FCC Reportedly Increasing Long-Distance Vigilance
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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 numbers.
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 1996.
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 competition.
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 place. 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."