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FCC Denies Verizon

The FCC In early December dealt Verizon Communications Inc. a bruising forbearance blow when it denied, unanimously, the companys request for UNE deregulation in six northeastern markets. The move didnt bode well for Qwest Communications International Inc., which has a similar petition pending.

The decision came a day earlier than expected, on dec. 4, after weeks of rumors that all five commissioners were ready to vote against Verizon. Up to dec. 3, companies including Time Warner Telecom Inc. and One Communications filed letters with the FCC refuting Verizons evidence for regulatory relief. Those kinds of efforts (which also flowed from the likes of XO Communications, Sprint Nextel and Covad Communications Group), coupled with Congressional pressure, resulted in a 5-0 vote to deny Verizons request.

While the competitive community was thrilled with the outcome, Verizon was not. The carrier stuck to its contentions that it faces heavy CLEC, cable, VoIP and wireless competition in the Boston; New York; Philadelphia; Pittsburgh; Providence, R.I.; and Virginia Beach, Va., metropolitan statistical areas (MSAs) enough competition to merit freedom from governmentmandated UNE pricing. If the FCC had approved these petitions, it would have permitted Verizon to provide network facilities at commercial rates, said Tom Tauke, Verizons executive vice president for public affairs, policy and communications, in a prepared statement.

Of course, thats exactly what competitors, politicians and consumer activists wanted to avoid. If Verizon were allowed to use commercial pricing for its UNEs, CLECs would have paid more for access, and then they would have had to pass down those costs to users. Overall, annual retail wireline expenditures in the six northeastern markets would have skyrocketed by $2.4 billion, according to QSI Consulting Inc. in its October 2007 report, An Analysis of Verizons Petition for Forbearance: A Quantification of the Impact of Forbearance.



Source: QSI Consulting Inc., October 2007

FCC commissioners at press time had not released their statements explaining why they vetoed Verizon, but they did say in the Dec. 4 notice that they disagreed with Verizons assessment of competition in the six markets. Congressman Ed Markey, D-Mass., who announced the forbearance news to reporters, concurred. His constituency includes Boston and he opposed Verizons plea all along. Granting it would have led to a dramatic reduction in innovation and a hike in the prices consumers pay for both traditional telecommunications and broadband services, he says.

Markey heads the House telecommunications subcommittee and one industry insider, speaking on condition of anonymity, says its likely the FCC tipped off Markey to the vote so he could get the press coverage. Markey has been very vocal about his resistance to Verizons request and has been holding the commissions feet to the fire, says the source.

Now the question is whether Verizon will try again for the sixmarket forbearance. The company wont commit. The order isnt out yet, but well study it and weigh our options, says David Fish, a Verizon spokesman.

There also is the chance that Verizon will challenge the rejection in court, say analysts for investment bank Stifel, Nicolaus & Co. Inc.

Meanwhile, Qwest, like Verizon, is waiting for the FCC order. The Denver-based carrier in April 2007 filed for UNE forbearance in Denver, Phoenix, Minneapolis/St. Paul and Seattle. It wants the same leniency it got in Omaha, Neb., in 2005. Analysts say the Verizon ruling isnt a good sign for Qwest; Qwest wont say whether it might refile its 4-MSA paperwork. When a market for communications services becomes fully competitive, as the four cities in our pending filing are, continuing government regulation is counter-productive and should be ended, as it was in Omaha, says Shirley Bloomfield, senior vice president of federal relations for Qwest.

Fallout from the Omaha vote is ongoing. McLeodUSA Inc., now owned by PAETEC, has appealed the decision; if federal judges dont side with McLeodUSA, the company repeatedly has said it will have to exit the Omaha market because the commercial prices are just too high.

The FCCs rejection happened in a year thats seen a lot of controversy over forbearance in general. AT&T Inc., Embarq and Frontier/Citizens all received partial relief from government rules, even as lawmakers and competitors protested that incumbents were using the forbearance clause in the 1996 Telecom Act to rewrite the law in their favor. Verizons 6-MSA forbearance petition was a particularly bitter pill for the competitive industry because of how Verizon got its way through the deemed granted provision in March 2006. That was when the FCC, unable to reach a consensus, failed to vote on Verizons request for broadband deregulation and the company got its relief automatically once the deadline passed. The uproar over the inaction sparked government inquiries and court challenges and to this day, only Verizon knows how much latitude it secured the FCC doesnt publish an order when commissioners dont vote on a matter.

The Dec. 4 news also was a day earlier than expected. The dropdead deadline for a vote or inaction was midnight Dec. 5. But FCC commissioners had an important dinner to attend on the evening of Dec. 5 and none of them wanted to risk missing it, insiders say.

Links

AT&T Inc. www.att.com
Covad Communications Group www.covad.com
Embarq www.embarq.com
FCC www.fcc.gov
Frontier/Citizens www.frontieronline.com
McLeodUSA Inc. www.mcleodusainc.com
One Communications www.onecommunications.com
PAETEC www.paetec.om
QSI Consulting Inc. www.qsiconsulting.com
Qwest Communications International Inc. www.qwest.com
Stifel, Nicolaus & Co. Inc. www.stifel.com
Sprint Nextel www.sprint.com
Time Warner Telecom Inc. www.timewarnertelecom.com
U.S. House www.house.gov
Verizon Communications Inc. www.verizon.com
XO Communications www.xo.com

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