Small businesses, CLECs, and independent ISPs anxiously await an announcement of changes to regulation that may or may not occur tomorrow.

by Alex Goldman ISP-Planet Associate Editor [February 19, 2003]

Tomorrow, on February 20th, the Federal Communications Commission is expected to announce changes regarding unbundled network elements-platform (UNE-P), the program that allows ISPs and CLECs to access the phone companies' networks. Tomorrow's decision has been postponed repeatedly, suggesting that the FCC does not have a unanimous decision to promulgate.

As always at the FCC, any debate, if there is one, is held behind closed doors. We have no secret source within the FCC. We don't know what is being discussed or what arguments are being advanced. We are not even certain that any announcement will be made tomorrow.

However, we have gathered the thoughts of a number of industry observers as to what they think likely to happen.

It is possible, as DSL Prime alleged in this article, that a deal will be made on fiber, allowing the phone companies monopoly protection of any fiber services they build.

Jason Oxman, vice president and assistant general counsel for Covad Communications, said that the commission is considering restricting access to telco voice switches. A change in the rules concerning voice services would not affect Covad, which provides data but not voice.

Oxman said that Covad has some concerns about regulation, but that the FCC is doing well. He said, "we've chosen to go to the courts for enforcement of the rules, rather than to the FCC. Chairman Powell has stepped up enforcement over the past two years, but it's not where we'd like it to be."

View from the ISP bridge
One ISP owner had heard that the FCC was considering limiting the number of companies that can place equipment in ILEC COs to provide voice and data. He commented, "If you force me to buy only from Covad, Genuity, or Verizon, they're competing with me and you have a potential conflict of interest. Covad sells retail. Why would they sell to me at a price that allows me to compete with them?"

He suggested an alternative. "Are you going to regulate Covad's prices? If you're going to regulate prices, why not split the phone company in half? One half sells retail and owns the wires, and the other half sells to customers, but buys from the retail half like everyone else. If you're limiting the number of companies with access to the CO, you're creating an economic oligopoly. If you allow no new entrants, the existing companies will have no reason to allow competition."

Another ISP executive, David Luce, founder and president of Telerama ("the world's third ISP"), told us, "my opinion on the FCC announcement is that it's a little scary. Ending UNE-P would guarantee a limit on the options available to ISPs. Even if it would not directly affect the data side, it would discourage some data providers from getting into the market, since they would be less likely to realize revenue from consolidated voice and data services."

Thoughts from lobbyists and advocates
Lobbyists for small business seem particularly worried about potential rule changes. Karen Kerrigan, chairman of the Small Business Survival Committee, and Sue Ashdown, executive director of the American ISP Association, joined to file comments with the FCC [.pdf].

They said, "We strongly believe that any attempt to abort competition in either the voice or the high speed data industries will create a drag on the economic recovery and will be felt particularly hard among small businesses who are finally seeing the benefits of true competition in local phone service. We would urge you against going down such a road."

In a separate release on Feb. 5, 2003, Kerrigan said that UNE-P has allowed CLECs and ISPs to provide local telecom service to 11 million small businesses and consumers, "who formerly had no alternative to the inflated rates and indifferent service offered by the Bell companies."

She added, "small business people don't expect handouts from the Federal government. Like many Americans, however, we are outraged when powerful corporate interests use complex and obscure government processes to such self-centered ends. In the current case of telecommunications policy, it is clear that small businesses and entrepreneurs—both as consumers and competitors—are being ignored and shut out of current FCC proceedings, where we have such an enormous economic stake in the outcome."

The National Federation of Independent Business is also up in arms. The organization filed with the FCC, saying that UNE-P has allowed competition to gain 7.6 percent of the small business market. Although this may seem a small amount (it leaves 92.4 percent of the market still in the hands of monopoly providers), the federation claimed that a recent study said small business could save between $2.2 billion and $6 billion per year on phone bills if full access to UNE-P is maintained.

The filing added, "as price takers, small business owners do not have the luxury of negotiating rates like many larger firms. Instead, small business owners must rely upon competition in the marketplace to hold down prices."

As we noted earlier, ISP-Planet does not have a leak at the FCC. We don't know what will be decided—or even whether the FCC will actually announce any changes tomorrow. We strongly suggest, however, that if your livelihood depends on competition, you keep a close eye on developments as they occur.

— End