VoIP All Smiles on FCC’s Line-Sharing Move

The federal government’s decision not to appeal a court ruling that tossed out line-sharing rules between Baby Bells and their start-up rivals is getting a thumbs up from a Voice over Internet Protocol technology executive.

“It’s very encouraging that the [Federal Communications Commission] believes VoIP will provide sufficient competition to the [Baby Bells] that the old regulatory form is no longer required,” said Dan Hoffman, president and CEO of M5, a provider of VoIP business service. “In a way, it’s a great vote of support for the rapidly growing VoIP industry.”

In a major policy shift Wednesday, and a big win for Baby Bells such as Verizon, the Bush Administration decided not to appeal a lower court ruling that tossed out regulations forcing Baby Bells to provide discounted access to their lines for competitors. The move means the rule, from the 1996 Telecommunications Act, is expected to expire on June 15th — provided no other groups (such as competitive local exchange carriers — CLECs) are granted a stay. Analysts eventually expect to see a round of new negotiations among Baby Bells and rival providers that heretofore leased the Bells’ lines at a discount.

M5’s Hoffman called on the commission to remember the important role VoIP will play in the new playing field, along with wireless, as an alternative to Baby Bell phone service — especially as it considers future regulations on broadband telephony. Indeed, VoIP is rising in use at a time when the telecommunications industry expects traditional providers’ rates to rise once the Bells are freed from the discount rules. The prospect could make VoIP’s much cheaper rates look even more attractive.

However, VoIP could be looking at higher rates and regulation too. For example, in addition to deciding what authority states may or may not have to levy fees on the service, the FCC is still looking to craft policies regarding 911 and law enforcement wire-tapping access on VoIP services.

VoIP industry executives want to work out technical solutions, rather than have the government impose its own strictures. FCC Chairman Michael Powell has signaled that he favors a light regulatory touch, however the rules are finalized.

After the FCC meeting Thursday, Powell said the reduced-rate leasing required of the Baby Bells was only meant to be “transitional.”

“Now, we’re going to have to accelerate the pace of that move,” he said. “Everybody understands that in a migration, you’ve got to get to the other side.”

Powell also alluded to alternatives in the market.

“It’s a false choice that the choice is somehow between monopoly and no competition,” Powell said. “I can tell you right now there is competition, there’s going to be more competition, it’s going to better than what we had before. I still believe consumers stand to gain from the changes taking place in the market.”

Meanwhile, the Baby Bells — Verizon , SBC , BellSouth and Qwest — are celebrating their win in what has been a contentious and long-running battle. The fight essentially began 20 years ago when regulators ended the regulated monopoly of AT&T to create the regional bell operating companies, the Baby Bells.

On Wednesday, Solicitor General Theodore Olson
said the government would not ask the Supreme Court to hear the appeal of the D.C. Circuit Court’s ruling on the FCC’s Triennial Review. Then, FCC Commissioner Kevin Martin withdrew his support for petitioning the justices.

Because the case largely revolved around local phone infrastructure, a Verizon spokesman said it will have little impact on broadband rollouts.

“We’re going to continue apace with our plans for fiber to the premise/homes and DSL,” said Larry Plumb, a Verizon spokesman. New York-based Verizon plans to pass 1 million homes with FTTP this year, a
target that could be raised, depending on the success of early rollouts.

Dave Pacholczyk, an SBC spokesman, called the existing line-sharing rules “dicey.” He also said he didn’t see the decision leading to faster rollouts of any specific technology.

“What it does is it gets the rules right,” Pacholczyk said. “Ideally, with the rules right it will incent companies to invest in new technologies and services for consumers.”

But other opponents of the pricing structure, including Communications Workers of America (CWA) President Morton Bahr, said the rules have taken money out of the regional carriers’ pockets, money that could be used for investments in new technology.

“Forcing the Bell Regional phone companies to lease their lines to
competitors at artificially low rates has stifled capital investment, costing tens of thousands of jobs and constraining the roll-out of broadband
communications,” the union group said in a statement.

“We believe this outmoded framework is a major reason why most Americans still don’t enjoy high-speed Internet services, while in Japan, Korea and Taiwan there is virtually universal high-speed broadband at five times the speed that is common in this country.”

For consumer groups, as well as long distance service providers on the losing side of the argument, such as AT&T and MCI, the policy shift hit like a one-two punch. They warned that the elimination of the government-controlled pricing approach could lead to higher phone bills for consumers.

“Failure to appeal this case could do lasting damage to the entire
competitive telecom industry — and will lead inevitably to higher prices and fewer choices for Americans,” AT&T said in a statement.

Roy Mark contributed to this story.

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