Tuesday, October 23, 2001

The Bells after the NY Attacks: From Cooperation to Exploitation

By: James K. Glassman, Host, Tech Central Stationo

Telecom firms responded quickly, courageously and diligently to the Sept. 11 destruction of the World Trade Center. From all reports, their actions were a shining example of competitors helping each other in a time of national emergency. But it didn’t take long for selfless cooperation to degenerate into shameless exploitation. Verizon, the Bell company that suffered the most as the result of the attacks, has decided to use the disaster to press a narrow and familiar agenda: trying to eliminate its feisty, smaller competitors, once and for all.

When two hijacked planes crashed into the twin towers, Verizon’s central office switching facility, which controls 3.5 million data circuits and 300,000 voice lines, was badly damaged. AT&T’s local network in Manhattan was damaged. Qwest had power supplies knocked out. And dozens of other providers were hurt as well, mainly competitive local exchange carriers (CLEC) that hook into Verizon’s local network under the terms of the Telecommunications Act of 1996.

But the response was swift. Verizon sent 3,000 technicians to help restore service in Manhattan. AT&T brought in special emergency-response tractor-trailers loaded with switching equipment. Company assisted company. Qwest, for example, “chipped in by sending Verizon switching equipment that had been earmarked for the upcoming Utah Olympics,” reported CMP Media.

On the Monday after the terrorist attacks, Communications Daily noted that Ivan Seidenberg, co-CEO of Verizon, “praised AT&T, WorldCom, Sprint and other CLECs for their aid in [the] restoration effort. He said every CLEC had offered to help, particularly with relocating customer lines.”

But suddenly, the tone changed. Verizon decided to seize on the Sept. 11 calamity as a new justification to gut the Telecom Act and deny competitors the ability to connect to their systems – and ultimately, to try to pass the pro-Bell Tauzin-Dingell bill, which is still tied up in the U.S. House of Representatives.

Two days after thanking the competitors, Mr. Seidenberg, at a Goldman Sachs conference in New York, called “this whole scheme of CLEC interconnection a joke.” That wasn’t the way he saw it in 1996, on the day the Telecom Act passed. Like other Bell executives, Mr. Seidenberg lauded the reform: “This new law promises communications users more choice, lower prices and better service.” A key provision allowed CLECs to lease unbundled network elements (UNEs) from the Bells – as a way to bring competition to local service after a century in which the Bells were a subsidized monopoly, nurtured and protected by government.

Leasing capacity in order to offer service is hardly a new or outrageous idea. In fact, Verizon itself leases facilities from long distance carriers in order to serve its own customers. That’s because Verizon doesn’t yet have the customer base to justify building its own long distance network. That’s precisely the same logic that permits small carriers to lease Verizon’s lines. It’s a proven method to jump start competition: first get the base, then build out your own facilities. It worked in long distance, and it is already happening in local service.

So it was dismaying – although probably not surprising – that Mr. Seidenberg would ridicule his smaller competitors, which have not had the advantage of a century of government protection. Disingenuously, the Verizon executive said he would welcome competitors “our size” with their own facilities but not “this stuff” of competitors’ seeking “seventh floor collocation space” to serve a handful of customers by tapping into a Bell network.

But Mr. Seidenberg’s denigration of the competitors was just a set-up for a broader post-Sept. 11 line of attack – the contention that the provisions of the Telecommunications Act of 1996 constitute a serious danger to national security. “We need to rethink security,” Mr. Seidenberg told Goldman Sachs, emphasizing the risks of giving access to CLEC technicians. “We’ve got people running through our buildings with FCC permits, and we don’t even know who they are.”

Mr. Seidenberg’s comments on Sept. 19 were followed by an aggressive declaration in Scottsdale, Ariz., by Walter B. McCormick Jr., president of the U.S. Telecom Association, the Bells’ trade group. Mr. McCormick, according to a report by Communications Today, said that the risks of terrorism “are increased by various rules that require ILECs [incumbent local exchange carriers, i.e., the four mega-Bells] to allow competitive local exchange carriers (CLECs) to have unbundled access to their networks and to collocate equipment at their premises.”

Around the same time, Verizon filed a letter with the New York Public Service Commission, arguing that competitors should not be allowed to lease Verizon’s network and that its ongoing network pricing case should be reopened since the Sept. 11 disaster had caused Verizon’s prices to rise, affecting the prices it must charge competitors. And another Verizon executive tried to make the case that, because of terrorist threats, it was more important than ever that the Bells be strong financially (not-so-subtle message: pass Tauzin-Dingell).

The security of telecom systems is absolutely vital to the nation, but there is no evidence that technicians from competing companies are more of a risk than technicians from the Bells. In trying to exploit a national disaster to win a competitive advantage that Congress has so far, wisely, denied them, Verizon has behaved in an unseemly fashion. Perhaps that was to be expected – though, after the courageous response of many telecom firms to the calamity of Sept. 11, the shamelessness is sadly disappointing.