Baby Bells and competition

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The Federal Communications Commission (FCC) announced on March 31 that the agency was asking for a 45-day stay of a federal court order that threatened to enervate competition for residential and small-business local phone service championed by the 1996 Telecommunications Act. The U.S. Court of Appeals for the District of Columbia vacated an FCC rule requiring the four Baby Bell monopolies -- Verizon, SBC, Qwest and BellSouth -- to lease their networks to competitors at a wholesale rate as determined by a formula established by the FCC and implemented by the states.

The administration supported the agency's stay request in the hope of bringing the Bells and their competitors to the table one last time to achieve an industry-fashioned competitive landscape. The Bell companies were rhapsodic in praise. Their trade association,theUnitedStates Telecommunication Association, gushed:

"As we enter this period of negotiation, we do so with a commitment to working toward the kind of certainty and predictability that seeking another Supreme Court appeal cannot provide."

But the Baby Bell actions did not meet their words. The quartet of monopolies embarked on a public relations campaign, touting contracts signed with competitors in their four regions. What they neglected to say is that those competitors account for a miniscule number of the 19 million customers that actually benefit from the competition jump started by the Telecommunications Act; and that the Baby Bells aim to keep the contract terms secret in order to price discriminate against their more muscular competitors, a tacit confession of monopoly power over local phone service.

Frustrated with the lack of progress, the chairman of the FCC brought the Bells and two of their largest competitors -- AT&T and MCI -- to Washington for marathon negotiation sessions this past weekend. In what should come as no surprise to any casual observer of the telecom wars over the last eight years, no deals were signed.

The administration now confronts a telecommunications crossroad and time is running out: either appeal to the Supreme Court, or leave undisturbed the lower court ruling, which throws a spanner into budding competition. An appeal seems the compelling option. If the solicitor general does not act soon, the court's ruling will take effect and the resultant chaos will cripple the telecommunications sector, leaving millions of consumers in the lurch and at the mercy of phone monopolies.

At present, 19 million consumers and small businesses are enjoying lower prices and innovative service packages as a result of the competition born of the Telecommunications Act. All would be furious if these long-sought benefits were taken away by the stroke of a federal circuit court pen. Make no mistake about it, without competition, rates will spiral and breathtaking innovations like Voice over the Internet telephone service will falter. While the Bells might be happy with that prospect, millions of consumers will pay the price.

Bruce Fein is a former general counsel of the Federal Communications Commission and contributing editor of Tech Central Station.