines at a discount. None of the agency's efforts have meet with judicial approval. Powell has long supported facilities-based competition where CLECs build their own systems to compete with the Bells.

"[Unbundling] is a synthetic form of competition that would never have proved sustainable, or have provided long-lasting consumer benefits," Powell said. "I believe government policy should encourage intermodal and intramodal facilities-based competition. Bringing some of your infrastructure to the table allows a competitor to offer a differentiated service to consumers."

Powell is also an ardent supporter of cross-platform competition among voice competitors in the cell phone, wireless, satellite and Voice over IP markets, which puts pressure on the Bells to keep market rates low.

"There is no need to fear that consumers will be left with nothing to choose from as [line sharing] begins to wither," Powell said. "Consumers are using wireless telephones today - many now use their mobile as their primary phone. Cable companies are offering competitive telephone service to residential consumers.

"VoIP is surging into the marketplace as broadband grows,"he added, "offering an exciting and new competitive alternative that offers cut-rate prices and futuristic features."

Copps called the strategy short sighted and sure to hurt CLECs that could be hit with the 15 percent price increase if the FCC is unable to agree on new rules.

"The majority characterizes this effort as a comprehensive plan to stabilize the market," Copps said. "The truth is just the opposite. In exchange for a standstill today, they commit to price increases tomorrow. After six months of stay, existing enterprise market loop and dedicated transport customers can expect rate increases of 15 percent. For carriers operating on slim margins in price-sensitive markets, absorbing these increases may just not be possible."

Powell dismissed Copps' dissent as a "melodrama."

"There are no automatic price increases after six months for facilities providers. Such assertions are flat wrong," Powell said.

Powell stressed that if the FCC does its job in rewriting the line-sharing and access fees rules before the end of the year, there will be no need for the six-month extension period that allows for rate increases.

"As an interim step, today we freeze any changes in the current competition rules for six months to protect consumers from any sudden disruption in service," Powell said. "This will give us the time we need to repair the rules. I have committed to push the commission to complete this proceeding in six months before the freeze expires. As a sign of that commitment, I have already scheduled the decision for a vote at our December 2004 open meeting."