Markey Wants New Special Access Rules; Bells Say No

“I don’t think that is the right process, either,” Tauke said, referring to the commission’s “deemed granted” outcomes, in which forbearance petitions are approved when the FCC fails to decide by a vote before rulemakings’ deadlines. “There are better ways to address this and that is one thing the committee will do,” Dingell said. But Tauke added that the commission’s de facto granting of a Verizon’s forbearance petition over a year ago -- when the commission, with only four members, became stalemated -- has resulted in a “dramatic success story.” Verizon has had the flexibility to meet the needs of “the most savvy and demanding customers of communications services,” Tauke said, urging the commission to grant other petitions on the table.

Rep. Cliff Stearns, R-Fla., voiced similar concern about the need for a “proper process” for deciding forbearance petitions. “I am not taking a position on the merits of any petition,” Stearns said. As for special access rules, he said Congress must be mindful of reregulating services. FCC Chairman Kevin Martin reportedly has asked commissioners to consider two courses of action on special access: one that would keep the status quo and one that would impose more rigid pricing policies similar to what existed after the Telecom Act was passed, Hill and industry sources said.

Markey hoped to shed light on conflicting information about market competitiveness with the hearing, with an eye toward helping FCC Commissioner Robert McDowell craft a position based on information from the hearing, Hill sources said. McDowell, considered to be the swing vote on the special access ruling, must steer a path between commission Democrats who favor regulation and Republicans who don’t. Finding a compromise could be difficult, a GOP lawmaker told us, speaking on background. McDowell might opt for some type of interim regulation that would assist companies that are stretched financially by current special access fees. Such a course could allow the market to grow more robust, and then the commission could revisit the issue later, he said.

Many Democrats said the commission’s special access rules stifle competition at the last mile, preventing competitors to incumbent providers from building out services that could lead to lower prices. Such was the goal in the 1996 Telecom Act, which “has not lived up to its preamble,” said Rep. Anna Eshoo, D-Calif. “The course of events that has led us here is really rather distressing,” she said. “Congress has a responsibility to ensure that nascent competition is given an opportunity to take root.”

But Ranking Member Fred Upton of Michigan said the commission should keep special access policies in place because the business market is viable. “Where competition is present, we must continue the course away from regulation,” he said, citing statistics that he said demonstrate a vibrant market. Stearns agreed, suggesting that the “proper course” is to continue current policies, adding that “the future looks good.” AT&T Assistant Vice President Parley Casto said special access customers have “multiple options, which has resulted in lower prices and greater service innovation.” This competition “obviates” the need for reregulation, which “would destroy the incentives that all companies currently have to constantly improve their service offerings and enhance their networks.”

Sprint Nextel disagrees. “The Commission’s offices are filled with reams of filings demonstrating the detrimental effects of the special access market failure on broadband deployment,” said CEO Gary Forsee. Bell companies are reaping “windfall earnings from special access,” unrestrained by “effective competition,” Forsee said. The commission has the “tools and the evidentiary record to forge a solution to the special access market failure,” he said.

Policymakers need to look not only at prices but at the rates of return of incumbent providers in judging whether special access policies are fair, Rep. Chip Pickering, R- Miss., told us. Bell companies still control about 93 percent of access to buildings, he said; other competitors like cable and wireless haven’t made sufficient inroads to create a competitive market. Pickering and Rep. John Shadegg, R-Ariz., said in a recent letter to Martin that incumbent carriers are charging “monopoly rates” because of the lack of competition. But the commission has the ability to address this problem.

Citing a GAO study faulting telecom industry mergers for sapping competition, Markey told the commission in May he believed it “imperative” that the agency modify its pricing flexibility rules for special access. The prices wireless carriers pay are higher than they would be if the market was competitive, Markey said. His letter requested a response from all commissioners asking whether they supported wrapping up the record so action could be completed on an order by Sept. 15. Martin recommended an “expedited comment and reply comment period” and all commissioners agreed with a review of the record. Commissioner Michael Copps pointed out, however, that an ample record existed and the FCC was “long overdue” in moving forward.

Over the summer, several lawmakers on both sides of the aisle weighed in with letters urging the Commission to complete the proceeding. Senate Commerce Committee Chairman Daniel Inouye, D-Hawaii, joined with his Republican colleague, John Sununu, N.H., in urging a rapid resolution of the matter. House Oversight Committee leaders also submitted a bipartisan letter advising prompt action, as did Sen. Byron Dorgan, D-N.D.

Industry Shuns Regulation

Special access is a competitive market, Verizon told the committee, arguing that the commission should retain the pricing flexibility policies that are working, Tauke said. Competition has emerged where there is demand for high- capacity service, he said, adding that prices for these services have declined between 2002 and 2006 by 5 percent in real terms. Cable and fixed wireless services’ strong foothold in the market ensures a competitive marketplace. The growing availability of alternative technologies helps to drive down price, he said.

An average of nine competitive fiber providers compete in Verizon’s top 25 metropolitan areas, which produce 80 percent of the company’s special access revenue, Tauke said. Competitive providers are using alternative technologies to “self-supply their high-capacity links,” including not only these companies’ own fiber networks, but technologies such as microwave and fixed wireless, he said. “The FCC should “adapt to the changing world.”

Verizon endorsed Congress’ efforts to improve broadband data collection, seen as a strategy that will help deploy services in rural areas. “Where we determine that broadband is not available,” Tauke recommended Congress and the FCC support infrastructure through a combination of loans, tax credits or grants. He also advised policymakers that the universal service fund is “badly in need of reform.” One option would be to require USF funds be targeted to serve geographic areas that couldn’t provide service without universal support. In areas receiving subsidies, consumer costs should be kept affordable. Rural wireline infrastructure should be maintained, even if wireline voice customers are declining, Tauke said. And finally, “a new and fairer system is needed to fund universal service support.”

The telecom industry tried to persuade Markey in advance of the hearing that federal municipal broadband legislation market would “chill investment,” according to a letter sent to the chairman Monday. The industry condemned federal municipal broadband efforts, warning it would encourage “cherry picking the easier-to-serve areas within town limits” at the expense of outlying areas, said the letter signed by USTelecom, Independent Telephone Telecommunication Alliance, OPASTCO, National Telecommunications and Cooperative Association and Western Telecommunications Alliance.