reseller channel: Wholesale Agreements Stall

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Four weeks after a court rejected federal rules and three days after a divided FCC called upon the telecommunications industry to negotiate commercial agreements controlling wholesale access to the biggest local phone networks, SBC Communications Inc. announced striking a seven-year accord with Sage Telecom.

"There is no reason in the world why we can't reach agreement with any other company that is equally willing to negotiate commercially reasonable terms," SBC Chairman and CEO Ed Whitacre said at the time the landmark agreement was disclosed.

Fast forward six months. With the exception of a line-sharing accord with Covad Communications Group Co., SBC has not struck another deal. Its western sibling, Qwest Communications International Inc., disclosed signing 23 wholesale agreements with competitors as of Oct. 1.

How can this discrepancy be explained? That depends on who you talk to.

SBC spokesman Dave Pacholczyk says the company is negotiating with its wholesale customers, adding several factors are hampering the negotiations. He explains SBC has low wholesale rates, compared with those in BellSouth Corp. and Verizon Communications Inc. territories. Pacholczyk says, until government-mandated rates rise, competitors may perceive no great incentive to negotiate with SBC.

"The CLECs know any negotiated deal means a move up," Pacholczyk says. "If I'm at $15 or $16 today - or even lower (to lease a local phone line) - which is the case in a lot of SBC states, there's no willingness to negotiate if it means something higher."

Although hailed as a breakthrough, the Sage pact drew heavy criticism from parties seeking to require SBC to disclose the terms of the agreement and make the same terms available to other competitors. The Public Utility Commission of Texas is awaiting a ruling by a federal court related to the controversy before taking action, says PUC spokesman Terry Hadley.

Under the agreement, Sage can offer phone services to homes and small businesses over SBC's network. The average monthly price over the life of the contract is expected to be below $25 per line, according to the companies. Sage, which operates in 11 of 13 states in the SBC territory, is SBC's thirdlargest wholesale CLEC customer and predominantly operates in rural and suburban communities outside large cities.

Robert McCausland, vice president of regulatory affairs with Sage Telecom, says the company had a number of incentives for reaching an agreement with SBC. For starters, Sage wanted to remove the uncertainty concerning the availability and price at which the company could access the incumbent phone network, he says. McCausland says the agreement also allowed Sage to expand its products by providing for the first time data and Internet services to customers in rural and suburban areas.

Kevin Shady, director of local services with Lightyear Network Solutions, LLC says it has been difficult to reach a compromise with BellSouth, SBC and Verizon to secure wholesale access to their local networks. He says the proposed rates are too high. "There is not a whole lot of negotiation going on," Shady adds.

Denver-based Qwest has offered a more favorable agreement based on a pact reached between Qwest and MCI, Shady says, but Lightyear has not entered into the terms of the agreement. He says the agreement is relatively positive for companies serving residential customers, but Louisville, Ky.-based Lightyear is concerned about the costs of supporting small businesses. He says, under the Qwest plan, wholesale rate increases in the small business market range from $4 to $7 over a three-year period.

While having a benchmark deal with Qwest, MCI had not announced a wholesale commercial agreement with BellSouth, SBC or Verizon as of Oct. 1. "MCI's preference is to work things out on the business table [rather] than in the courtroom," says MCI spokeswoman Carolyn Tyler. "We have been unsuccessful in getting other Bell companies to agree on the fundamental principle that any wholesale agreement includes a provision for a phased transition off the [incumbent network] and allows MCI to use our own switches in a commercially viable manner," Tyler adds, citing the need for performance measurements to ensure customers do not receive an interruption in service during a transition.

Wholesale Commercial Agreements by Bell Company
BellSouth
SBC
Qwest
Verizon
21
2
23
3

Teresa Taylor, executive vice president of Qwest wholesale markets, calls Qwest's agreement with MCI "a breakthrough" in the industry. She says many telecom companies have opted into the agreement MCI signed with Qwest. As of Oct. 1, Qwest has signed 23 commercial wholesale agreements. The deals include three distinct types of agreements:

UNE-P replacement, line-sharing and shared distribution loop agreements, says a Qwest spokeswoman. Still, Taylor says, "It's disappointing we don't have some of the larger companies."

AT&T Corp. has not entered any wholesale commercial agreements with the regional Bells since March to support either residential or business customers. Attributing its decision to regulatory developments, AT&T in July announced it will stop competing for local and longdistance phone customers in the traditional residential market.

A federal appeals court in March rejected FCC rules, which allow AT&T, MCI and smaller phone companies to lease the biggest local phone networks at discounted, government- mandated rates. The commission has yet to release new permanent rules.

Meantime, Qwest and Verizon challenged temporary rules the commission issued, casting an additional cloud over the fate of national regulations.

"There is simply too much uncertainty to justify investing hundreds of millions of dollars to continue building a business that will not make economic sense long-term," AT&T spokeswoman Claudia Jones says.

"When we made the decision to stop marketing for new residential customers, we had no reason to believe the FCC's interim or permanent rules will allow for a reasonable transition to facilities-based competition and alternative access strategies."

Qwest's Taylor says regulatory uncertainty has hampered the negotiations because many companies are waiting for a final outcome. She estimates about half of Qwest's wholesale customers have told the company they are waiting for developments to unfold in Washington.

Verizon, the biggest U.S. local phone company, has announced wholesale commercial agreements with Granite Telecommunications and DSCI Corp. The company also has reached a line-sharing agreement with Covad. In addition, Verizon has entered letters of intent with InfoHighway Communications Corp. and Sterling Telecommunications and is working on final agreements, says Pamela McCann, executive director, wholesale local product development, Verizon. The letter of intent with InfoHighway covers DS1 switching supporting enterprise customers. This does not represent a majority of the company's business, says InfoHighway's Senior Vice President of Sales and Marketing Peter Karoczkai.

"We are changing the paradigm. We have been controlled by regulatory rules for many years and it takes some time to find common ground on both sides," McCann says.

Others question the genuineness of the negotiations. Sue Platner, co-founder of The Northridge Group, a consulting firm representing competitive phone companies, says she has been informed the talks between the regional Bells and their wholesale customers "are not really negotiations." "They are taking a pretty firm position on what they are willing to offer. Call it a one-way street," Platner says. "They are not really negotiations. They are more a presentation of terms and conditions."

Verizon spokesman Mark Marchand brushes off criticism that his company is not making a serious effort to strike agreements.

"It's silly when somebody claims we are not serious about it. Wholesale at Verizon is an $8 billion business," he says. McCann says Verizon has been negotiating with competitors since November and has about 20 agreements pending.

Verizon's southern brother, Atlanta-based BellSouth, has negotiated 21 commercial agreements with competitors for access to the local phone network to replace government-mandated UNE-P rates, says BellSouth spokesman Al Schweitzer. Dialogica Communications, International Telnet and CI2 are among 10 companies BellSouth has named. Terms of the agreements were not disclosed.

"The objective of BellSouth Interconnection Services, and one of the key goals of commercial agreements, is to [give our] wholesale customers [an incentive] to stay on our network," Schweitzer says. "The balance we want is fair compensation for the services that we provide, which allows us to keep investing in our facilities, and recognition that BellSouth and the company we're negotiating with both support and are not blocking other competitive technologies from emerging - nor are we preventing competitors from moving to alternative facilities."

SBC spokesman Pacholoczyk says technological advances affect the negotiations, as more telecom companies circumvent the traditional phone network.

"AT&T's [Internet phone service] Call- Vantage is just one example of CLECs' moves to alternative technologies bypassing the circuit-switched voice network altogether. It's less urgent for them today to negotiate anything on the legacy network, since their business and technology plans are calling for that to end someday anyway," he says. "Again, that's just not where they're headed so there's no urgency for them to negotiate anything on that legacy network."

Links

AT&T Corp. www.att.com
BellSouth Corp. www.bellsouth.com
Covad Communications Group Co. www.covad.com
FCC www.fcc.gov
InfoHighway Communications Corp. www.infohighway.com
Lightyear Network Solutions, LLC www.lightyearcom.com
MCI Inc. www.mci.com
Public Utility Commission of Texas www.puc.state.tx.us
Qwest Communications International Inc. www.qwest.com
SBC Communications Inc. www.sbc.com
Sage Telecom www.sagetelecom.net
The Northridge Group www.northridgegroup.com
Verizon Communications Inc. www.verizon.com

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