TCS Daily

Michael Powell's Unappealing Call for Action

By Duane D. Freese - March 10, 2004 12:00 AM

In a speech that may have been aimed as much at the White House as at his audience of state utility commissioners, Federal Communications Commission Chairman Michael Powell this morning issued a "call for action" to "prevent chaos" in the telecommunications sector.

The call came as the White House is considering asking the Supreme Court to act on a federal appeals court ruling last week that vacated the FCC's unbundling rules for local phone service. The rules had given authority to states -- under FCC guidelines -- to determine fair rates for leasing of local phone networks by the incumbent phone monopolies until sufficient competition was in place.

Powell opposed the rules to begin with; he now opposes appealing the ruling. But he seems to recognize that with 19 million phone lines leased using the unbundled network element platform -- or UNE-P -- rules until the appeals court decision, precipitous removal of the rules could prompt a consumer backlash.

So, among steps that Powell called for today were an immediate 30-day period of negotiation between the incumbents -- mostly regional Bell Operating Companies -- and competitors, including long distance companies AT&T, MCI and Sprint on interconnection agreements. In addition, Powell would craft an 18-month moratorium on removal of UNE-P if the negotiations fail.

Powell told the morning meeting of the National Association of Regulatory Utility Commissioners -- many of whose members are pushing for an appeal of the appeals court ruling -- that his plan was necessary to "stabilize the situation."

But many in the competitive telecom sector believe that a delay in an appeal would force them out of the market almost immediately. The Bells have stonewalled negotiations with competitors in the past in opening up their networks as they promised to do under the Telecommunications Act of 1996. What would prevent them from doing so again?

Without an appeal in place, there's room to question whether the Bells would feel any pressure to negotiate in good faith.

Powell argues that the appeal itself is damaging because it leaves telecommunication rules up in the air until the Supreme Court either rejects the case or remands it back to the DC court for a rehearing, up to two years from now.

Powell told the state regulators that he disagreed with those who have "suggested that the vacating of the unbundled rules spells the death for local competition." He also took a modest stab at putting pressure on the Bells to negotiate fairly and give encouragement to local regulators seeking to encourage competition, by saying the appeals court had "made clear" that the FCC may "enlist the states for advice on policy recommendations."

"What the court said we can't do is recruit someone else to make the decision," Powell said.

Still, what Powell is calling for -- renewed negotiations on interconnection agreements and a moratorium on lifting of UNE-P rules for 18 months while "sustainable rules" are developed -- ought not to preclude an appeal.

An appeal, in fact, is the only way to keep the pressure on both the Bells and competitors to negotiate. An appeal keeps the ball in play for the FCC, state regulators and the parties to negotiate a solution. Meanwhile, failure by the government to appeal hands a victory to the local Bell monopolies, leaving it to them to decide what's fair and what's not in meeting the terms of the telecommunications act.

Powell was right when he told the state regulators that a light touch is needed on new Internet applications, such as Voice over Internet Protocol, which he sees as creating a "tectonic shift" in telecommunications in the future. As he said, "investors don't have to put their money into telecom. They can put it into pharmaceuticals instead."

But the competitive future in telecommunications he envisions won't come about if the players with a stranglehold on the most vital link to consumers are allowed to compete in all of the truly competitive sectors while denying others the means to compete in their own.

The Bells have attacked the White House for considering an appeal. But Powell's way out poses a dead end for the administration if an appeal isn't made, as it could quickly lead to a collapse of the competitive telecom sector -- a prospect that Powell has to take more seriously than he has to date.


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