NARUC Urges Careful Review of Mega-Mergers

The merger resolution adopted Wed. asked the FCC and Justice Dept. to scrutinize the SBC-AT&T and Verizon-MCI mergers due to their great potential impact on the telecom industry and consumers, and to consider remedial conditions for any anti-competitive effects found. The resolution urged federal authorities to give the states a “meaningful participatory role” in enforcing merger conditions they may impose. The resolution passed only after being amended to remove language several commissioners interpreted as a negative prejudgement of the mergers.

The deleted language would have expressed states’ concern that the mergers could have adverse consequences in wholesale and retail markets by removing significant competitive providers, and would have suggested divestiture of overlapping in-region assets and wholesale- contract “fresh looks” as remedies to guard the interests of competitors and customers. The committee had to postpone action on this resolution late Tues. after realizing it lacked a quorum. That happened after several commissioners left the meeting to avoid conflicts because they have pending merger-related cases.

Prior to the vote, the Telecom Committee heard from a large, diverse panel of speakers supporting and opposing the mergers. Representatives from Verizon, SBC and MCI defended the mergers as complementary transactions that will give each of the participant companies access to markets where they now are not significant players. Merger opponents representing CLEC and consumer interests essentially conceded the mergers will win approval, so their major concern was what conditions constitute the most effective remedies for anticompetitive impacts. Opponents’ consensus held that divestiture of overlapping assets, facilities and customers within the Bell companies’ home regions could offset much of the negative competitive impact. But even divestiture had critics. Mark Cooper, legislative dir. of the Consumer Federation of America, said the mergers will remove the 2 most effective competitors from the marketplace, so buyers of divested or overlapping assets would have to be competitors that are going to be less-effective rivals. Cooper suggested an alternative remedy to divestiture might be to mandate a return to the marketplace of cost- based UNE-P.

In a surprise action, NARUC’s board was unable to pass a resolution Tues. urging federal and state regulatory and lawmaking bodies to consider a requirement for stand-alone or “naked” DSL in any review of major telecom mergers or telecom reform proposals. A board member noted that the resolution had been filed late and thus had to be passed by a 3/4ths majority. That meant 14 of the 19 board members had to vote for it and only 12 did. Two members voted against it and 5 abstained because their states were involved in reviewing merger cases.

The resolution in its original form was directed only at the FCC and Justice Dept. reviews of the pending SBC- AT&T and Verizon-MCI mergers but was expanded to include all types of telecom reform proposal in Congress, the FCC, Justice Dept. and state commissions after some commissioners argued the issue of naked DSL is one with broad implications that go beyond the proposed mergers. The resolution said that with UNE-P’s demise, a carrier requirement that consumers must buy voice service to get DSL service could stifle competition and discourage promotion of broadband deployment. The resolution said it’s not meant as a call to ban bundling of services over DSL facilities or advocate unbundling of any network element.

Another adopted telecom resolution urges the FCC to suspend, or allow waivers from, a Dec. 31 deadline by which wireless carriers opting for handset-based means for E-911 compliance must achieve 95% penetration of E-911- compatible digital wireless telephones. Suspension or waiver would let rural wireless customers continue use of higher-powered analog phones until rural digital signal coverage improves, the resolution said. It urged that carriers be required to include location-capable technology in all new digital phones they distribute, to ensure continued increase in location-capable handsets.

The Telecom Committee tabled a resolution to urge the FCC to create a new federal-state joint conference on high-cost subsidy reform. The action meant the resolution wasn’t forwarded to the board. The state representatives on the committee wanted first to see how the issue would be addressed in ongoing proceedings on universal service fund and intercarrier compensation reform.

Panel Grapples With ETC Guidelines

Meanwhile, speakers at a NARUC panel on guidelines for designating eligible telecom carriers (ETCs) to get universal subsidies grappled with the question of whether wireless ETCs should face the same qualification and enforcement standards as incumbent telcos and competitive landline ETCs. “Somehow wireless ETCs are made out to be the bad guys” causing all the problems with the universal service high-cost fund, said Jim Blundell of Western Wireless Tues. “I don’t think that is the case.” He said wireless carriers have waged a long but so-far-successful fight against legal claims that their designation as ETCs is against the public interest. Blundell said legal challenges to wireless ETCs have so far ended with rulings that wireless ETCs can advance the public interest and could offer consumer benefits intended by federal law and policy. The FCC has “made it clear that portability and competitive neutrality are important to the framework,” he said.

Bill Osile, senior vp for Valor Communications, said rural telco Valor collects less than $1 million annually in federal high-cost subsidies despite a heavily rural customer base, so it “has a little different perspective” on ETC funding. He said the biggest problem with the high-cost subsidy system is lack of uniform, consistent certification standards for ETCs, and consistent review standards to ensure ETCs meet universal service program goals. “If you promote USF service, then you should receive USF support,” he said, “but the trick is in devising a neutral certification process. He said the process of ETC certification is inconsistent from state to state. He also said states should apply a “strong public interest standard” in reviewing ETC applications, and then hold all universal service carriers to the same standard: “We have an overburdened USF that has developed a problem over time. We need to take a look at the decisions and policies that created the overburdening.”

Former Mont. regulator Bob Rowe, partner with Balhoff & Rowe and former chmn. of the Federal-State Universal Service Joint Board, said states should apply “clarity and discipline” to the ETC certification process. He said it’s “hard to justify massive wireless ETC payouts” when they aren’t tied to network investment and promoting competition. Rowe said questions raised in the debates include whether wireless ETCs should have different standards than landline ETCs, or whether there should be separate funds for wireless and landline ETCs. Wash. Comr. Phil Jones said NARUC’s ETC task force has been collecting data from states on ETC proceedings and compliance and designation standards, with 27 states describing how they are interpreting and responding to requirements in a March FCC universal service order. He urged all remaining states to respond.