Qwest, AT&T Land More Deregulation

The FCC this week quietly granted two Bell forbearance petitions, one of which almost landed automatic approval under the “deemed granted” clause.

The decisions appear mundane, yet the precedents on which they’re built and that they set could serve more blows to the competitive community.

First, on April 21, Qwest Communications International Inc. secured relief similar to its deregulation in Omaha, Neb., and Anchorage, Alaska – this time, in Terry, Mont. Then Thursday night, just hours before a midnight deadline would have invoked “deemed granted” approval, AT&T gained relief from cost-accounting assignment rules.

In Qwest’s case, the FCC said the Denver-based carrier no longer has to abide by resale, unbundling and other section 251 rules in Terry, Mont. The commission cited the local duopoly and the unlikelihood that competitors will want to enter the market as justification.

Qwest competes against a technically superior LEC, Mid-Rivers Telephone Cooperative, the FCC said. Qwest and Mid-Rivers are the only two providers in the area, where the population numbers less than 2,000 people and the nearest city is 200 miles away. Therefore, it is in the public’s interest to free Qwest from certain rules, the FCC said. Competitors, the April 21 order read, are “unlikely” to want to serve such a small, rural region.

None of the FCC commissioners issued a statement on the Qwest order.

In a broader move, the FCC lifted accounting rules from AT&T. Telecom analysts said that curbs competitors’ arguments for reviving Bell price-cap regulation in the special access market.

The notice came just a couple of hours before the FCC had to vote or else AT&T’s request would have been approved via the “deemed granted” clause in the 1996 Telecom Act.

Analysts for investment firm Stifel Nicolaus [] said AT&T got more than just the chance to save money.

“While the deregulation will apparently save AT&T $11 million in annual accounting costs, the real benefit appears to be the regulatory leverage it should gain versus wireless carriers, CLECs and others,” analysts said in a memo to clients. “Without the cost-assignment requirements, we believe it will be harder for competitors and other critics to use cost information as a club to seek AT&T rate controls and cuts in various proceedings.”

The FCC’s two Democratic commissioners – Michael Copps and Jonathan Adelstein – decried the 3-2 vote. In a prepared statement, the two noted lax regulations on corporate accounting led to the Enron and WorldCom scandals. They argued regulators need to impose more – not less – accountability and transparency to “put the country’s economy on a sounder footing. Now is not the time to permit the petitioners and those that follow them – who all play an enormous role in our economy – to shut their books and assume that’s all they need to do.”

Republican commissioners Deborah Tate and Robert McDowell disagreed. They said there’s no federal need for the cost assignment rules applied to AT&T because those were designed for an analog, voice-only world.

“Even without these outdated rules, the commission has clear statutory authority to require AT&T to produce any accounting data that the commission needs for regulatory purposes,” Tate said.

McDowell concurred.

“No part of today’s order precludes the commission – at any time – from compelling AT&T, or any other incumbent local exchange carrier, to provide promptly any and all information necessary to build a sufficient record for any regulatory purpose,” he said.

FCC Chairman Kevin Martin did not release comments.

The forbearance decisions come amid a frenzy of similar activity – private investors, CLECs and Congress all are weighing in on pending Qwest and Verizon Communications Inc. petitions, as well as a plea from CLECs that the FCC set rules for its decision-making process. Congress also has been talking about erasing the “deemed granted” provision from the 1996 Telecom Act, citing Bells’ abuse of the condition.

Commissioners issued official orders, available on the FCC Web site, for both of this week’s decisions.

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