FCC Reportedly Increasing Long-Distance Vigilance

According to reports made Friday, the Federal Communications Commission is
extending its investigation into SBC Communications long-distance
applications after a string of errors cast doubt on the telco’s reporting

According to sources at the Wall Street Journal, the increased attention
could jeopardize SBC’s chance to offer long-distance telephone service in
several Southwestern states, including California. It is certain to raise
the bar for FCC long-distance acceptance with the four regional Bell
operating centers (RBOCs) in the U.S.

At issue are errors made by SBC officials in the Section 271 documents of
its long-distance applications in Kansas and Oklahoma. The documents are
used by regulators to prove whether or not a telco has opened up its market
to competition, one of the stipulations of the Telecommunications Act of

Officials said they weren’t concerned the FCC would rescind its approval of
the long-distance applications. They did concede, however, the likelihood
of fines.

Selim Bingol, SBC spokesperson, said the whole situation is a non-issue
when you consider the fact that the SBC was the agency to discover the
discrepancy in the first place and preemptively recall the documents.

“We file applications that run in the tens of thousands in pages and we
identified where we thought we had made an error and took it to the FCC,”
Bingol said. “We said we were going to correct it and they are reviewing
that process, that’s really all there is to it.”

But many see a pattern, prompting concern over what many see as a rash of
“errors” by the telephone company to prove it isn’t a monopoly.

Last week, the FCC raised some concerns over cost-based pricing and
operations support system (OSS) “issues” reported in the Section 271
document of SBC’s application for long-distance in Missouri. SBC
officials hastily withdrew the application, saying they would re-file as
soon as possible.

At the time, SBC officials said they were taking back its Section 271
documentation even though they stood by the numbers in the
application. The 271 would be re-filed at a later time to “make sure the
FCC has the latest and most reliable information.”

Bingol refers to the erroneous affidavits in the documents as “minor issues
of electronic ordering and other processes,” a term used to describe a
carrier’s OSS.

The OSS is responsible, as it relates to the FCC investigation, for
electronically taking orders from competitive local exchange carriers
(CLECs) to provision digital subscriber lines (DSL). Since the telephone
company owns the telephone line that DSL runs on, and provisions in the
1996 Telecommunications Act make them, the Bells lease the lines to the

This is where much of the contention between Internet service providers and
the telephone companies arises. ISPs and data CLECs (called DLECs) contend
the telephone company is purposely making it difficult for independent
operators to offer DSL service to consumers.

Many independent providers go a step further, saying the Bells are going
out of their way to make the process difficult and drive the competition
out of the market.

The Bells responded by pointing out the myriad technical issues surrounding
the unbundling of the local loop. It is mere coincidence, they said, that
provisioning problems affecting independent ISPs and DLECs don’t seem to
happen with its own customers.

The increasing number of coincidences has prompted the FCC to increase its
level of scrutiny on telephone company practices recently.

Earlier this year, Verizon Communications raised its monthly rates to
$49.95 for DSL service, just months after cutting DSL pricing in the first
The timing couldn’t have been better designed to raise eyebrows, as the
rate increase was announced only after droves of CLECs and ISPs had filed
for bankruptcy protection. The bankruptcies, ISPs maintain, were the
result of Bell pricing policies that had cut the bottom out of the DSL market.

This all comes at a time when the Baby Bells are trying to convince the FCC
that they have opened themselves up for competition enough to warrant its
long-distance applications.

According to another provision of the Telco Act, if telephone companies
prove CLECs have a quantifiable percentage of the market share, they can
provide long distance telephone service. The FCC has granted several such
applications and many more are waiting for state approval.

Thus the importance of the Section 271 documentation, which puts numbers on
the competitive “openness” of a Bell’s operating area, called a local
access and transport area (LATA).

Elliott Cappuccio, telco litigation lawyer at Stumpf, Craddoc, Massey and
Pullman P.C., said that the “misstatements” by SBC, and Baby Bells in
general, come as no surprise to anyone in the industry.

The Section 271 documents sent to the FCC are enormous, he said, and
regulators essentially need to rely on the telephone company’s truthfulness
in reporting.

It’s a tempting situation for Bell officials, knowing the FCC can’t
possibly read through all of the documents and test the validity of each
number recorded. Every so often, though, the FCC does investigate
questionable numbers and ask the Bell for supporting figures.

In that case, phone company officials take back the 271 and re-file later
with numbers that appease regulators, many times with no penalty. Even if
a telephone company does get caught in the act, the fines levied by the FCC
don’t come anywhere near putting a dent in their budgets.

“Fines are relative to a company like SBC, they’ve been fined in the past,”
Cappuccio said. “In fact, only two weeks ago they were fined $99,000. The
FCC is trying to put new caps on fines, but as it stands now, it can just
be factored in as the cost of doing business.”

Cappuccio is talking about a recent proposal by FCC Chairman Michael Powell’s
request for legislators to increase the maximum fines possible for each FCC
violations. As it stands right now, the fines are determined by provisions
in the 1996 Telco Act and, as such, use figures based on 1996 limits.

That cap sits at $1.2 million today. Powell wants to bump it up to a
possible $20 million per violation for repeat offenders, which would cut
into the telco profit a little deeper.

Because of the difficulty assessing the extent of violations, Powell asked
legislators to extend the statute of limitations beyond one year make
telcos responsible for punitive damages (court costs and lawyer fees).

“In my view, the difficulties currently facing the competitive local
exchange carrier (CLEC) industry stem from a variety of conditions, and in
some cases, CLECs may have been stymied by practices of incumbent local
exchange carriers (ILECs) that appear designed to slow the development of
local competition,” Powell said in his letter to Congress. “…Given the
vast resources of many of these ILECs, the current $1.2 million forfeiture
limit is insufficient to punish and to deter violations in many instances.”

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