Verizon hit for wavering on plans

Net upgrades vowed after FCC rule shifts

November 19, 2007 by Troy Rosasco

By Peter J. Howe, Globe Staff, 9/27/2003

For months, Verizon Communications Inc. and other Baby Bell carriers have said they likely would build out new high-capacity Internet services if federal regulators gave them some favorable policy changes.

But now that a long-awaited 600-page ruling from the Federal Communications Commission has been made public — described by the FCC as giving the Bells what they want — Verizon is wavering, saying the rule changes may not be good enough.

While Verizon is pressing the FCC to clarify a host of provisions in last month’s ruling, critics said it could be another example of a Baby Bell pattern that has played out over the past decade: Promise regulators dazzling new high-powered networks if they give the Bells regulatory breaks, but once agencies deliver their half of the bargain, back out and pocket all the new profits regulators allow.

This year, Verizon, SBC, and BellSouth jointly began seeking bids from vendors to sell common-standard gear to deploy fiber-optic connections to homes and businesses across the country as soon as next year, delivering multimegabit-per-second Net access. The fiber lines could be 10 to 30 times faster than today’s broadband connections that use upgrades of conventional copper phone lines.

Construction of such a multibillion-dollar network would give a huge boost to the shattered US telecommunications and telecom-equipment industry, which has lost more than 250,000 jobs in the past three years. It also would open the door to new competition for cable and satellite television companies because the phone company lines could deliver rich-featured, multichannel television service, as well as new high-bandwidth broadband Net services.

The three Baby Bells said, however, that their plans were contingent on the FCC ruling that they would not have to share these new networks with competitors, such as AT&T Corp., MCI, Covad, and other rivals. The Bells argue that current FCC rules for voice service, which have mostly been preserved in the latest retooling of the landmark 1996 telecommunications act, force them to sell network access at far below cost so they effectively subsidize competitors taking away Bell customers.

FCC commissioner Kevin Martin, a Republican, forged an unusual majority with two FCC Democrats in approving the latest ruling over chairman Michael K. Powell’s opposition. Martin said by eliminating network-sharing mandates for new broadband lines, the order, whose final details came out more than six months after the first vote, “provides sweeping regulatory relief for broadband and new investments.”

But last week, Verizon chief financial officer Doreen Toben said in a conference call with Wall Street analysts, “The order is worse than we expected based on the original FCC press release and what commissioners told Congress about what to expect in the written order.”

Tom Tauke, Verizon’s senior vice president for public policy, said Verizon lawyers scrutinizing the order have found several red flags, including issues about whether the network-sharing exemptions apply equally to Verizon’s former Bell System properties and those it inherited from GTE Corp., which the law treats differently from companies involved in the 1984 AT&T breakup. Tauke also said the FCC ruling leaves uncertainties about whether Verizon would be forced to share new fiber-optic lines it builds to apartment buildings and certain businesses. The FCC could quickly resolve those uncertainties by taking action in two cases that have been pending for nearly two years, Tauke said.

FCC spokesman Michael Balmoris said the agency had no comment on Verizon’s statements, but noted that the agency last week issued 39 corrections and clarifications to the Aug. 21 order.

Verizon and other Bell companies have a long history of second thoughts about promised network upgrades. In the early 1990s, for example, Verizon predecessor Bell Atlantic promised to spend $11 billion on a 500-channel “information superhighway” network it never built. The company is battling Pennsylvania regulators and legislators over its reluctance to build out a statewide broadband network in exchange for regulatory relief that gave Verizon millions in added profits.

Lee L. Selwyn, president of Economics and Technology Inc., a Boston telecom consulting firm that represents consumer groups and Bell competitors, said Verizon’s wavering on the FCC changes may be more of the same. “The Bells have been promising to make investments in broadband for well over a decade in exchange for various forms of regulatory relief and deregulation, and for the most part, they just haven’t done it and have tried to back out of their commitments or redefine them,” Selwyn said.

Robert W. Quinn, vice president of governmental affairs for AT&T, said he doubts the Bells are serious about a massive fiber-optic deployment because it could add tens of billions of dollars to their big debt loads and cannibalize much of their most lucrative high-speed data business delivered on existing copper lines.

“All they’re doing here is throwing up different reasons why they can’t make the investments they’ve promised,” Quinn said. “They’re never going to be satisfied. There is always something with these guys.”

But Verizon’s Tauke said if the FCC follows through with the rules clarifications Verizon wants, “I think it’s fair to say that the FCC will have unleashed the ability of companies to invest in this country’s vital wireline infrastructure.”

Peter J. Howe can be reached at howe@globe.com.