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Verizon, AT&T Headed For Monopoly Bliss?

Without a re-evaluation of the broadband commercial marketplace by the Federal Communications Commission (FCC), Internet Service Providers (ISPs) claim incumbent carriers like Verizon and AT&T will hold a virtual monopoly.

In a 2005 order deregulating the broadband market, the FCC ruled incumbent carriers no longer had to lease DSL lines to competitors at wholesale prices. While the order was widely viewed as targeted to the residential market, it also applied to the commercial market.

The decision was based, in part, on an FCC analysis of the marketplace, although the FCC did not distinguish between residential and commercial markets. Late Friday afternoon, the ISPs went to court to force the FCC to conduct a new market analysis focused entirely on the commercial competitive landscape.

"The agency simply dropped the ball," David P. Murray, an attorney representing the ISPs, told internetnews.com. "There are very different facilities for residential and commercial service."

In the complaint filed with the Third Circuit Court of Appeals, Murray wrote, "The FCC never looked at the enterprise market, where the evidence showed that [incumbent carriers] continue to wield market power over the bottleneck used…to serve enterprise customers."

The ISPs claim there is "virtually no competition" in the enterprise market for broadband services, allowing Verizon, AT&T and other incumbents to set the market price. The incumbents counter that commercial broadband carriers are free to negotiate access to their DSL lines at current market rates.

Because broadband competitors can lease lines at negotiated prices from the incumbents, FCC said in a response to the ISP complaint its ruling is not likely have "any meaningful adverse" effect on the enterprise broadband market.

"That is like saying the fox will adequately protect the hen house," Murray wrote in the ISP complaint. "The [order] puts the future of competition for broadband Internet access services entirely in the hands of the [incumbents]."

Murray claims that with such power, incumbents have "every incentive" to build next generation technology into their commercial broadband offerings and "deny, delay, degrade or overprice" offers of competitors.

The FCC does not comment on pending litigation. Neither AT&T nor Verizon replied to telephone and e-mail inquries seeking comment on the lawsuit.

The genesis of the case dates back to 2002, when the FCC ruled ruled cable modem operators are not common carriers and classified them as information services, free of the myriad rules and regulations that accompany common carrier status. Among those rules are requirements to share Internet lines with competitors at discounted rates.

After the Supreme Court upheld the FCC cable modem ruling in 2005, the agency granted the same information service classification to Baby Bells' DSL service, a decision independent broadband providers say cut effectively them out of the market.

The FCC decision deregulating the DSL market prompted a number of lawsuits from ISPs. Most of those lawsuits have been consolidated into Friday's litigation.

"Under these rules, [incumbents] have no regulatory compulsion to make next generation technology available to competitors," Murray said. "That leaves them [competitors] with legacy technology."