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Naked DSL to Impact Telecom Mergers?

WASHINGTON -- Naked DSL is baring itself again on Capitol Hill as a possible condition for the Federal Communications Commission's (FCC) approval of the Verizon-MCI and SBC-AT&T mega-mergers.

If ultimately approved by the FCC and the Department of Justice, the mergers will combine the nation's two largest telecoms with the leading two long-distance providers.

Combined with a March FCC ruling that regional Bells do not have to offer their broadband DSL as a standalone service (known as naked DSL), critics of the mergers fear Verizon and SBC will be able to dominate the local, long-distance and broadband markets.

The results, the critics contend, will be fewer choices and higher prices for both consumers and businesses. Both Verizon and SBC emphatically deny the charges, claiming that the converging telecom landscape will provide competition.

With rumors swirling that the FCC could approve both deals as early as its Oct. 28 open meeting, Qwest Communications , which failed in its own bid to acquire MCI, said Wednesday Verizon and SBC should be forced to offer broadband independently from their traditional voice services.

"SBC and Verizon must offer standalone DSL, so that some other firm might replicate the VoIP threat previously offered by AT&T and MCI," Steve Davis, Qwest SVP for public policy and deputy general counsel, told reporters.

Davis was referring to the Voice over IP services that the pre-merger AT&T and MCI planned to offer as a cheaper alternative to the copper wire-based voice services of the regional telecoms.

Qwest, which offers standalone DSL to its customers, is hardly alone in wanting naked DSL as a condition of the mergers.

"The acquiring [companies should] commit to sell unbundled DSL high-speed Internet service to consumers without requiring that consumers also purchase traditional phone service," Senators Mike DeWine (R-Ohio) and Herb Kohl (D-Wisc.) wrote to FCC Chairman Kevin Martin in late July.

DeWine, chairman of the Senate Antitrust Subcommittee, and Kohl, the panel's ranking Democrat, said the merger approvals without a DSL unbundling requirement would be a "significant barrier" to the development of VoIP as an alternative to the regional telecoms' voice services.

"Requiring consumers to buy phone service when they purchase DSL service substantially diminishes the incentive of consumers to purchase VoIP phone service from independent VoIP providers," the senators wrote.

Noting that Qwest already offers naked DSL and that Verizon and SBC are introducing the package in some markets, DeWine and Kohl said an unbundled DSL merger condition would not be "onerous" to the telecoms.

"While we recognize that bundling services offer certain consumer and competitive benefits, in this instance mandatory bundling seems likely to diminish competition more than can be justified by any potential consumer benefit," they wrote.

Qwest's Davis also said Wednesday the FCC should impose a "net neutrality" requirement on the mergers in order to obtain a concrete commitment from the two Baby Bells from blocking or in any way degrading the transmission of any competitor's data packet transmissions.

One result of such a commitment would be that any competitor's VoIP offering competing with Verizon or SBC would be treated no differently than any other data package.

Both Verizon and SBC have publicly stated they support net neutrality. In August the FCC issued a new policy statement supporting open networks, but the document has no legal force of law. Several telecom bills pending in Congress seek to make net neutrality part of the law.

Davis argued that absent FCC conditions on the mergers, competitive pricing for telecom services would slow.

"SBC and Verizon are buying their largest competitors. That's a duopoly. These two mega-size monopolies will dominate 35 to 40 percent of the national market," he said. "There will be no meaningful competition for lower prices."