article

Heavy-Handed or Hollow?

Posted: 5/2003

Heavy-Handed or Hollow?
Regulator Says Enforcement a Priority;
Competitors Cry Foul

By Josh Long

Last year the FCC fined SBC
Communications Inc. $6 million for violating a condition of its merger with
Ameritech, the largest forfeiture in the history of the agency.

The federal regulator says that fine
is symbolic of its no-nonsense approach to enforcement. David Solomon, chief of
the FCC Enforcement Bureau, told state regulators in February his agency is more
proactive than it has been in the past, levying more than $10 million in local
competition enforcement actions in fiscal year 2002. The funds go to the U.S.
Treasury.

Quoting FCC Chairman Michael K.
Powell, Solomon said, "If you cheat, we will hurt you and hurt you
bad."

Critics say the declaration is
hollow once you do the math: SBC, the No. 2 local phone company, had to shell
out nearly $9.8 million in the wake of enforcement actions in the last fiscal
year — far more than any other regional Bell operating company. But SBC is a
Fortune 500 company that posted $43.1 billion in 2002 annual revenue on a
reported basis.

"Six million to this ILEC is
lunch money," consumer-advocate Kathleen O’Reilly said, following Solomon’s
remarks at a Washington D.C. conference hosted by the National Association of
Regulatory Utility Commissioners (NARUC).

To be fair, regulators and others
say the enforcement actions are not designed to run the Bells into the ground.
One Bell lawyer uses this analogy: It makes no sense to fine one jaywalker more
than another based on their earnings.

Furthermore, some state regulators
say the fines are meaningful. Public utility commissions have implemented
penalties that hold a Bell liable for a portion of its net income in that
particular state. In Massachusetts, for example, Verizon Communications Inc. is
liable for up to $142 million annually under the so-called performance assurance
plan, which represented 36 percent of its 1999 net income in the Bay State, says
a Massachusetts regulator.

Observers also point out the
incumbent phone companies have been forced into a precarious position for the
last seven years: They must appease their investors with cash flow while
honoring wholesale arrangements that fly in the face of a laissez-faire business
relationship. Consequently, some observers allege, the Bells constantly are
testing the boundaries of the law.

Those promoting local phone
competition worry the phone giants have less incentive to obey the law now that
regulators have granted them long-distance authority in many states within their
incumbent territories.

Mike Isenberg, director of the
telecommunications division for the [Massachusetts] Department of
Tele-communications and Energy, disagrees. He points to statistics that show
Verizon Communications Inc. is issuing fewer bill credits to rivals for falling
short of performance measurements that went into effect April 2001 — the month
Verizon received long-distance approval. Verizon owed about $6.2 billion in
credits from April 2001 through November 2002.

The performance metrics cover
ordering, provisioning, maintenance and repair, and network performance. Verizon
issued the largest credits for missing performance metrics in April and June
2001 — about $1.25 million and $2.12 million, respectively.

"Early on after Verizon got
into the long- distance market and the performance insurance plan became
operable, we saw that they were paying a fair amount of bill credits for the
first couple of months, and then things gradually have improved quite a bit
where over the last five months, six months or so they really have paid out very
little," Isenberg says.

Jonathan Banks, general counsel in
the Washington D.C. office of BellSouth Corp., says, "I think there is a
deep culture … of trying to obey the law regardless of whether there are fines
or not.

"It looks bad to consumers, and
it doesn’t help with your business with consumers or regulators," he adds.

Andrew Isar, who represents
competitive phone companies on behalf of the Association of Communications
Enterprises, says he believes state and federal regulators are "doing the
best job they can given the resource constraints they have and the myriad
different considerations they have." But Isar longs for a way to limit the
seemingly endless appeals proceedings. Lobbyists and attorneys say enforcement
must be swift in order to adequately compensate the aggrieved party. Federal and
state regulators say they are working hard to achieve that goal.

In a January presentation at a NARUC
conference, the FCC Enforcement Bureau reported that it only had two formal
common carrier complaints pending for more than a year during fiscal year 2002,
down from 10 the previous year and more than 150 when it formed three years ago.
The bureau also settled through mediation about 40 of 60 cases over wholesale
provisioning and other competitive issues such as special access and OSS,
Solomon said.

State regulators also say they have
implemented processes to expedite the resolution of a complaint. Massachusetts,
for instance, has put in place a so-called "rocket docket" to
negotiate disputes within three months. The regulator has used the rocket docket
to resolve disputes between Verizon and a competitor or between two local
competitors.

"Just having the process worked
to force the carriers to resolve informally the dispute," says Isenberg.
The rocket-docket process can facilitate a resolution about 50 percent to 100
percent faster than through formal adjudication, he says. Before the
rocket-docket days, a formal complaint could drag on for six months or more, and
"usually more," adds Isenberg.

Many disputes, including those
holding ramifications for the broader industry, can go on for years. Some people
supporting the Bells’ rivals say the drawn-out regulatory proceedings can stymie
competition. In other cases involving specific allegations of a Bell company
obstructing competition, the injured phone provider rarely is compensated for
its losses, some people say.

But the U.S. Supreme Court may open
up a new avenue for recovering those alleged losses. The high court will review
an appeals court ruling that found a New York lawyer, Curtis V. Trinko, had the
right to sue Verizon based on antitrust legislation. Trinko used AT&T Corp.
as its local phone company, but old Ma Bell’s supplier was Verizon, formerly
Bell Atlantic.

The nine justices could hear
arguments in October and issue a decision late this year or by June of 2004,
lawyers involved in the case say.

If the Supreme Court upholds the
appeals court decision in Bell Atlantic vs. Trinko, that could allow dozens of
antitrust cases to proceed and "send a message" to the Bells that
"they have to obey the law and let people compete with them," says
46-year antitrust veteran Maxwell Blecher, a partner for Blecher & Collins.
Ever since Congress passed the Telecommunications Act of 1996, the incumbents
have jerked competitors "around until they basically ran out of capital,
went out of business," says Blecher.

A Verizon attorney says such
criticism is unwarranted. "Verizon has done more than any other telephone
company to open its local markets to competition," says John Thorne, senior
vice president and deputy general counsel.

Daniel Berninger, managing director
of watchdog organization pulver.com, says the Bells could go bankrupt if the
Supreme Court upholds the Trinko decision. Retorts to this point from the Bells
and other sources range from "debatable," to a "long shot,"
or "virtually impossible."

This much seems clear: If the
Supreme Court upholds Trinko, the ensuing antitrust litigation is likely to
resemble the Enforcement Bureau’s 1999 complaints in at least one respect:
pending for a long time.

The Bill

The FCC says it is taking a
no-nonsense approach to enforcement. The regulator levied $28.5 million in fines
and other monetary penalties in fiscal year 2002. That included $15 million in
consumer protection enforcement actions, $10 million in local competition
actions and $3.5 million in public safety actions. The following is an
accounting of the local competition actions:

Jan. 19, 2002: The FCC
proposes to fine SBC for failing to adequately provide rivals shared transport,
consequently violating a condition of its merger with Ameritech Corp. The
regulator fined the phone company $6 million in October, the largest penalty in
its history. SBC "willfully and repeatedly violated the clear requirements
of the merger order, thereby causing delays in the availability of shared
transport, and forcing competing carriers unnecessarily to expend time and
resources in state proceedings to enforce their rights," the FCC said in
its order.

Feb. 25, 2002: FCC imposes $84,000
forfeiture, penalizing SBC for violating rules requiring incumbent local
exchange carriers to "promptly" post on the Internet a notice of
facilities that have run out of colocation space.

April 15, 2002: Regulator imposes
$100,000 forfeiture, penalizing SBC for violating an Enforcement Bureau order
requiring that a response to a letter of inquiry include a sworn statement
affirming its accuracy.

May 28, 2002: SBC enters a $3.6
million consent decree, closing two investigations into potential violations of
FCC rules regarding the submission of inaccurate affidavits in section 271
proceedings.

July 24, 2002: Qwest enters
$96,000 consent decree, closing an investigation into possible violations of the
rules requiring incumbents to "promptly" post on the Internet a notice
of facilities that have run out of colocation space.

Aug. 20, 2002: Verizon enters a
$260,000 consent decree, closing an investigation into compliance with required
performance reporting conditions in connection with the merger of Bell Atlantic
and GTE.

 

Verizon
Massachusetts Wholesale Performance Assurance Plan

Date

Credits Paid to CLECs

April 2001

$1,247,953

May 2001

$709,923

June 2001

$2,117,105

July 2001

$63,617

August 2001

$695,423

September 2001

$669,789

October 2001

$105,914

November 2001

$57,567
December 2001 $67,571

January 2002

$45,829

February 2002

$38,876

March 2002

$67,047

April 2002

$1,640

May 2002

$81,663

June 2002

$75,746

July 2002

$36,417

August 2002

$30,907

September 2002

$148,967

October 2002

$49,218
November 2002 $ 124,349
Source:
Massachusetts Department Telecommunications & Energy

 

LINKS
Association of Communications
Enterprises www.ascent.org

AT&T Corp. www.att.com

BellSouth Corp. www.bellsouth.com

Blecher & Collins www.blechercollins.com

FCC www.fcc.gov

Massachusetts Department of
Telecommunications and Energy www.state.ma.us/dpu/

National Association of Regulatory Utility
Commissioners www.naruc.org

pulver.com www.pulver.com

SBC Communications Inc. www.sbc.com

Verizon Communications Inc. www.verizon.com


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