- The Washington Times - Wednesday, December 27, 2000

A new administration is coming to town. Will its new Federal Communications Commission (FCC) have any more success in promoting competition in telecommunications than the last one? Consumers can only hope so. In the last few years that vital sector of the New Economy has strayed back into what I have called remonopolization.

Last week, phone competition received a temporary reprieve, at least in Massachusetts. The giant local phone conglomerate, Verizon, withdrew its application to the FCC to provide long distance service there. Under FCC rules implementing the 1966 Telecommunications Act, such long-distance plums are supposed to be awarded only if a Bell opens its local monopoly to competition the primary goal of the law. This reprieve, though, is likely to be short-lived, as Verizon and the other four regional Bell operating companies from AT&T;'s breakup are on a crusade to destroy the Telecom Act and its promise of consumer choice.As Peter J. Howe of The Boston Globe reported Dec. 17, two Verizon rivals in the Boston area HarvardNet and Digital Broadband Communications were pulling the plug on their red-ink-hemorrhaging digital subscriber line (DSL) services, the phone version of highspeed broadband access to the Internet. Their action followed large cutbacks by some of the biggest of the so-called CLECs (competitive local exchange carriers): Covad, Rhythms NetConnections, NorthPoint Communications and Network Access Solutions.

The quick explanation for the CLECs' declines is that they fell out of favor on Wall Street, with their stock prices plummeting 90 percent in recent months. Underlying their difficulties, though, is something more disturbing. It's the Bells' ability to thwart the intent of the Telecom Act and strengthen their monopolies instead.

In 1996, there were eight local companies the seven Baby Bells plus GTE. Now there are only four. Verizon is the combination of Bell Atlantic, Nynex and GTE. SBC is the agglomeration of Southwestern Bell, Pacific Bell and that Bell of the Midwest, Ameritech. Even as the Bells have enlarged their regional monopolies, they've maintained their stranglehold on the last mile of phone line. They've done so crudely, trying to derail the Telecom Act they helped negotiate in court and in Congress. They've sued and sought legislation to overturn rules keeping them out of long-distance until they've opened their networks. And when they have sold services to rivals as required, they've often not delivered all they promised.

Covad, for example, won a $27 million arbitration award in May from SBC's PacBell branch, after arbitrators found PacBell had falsely claimed there wasn't enough room at its key office in Menlo, Calif., for gear Covad needed to provide its customers DSL service. Bell was hit with another $960,000 in penalties from October last year to February for failing to work with other competing phone companies.

And particularly galling is what led Verizon to be fined $13 million last spring. After winning approval to enter the long-distance business in New York last December, it subsequently mishandled thousands of customer orders for rival CLECs, undercutting their business.

While these fines show regulators are keeping on eye on the Bells, they are mere hand slaps considering the Bells' deep financial pockets. Verizon has annual revenues of more than $65 billion, and it stands to make tens of billions more if it can discourage its customers from moving to rival local carriers and sign them up for long-distance and data services.

The success of such tactics shows up in the numbers. After rivals have spent $100 billion of investment trying to break into local markets, the Bells continue to control 95 to 98 percent of them. Verizon, meanwhile, was able to snatch up a million long-distance customers in less than a year.

Little wonder, then, that Covad and other CLECs are trying to make deals with their giant landlords rather than continue to fight them. In September, Covad dropped an antitrust suit and gave SBC a 6 percent stake in return for $150 million.

As attrition of rivals for local phone and Internet service continues, the Bells also are trying to hobble their biggest potential rival in broadband, cable television firms. They are seeking federal legislation and regulations establishing the conditions under which the firms can sell access to cable lines.

All of this gives the Bells more time to roll out their own DSL service and maintain their local monopolies. If they succeed, history shows that consumers will pay the price. Not until AT&T; and upstarts like Covad began to provide broadband did the Bells follow suit. And where the Bells could get away with it, they charged premium prices. U.S. West, for example, initially charged nearly $60 a month for its high-speed fiber optic line until competitors took customers away. Then it dropped its price by 25 percent. Get rid of those upstarts and prices will go up again.

That's why its good news for consumers when a Bell is forced to step back from a premature request for long-distance service. It keeps pressure on them to open their lines to competition. But the new administration, its regulators and Congress must wake up to the reality that as long as the Bells' monopolies live on, they'll systematically kill off competition. They need not ask for whom the Bells toll. They toll for consumers and the death of their communications choices.

James Glassman is the host of TechCentralStation.com.

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