FCC ruling may hurt some DSL providers
Observers say Tauzin-Dingell Bill remains bigger issue.
By Michael Martin
Network World, 02/25/02
New rules under consideration by the Federal Communications
Commission could make it more expensive for competitive providers to
serve up DSL services.
If the proposed changes stand, DSL would be labeled an information
service rather than a telecom service. That change may in turn reduce
the price breaks that regional Bell operating companies are required
to offer competitive DSL carriers.
But until the FCC reaches a decision on whether to decrease
regulation on broadband and RBOCs that provide the infrastructure for
DSL, it`s unclear how much effect the proposed rules could have.
The RBOCs - SBC Communications, Verizon, BellSouth and Qwest
Communications - have complained for years that they are unable to
offer DSL services on a more widespread basis because FCC
regulations, as well as the Telecommunications Act of 1996, force the
RBOCs to wholesale their broadband services to competitors. The RBOCs
say they`re hesitant to invest in new broadband networks when they
can`t predict how much of a profit margin they`ll make from any new
network investments.
Earlier this month, the FCC released what is called a notice of
proposed rulemaking. In its notice, the FCC indicated that it would
designate DSL as an information service, instead of a telecom
service, and this would allow the RBOCs to escape some of their
wholesaling obligations. The goal of the rule change, the FCC says,
is to provide incentive for the RBOCs to invest in new broadband
technology and put DSL services on a more even footing with cable
broadband offerings.
Cable providers are not forced to wholesale broadband services to
competitors.
The FCC now will solicit comments from the public about its proposed
rule change. Once the public comments are in, the commission will
make a final ruling. Any rule changes are likely to take at least six
months.
Not all competitive DSL providers would be affected by the FCC`s
proposed rule changes. DSL providers that have their own DSL access
multiplexers and purchase only the unbundled local copper loops from
the RBOCs, such as Covad Communications, won`t see their business
models change.
The ones affected will be providers that rely entirely on purchasing
wholesale DSL from the RBOCs, such as AOL. These providers have been
getting their DSL at an approximately 55% discount, says Matthew
Davis, an analyst with The Yankee Group. Davis says these competitive
providers still would be able to buy wholesale lines after any rule
change, but that the discount would likely drop into the 20% range.
"Obviously that may make it tough for competitors to make money on
the service," he says.
While Covad wouldn`t likely be affected by the proposed FCC rule
change, Jason Oxman, Covad`s vice president and assistant general
counsel, says the provider isn`t happy with the direction the FCC is
heading in.
"Their actions here appear to be exactly what the [incumbent local
exchange carriers] have been calling for," he says.
Oxman downplayed the impact of any FCC rule changes. Instead, he
says, Covad is focusing its attention on the Tauzin-Dingell Bill,
which is slated for a vote in the U.S. House of Representatives this
week. Tauzin-Dingell would allow the RBOCs to offer data services
without having to prove that they are giving competitors access to
the RBOC networks, as called for in the telecom act.
Tauzin-Dingell is perhaps more significant because legislation passed
by the House and U.S. Senate can alter the provisions of the telecom
act, while the FCC cannot, Oxman says.
Verizon spokesman Bob Bishop agrees that Tauzin-Dingell is a much
more important action than the FCC`s proposed rule changes.
"The problem we have with this is people are using the proposed rule
change to politicize what`s going on," he says. "They`re trying to
say the FCC action makes Tauzin-Dingell less important, and that`s
not true."
It`s far too early to tell what, if any, impact the proposed changes
would have on DSL services, Bishop says.
If Congress passes Tauzin-Dingell this week, the bill must still get
through the Senate - something opponents consider unlikely to happen.
"We`re confident that if it gets through the House, there`s no way
the Senate will pass it," Covad`s Oxman says.
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