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FCC Grants Bells More Local Relief

WASHINGTON -- The Federal Communications Commission (FCC) voted 3-2 today to phase out its controversial, eight-year plan to promote local telephone competition by forcing incumbent Bells to lease parts of their networks to competitors at below-market rates.

The 1996 Telecommunications Act directs the FCC to draft and implement rules to force incumbents to unbundle network elements from their platforms (UNE-P) to foster competition. But the act does not specify which elements must be unbundled or at what price or in what markets.

The courts have rejected three previous attempts by the FCC to impose UNE-P rules as unfair to the Bells, particularly in regard to how the FCC measures competition to the incumbents.

"The rules ... have been carefully designed to pass judicial muster, for I hope we have all learned that illegal rules, no matter their other merits, are no rules at all," FCC Chairman Michael K. Powell said. "Regrettably, years of fierce battles to bend the rules entirely toward one sector or another without proper respect for the legal constraints have contributed to a prolonged period of uncertainty and market stagnation."

Under the FCC's latest plan, the Bells are no longer legally compelled to negotiate UNE-P deals with rivals, known as competitive local exchange carriers (CLECs). For UNE-P residential agreements already in place between the Bells and CLECs, a 12-month phase-out period is established where the CLECs are barred from signing up new customers at the discounted UNE-P rates.

CLEC access to discounted business market lines will be preserved in many markets but not in high-density metropolitan areas. The FCC gave CLECs 12 to 18 months to transition from the UNE-P discounts to market rates in those areas.

The two dissenting votes on phasing out the discounts came from Democrats Michael Copps and Jonathan Adelstein who fear the move will lead to the end of local telephone competition.

"What we have in front of us effectively dismantles wireline competition. Brick-by-brick, this process has been under way for some time," Copps said by teleconference. "But today's order accomplishes the same feat with all the grace and finality of a wrecking ball."

Copps predicted the decision would prompt long-distance carriers to abandon plans to enter the local phone market, followed by bankruptcies, job losses and customer outages.

"As a result of this decision, there will be less competition, less choice and higher rates," Copps said.

Adelstein, the FCC's newest member, said previous commission decisions put local telephone competition in a coffin.

"Now, the majority buries telecom competition six feet under. The only choice I was given was where to pound in the nails. I cannot support this decision because it will force consumers and businesses to pay higher prices and have fewer choices."

The Republican majority, however, said the three previous court reversals of the FCC's UNE-P schemes forced today's decision.

"Regardless of one's policy views regarding the appropriate degree of mandatory unbundling, we must put an end to the debilitating cycle of court reversals and the resultant market uncertainty," FCC Commissioner Kathleen Abernathy said. "The only responsible solution to this problem is to adopt rules that faithfully comply [with the court decisions] so that we can finally move forward with stable rules in place."

Powell added the decision decidedly does not make all parties happy and he expected to hear the "tortured hand-wringing" by incumbents about subsidized rates and "dire predictions of competition's demise" by others.

"Time will show this will not be so. Business models may change, but competition and choice for consumers in the information age will continue to grow and thrive," said Powell, who has long championed cross-platform competition from wireless, satellite and other alternative carriers.

Powell's prediction of criticism from both incumbents and consumer groups was quick to materialize.

While praising the FCC for taking positive steps to eliminate the "irrational and discredited" UNE-P program, James C. Smith, a senior SBC vice president, issued a statement saying, "The FCC has perpetuated the harmful unbundling regime for high-capacity business lines and this irrational decision does not bode well for job creation, network investment and consumer benefit."

Mark Cooper, research director for the Consumer Federation of America, said, "The FCC today continued its practice of chipping away at telecommunications competition while strengthening the Bell monopoly."

Cooper said the FCC action would give the incumbents "new market power over new services, such as broadband and Voice over IP, stymieing competition."

The FCC's last court reversal came in March when the U.S. Court of Appeals rejected FCC-mandated discount line pricing for long-distance carriers.

"In 1996, no one could have guessed that nearly a decade later the FCC would be on its fourth attempt to develop local competition rules that are lawful," Powell said. "We hope to end that here and now, for the market cannot possibly continue another day plagued by an ever-shifting regulatory foundation."