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A Call to Arms to Competitors
[November 20, 2001] Over the past several months numerous multimillion-dollar fines and countless complaints have been lodged against the Baby Bells in all regions of the nation for everything from wholesale service performance failures and violations of pro-competitive regulatory conditions to other blatantly anticompetitive behavior. At the same time, more and more would be competitors have declared bankruptcy. Yet, in the midst of it all, Baby Bells' hip pocket politicians have the effrontery to introduce and vigorously promote something as ill conceived and anti-competitive as the Tauzin-Dingell "Baby Bell Freedom Act." Equally frustrating, Baby Bell applications seeking long distance authority are proceeding before state commissions and are being routinely, if slowly, approved by the Federal Communications Commission ("FCC" or "Commission"). Is there any hope that this nation's legislators and regulators can and will put two-and-two together and halt what appears to be the otherwise inevitable re-monopolization of the telecommunications industry before it's too late? The Telecommunications Act of 1996 ("the 1996 Act") was signed into law nearly 6 years ago by then President Clinton. At the time, the President, Congress, pro-competitive entrepreneurs and businesses, and the consumers of this country held high hopes that the law would usher in a new era of unbridled competition and choice throughout the telecommunications industry. Almost from the starting gate, however, it appeared that one contingent was intent on derailing this goal. The Baby Bells—BellSouth, SBC Communications, Verizon and Qwest—are the brethren of the former Bell Monopoly System and, to this day, control access to the last mile connection to the majority of the nation's telecommunications consumers. The Baby Bells eagerly pledged to open up their local lines to competitors in exchange for relief from restrictions on their participation in the long distance marketplace. The Baby Bells had no fear in making this pledge because they never intended to live up to it. Just months after the Act's passage, the Baby Bells challenged the FCC's implementation of the pro-competitive provisions of the 1996 Act before courts across the country. These acts alone created regulatory uncertainty at a time when would-be competitors had the financial support to challenge the Baby Bells for control over the last mile. Since then, the Baby Bells have continued to frustrate competition by tying up the pro-competitive provisions of the Act in legal and regulatory proceedings. At the same time, competitors were pouring their financial resources into building out networks, wrestling for interconnection with the Bells, marketing and trying to win customers, they fought an uphill battle against the Baby Bells in court and before regulatory bodies attempting to advance the pro-competitive provisions of the Act. The time, effort and resources competitors invested in these latter efforts were of course necessary because of the Baby Bells' absolute reluctance and resistance to giving up any meaningful control over their local markets. The stall tactics appear to have paid off for the Baby Bells. When the economic uncertainty of the "new economy" caught up with the regulatory and legal uncertainty that has existed in the telecommunications industry since the passage of the 1996 Act, investors, at one time eager to invest in start-up competitive carriers, pulled back and pulled back hard. Uncertainty has now become abandonment. The investment community has even forsaken the likes of such established communications industry players as AT&T, MCI WorldCom and others. While the stock prices of both the established and start-up competitors have been battered, some into dust, the stock prices of the Baby Bells remain strong. Why isn't the FCC and Congress showing concerns and planning action when the "successful," at least arguably well-funded, new entrants, like Teligent, Winstar, Covad, and Rhythms have now failed? An answer, at least to some of us who work in the competitive industry have known all along, can be found, in part, in the announcements of multi-million dollar fines imposed on the Baby Bells for their anti-competitive conduct—their wholesale performance shortcomings, unfair marketing tactics, deliberate sabotage of the pro-competitive conditions attached to FCC and state commission orders approving Bell mega-mergers and the even more ironic disobedience to the FCC orders granting SBC and Verizon entrance into the long distance markets in several states. Following is just a small sampling of the Baby Bells' anti-competitive rap sheets:
Many competitive carriers that rely on the Baby Bells for interconnection, network provisioning, billing, and other services have, for years, kept their frustrations in dealing with the Baby Bells out of the public arena out of fear of reprisal. Recently, however, perhaps out of the realization that the Baby Bells are not interested in developing good "working relationships" with their wholesale customers, more and more have come forward and filed complaints, comments, and letters with regulatory bodies detailing their horror stories and urging investigations. Amid allegations contained in complaints and comments filed by several small competitive local carriers that BellSouth was engaged in a marketing campaign aimed at disparaging competitors in order to win back customers, public service commissions in several southern states (Georgia, Florida and Alabama) initiated investigations into BellSouth's marketing practices. In May, the Atlanta Journal and Constitution reported that, "BellSouth has suspended its campaign to win back customers from local competitors amid charges that its sales staff may not be playing fair." These instances reflect only a fraction of the anticompetitive behavior engaged in by the Baby Bells over the past several years. But putting them all together raises the obvious questions—how can legislators in Washington, D.C. even contemplate giving the Baby Bells relief from the one remaining barrier that prevents them from extending their monopoly power in the local exchange to the long distance marketplace? And how can state utility commissions and the FCC consider approving Baby Bell Section 271 Applications? And, yet, the record is clear that legislators and regulators alike are either not paying attention to what the Baby Bells' intransigence is doing to competition or are casting a blind eye to the abuses because they want their political coffers filled by the well-heeled contributors. The Baby Bells have the monopoly profits . . . their competitors are in Chapter 11. Despite more and more reports of Bell abuses of monopoly power, it appeared that Congress might have been close to passing legislation that would free the Bells from the very restrictions intended by the 1996 Act to induce them to relinquish their monopoly grip on the local exchange. Sponsored by two congressmen long known to be patrons of the Baby Bells, House Energy and Commerce Committee Chairman Billy Tauzin, R-La., and Ranking Democrat, John Dingell, D-Mich., introduced HR 1542, the "Internet Freedom and Broadband Deployment Act," in the House of Representatives in April. HR 1542 is based on the false premise that removing the legal prohibition on the Bells' ability to provide long distance data services in their local regions still under monopoly control will give the Bells the financial incentive needed to deliver advanced networks to residential, rural, and other underserved markets. After months of impassioned public debate and costly lobbying and advertising
campaigns launched by opponents, the bill has been exposed for what it truly
is—a blatant form of corporate welfare designed to help four very large
corporations. The sad reality, however, is that the Baby Bells have not been holding their collective breath, pinning their hopes for long distance relief on the passage of HR 1542. At the same time the Bells had their brigade of lobbyists deployed on the Hill, there were many platoons of Bell lawyers across the country that were infiltrating state utility commissions and persuading locally controlled regulators to support their Section 271 bids to enter the long distance market. Even more disheartening is the fact that the FCC, the agency responsible for independently reviewing state-approved 271 Applications to ensure that competition truly exists in the local exchange marketplace has short-armed its oversight role. Shortly after the leadership of the FCC passed to Billy Tauzin's "friend," Chairman Powell, a most glaring instance came to light. This instance concerned the "new" Commission's approval of SBC's bid to provide long distance in Kansas and Oklahoma. Under the prior leadership of the FCC it was established that either commercial experience or independent, third party testing was needed to demonstrate actual compliance with Section 271's competitive checklist. Under Chairman Powell's Commission SBC was allowed to self-certify compliance as part of the Kansas/Oklahoma 271 proceeding. Relying on the fact that either the FCC or its beleaguered competitors would have trouble finding any "dirty tricks" tucked away in the thousands of pages of documents that make up a 271 Application, SBC took advantage of the Commission's leniency and certified to the Commission that it had fully satisfied all parts of Section 271's competitive checklist. Based on SBC's self-certification, the FCC permitted SBC to begin providing long distance services in Kansas and Oklahoma as of March 7, 2001. Competitors suspected foul play. However, because the FCC failed to either require or perform an adequate examination of SBC's compliance with 271's competitive checklist and relied on SBC's self-serving certification, these companies had to expend valuable resources in order to shine light upon SBC's deception. Nevertheless, as a result of the diligent efforts of several competitive carriers, in April, SBC was forced to reveal to the FCC and the public that the Commission's approval was based on false testimony. What penalty has SBC been made to pay for knowingly, or at a minimum, negligently misleading the Commission? (Knowingly made false statements to a federal agency is a crime by the way, 18 U.S.C. 1001). The FCC recently proposed fining SBC a paltry $2.5 million for its actions. Compare the proposed FCC penalty to the amount of revenue generated by SBC through its premature entrance into the long distance marketplace in Kansas and Oklahoma and its no wonder the Baby Bells flaunt the rule of law. In fact, SBC recently filed another Section 271 Application seeking long distance authority in two more states—Missouri and Arkansas. And SBC is not alone. In the course of the past several months Verizon has been authorized by the FCC to offer long distance services in Pennsylvania and Connecticut and has notified state utility commissions in New Hampshire, Rhode Island, and Vermont that it intends to pursue long distance in those states, as well. Likewise, just over one year after it was required to divest its long distance business in the 14-state local exchange region formerly served by US WEST, Qwest announced that it intends to file its first 271 Application with the FCC by the end of this year and plans to re-enter the long distance market in all of the states it was forced to vacate by as early as 2002. Ultimately, whether it is through the back door by means of HR 1542, or the front door via the 271 process that has, thus far, been held wide open by state commissions and the FCC, the Baby Bells appear poised to break into the long distance marketplace long before real and effective competition in their local markets has taken hold. By casting a blind eye to the monopoly abuses of these behemoths and ignoring the plain fact that they will say and do anything to provide long distance without first living up to their end of the bargain, the responsibility for the otherwise inevitable re-monopolization of the telecommunications industry lies squarely in the laps of this nation's legislators and regulators. —End
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