March 22, 2006 4:00 AM PST

Verizon exemption could make businesses pay

Broadband deregulation in the business market has arrived, whether anyone wants it or not.

Earlier this week, the Federal Communications Commission acknowledged at a conference in San Diego that Verizon Communications had been exempted from regulation on its business-broadband service.

Verizon had filed a petition in December 2004 asking the FCC to free it of all regulation. The FCC was split on the issue and didn't actually vote on the petition, but the measure was granted because the commission failed to deny or accept it before a deadline last week. According to the law, if the petition had not been denied within a set period of time, it would be granted.

The exemption essentially gives Verizon the power to charge its business customers and competitive carriers, who use Verizon's local access network to connect to businesses, any price it likes for using the network. It also frees the phone company from making contributions to the Universal Service Fund.

For Verizon and possibly other local phone companies like AT&T, which also plans to file a petition, the inaction of the FCC and the eventual granting of the exemption is great news. Verizon has effectively succeeded in freeing itself from regulation that required it to share its network with competitive carriers and dictated prices it could charge customers.

But for business customers, which buy services directly from Verizon, and competitive carriers, such as Level 3, Sprint Nextel and Qwest communications, which use Verizon's local network to sell services to business customers, prices for the use of this network could rise significantly, say critics.

"The chairman's action represents the height of irresponsibility by a federal official," Earl Comstock, president and CEO of Comptel, an association representing Verizon's competitors, said in a statement. "Competition and consumers are now at the mercy of Verizon's financial self-interest. If history is any guide, there will be predictable adverse results."

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But Verizon argues that being freed of these regulations will actually lead to more competitive pricing and allow it more flexibility in serving customers.

"We are appreciative that supporting commissioners recognized changes in technology and the marketplace," Susanne Guyer, Verizon senior vice president for federal regulatory affairs, said in a statement. "The end result will be greater innovation, more-competitive pricing and more-flexible arrangements tailored to meet the needs of our business customers."

Though the exemption was granted only to Verizon, it's likely other phone companies will soon file their own petitions. At the TelecomNext trade show in Las Vegas on Tuesday, Edward Whitacre, CEO of AT&T told reporters his company plans to file a petition as well.

"I think it will be pretty close to what Verizon did," Whitacre told Reuters. "I'm sure if Verizon has it, we'll get it too."

FCC chairman Kevin Martin, who also attended TelecomNext, said he couldn't comment on whether AT&T's petition would be granted, but he reiterated his position that regulations should not reach too far and impede on the phone companies' ability to make back their investment in infrastructure.

"We need to make sure that we provide a regulatory environment that allows network operators to recoup their investments," he said.

But industry groups, such as Comptel, which represents the competitive local exchange carriers, or CLECs, worry that a deregulated business broadband market is a death knell for competition and will ultimately lead to higher prices for business customers.

The reason is simple. Unlike the consumer market, there are few companies offering connections into a business. On the consumer side, local phone companies compete against cable operators, which own their own pipes into homes. But in the business market, customers either buy services directly from the local phone company or from a competitive carrier that uses the phone companies' infrastructure.

Previous regulations guaranteed these competitive operators access to this infrastructure, and it also guaranteed prices, both for companies buying wholesale service and businesses buying service retail from the local phone company.

The deregulation of Verizon's broadband business services is just the latest chapter in an ongoing effort by the phone companies to deregulate their businesses. This latest move now puts Verizon's business broadband services on equal footing with the company's consumer DSL business.

Back in August, the FCC voted to reclassify DSL broadband service, which subsequently freed Verizon and other local phone companies such as AT&T and BellSouth, from regulations that had required them to share their infrastructure with Internet service providers, such as EarthLink.

The latest move by the FCC is likely to face challenges from competitive carriers, say experts. But some analysts say these protests are just sour grapes, since the deregulation of business broadband is a necessary step in developing a mature, market-oriented broadband market.

"The standalone CLEC business is fading," said Jeff Kagan, an independent telecommunications analyst based in Atlanta. "This isn't the same industry that it was in the 1990s and the 1980s. There is much more competition. The CLECs complaining are likely the ones that haven't evolved to change with the maturing market."

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8 comments

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How long can MaBell stick with smaller carriers?
Right now, Verizon, AT&T (BellSouth) and SBC, along with AllTel and other mid-level phone carriers are bound up with hundreds of smaller carriers in the USTelecom trade association. The larger carriers want deregulation (and, from the looks of it, they're getting this from Mr. Martin's FCC). The smaller carriers want a healty Universal Service Fund, because (a) they collect from it, and (b) it serves their communities (it doesn't look like USF is getting the deals that Verizon and the RBOCs are getting, however).

The phone carriers have long benefited from the camouflage smaller carriers give to the alrgest, often campaigning/lobbying as if they are a small business association. In return, the smaller carriers get to borrow the resources of the largest carriers in lobbying/advertising efforts, since association dues are based on revenues.

But with Verizon and AT&T and other large carriers gradually being excused from contributing to USF, there becomes less and less value being delivered to the smaller carriers (at least in terms of reaching their goals - their associations will still overpromise and underdeliver) and at some time they will take their camouflage away from the biggier carriers. The two groups' interests don't really coincide anywhere but inside the Beltway, and that intersection is rapidly disappearing as well.
Posted by gparshal (15 comments )
Reply Link Flag
How long can MaBell stick with smaller carriers?
Right now, Verizon, AT&T (BellSouth) and SBC, along with AllTel and other mid-level phone carriers are bound up with hundreds of smaller carriers in the USTelecom trade association. The larger carriers want deregulation (and, from the looks of it, they're getting this from Mr. Martin's FCC). The smaller carriers want a healty Universal Service Fund, because (a) they collect from it, and (b) it serves their communities (it doesn't look like USF is getting the deals that Verizon and the RBOCs are getting, however).

The phone carriers have long benefited from the camouflage smaller carriers give to the alrgest, often campaigning/lobbying as if they are a small business association. In return, the smaller carriers get to borrow the resources of the largest carriers in lobbying/advertising efforts, since association dues are based on revenues.

But with Verizon and AT&T and other large carriers gradually being excused from contributing to USF, there becomes less and less value being delivered to the smaller carriers (at least in terms of reaching their goals - their associations will still overpromise and underdeliver) and at some time they will take their camouflage away from the biggier carriers. The two groups' interests don't really coincide anywhere but inside the Beltway, and that intersection is rapidly disappearing as well.
Posted by gparshal (15 comments )
Reply Link Flag
Ma Bell does it again
I have been in the Telecom industry since the early 70's. Back then, Ma Bell (Western Electric) received $372 for a single telephone - why, because the operating Telco's could only buy from Western Electric!) This will happen again if we let it. In another year or so, we will only have 2 phone companies - AT&T and Verizon. Then, they will merger and force rates back up just like they crushed competition! Now, with our new wus of a FCC, here they go again!! Mark my words - within 5 or so years, we will be back to one dominate carrier and NO choices!
Posted by dad071444 (7 comments )
Reply Link Flag
Ma Bell does it again
I have been in the Telecom industry since the early 70's. Back then, Ma Bell (Western Electric) received $372 for a single telephone - why, because the operating Telco's could only buy from Western Electric!) This will happen again if we let it. In another year or so, we will only have 2 phone companies - AT&T and Verizon. Then, they will merger and force rates back up just like they crushed competition! Now, with our new wus of a FCC, here they go again!! Mark my words - within 5 or so years, we will be back to one dominate carrier and NO choices!
Posted by dad071444 (7 comments )
Reply Link Flag
business market
"But in the business market, customers either buy services directly from the local phone company or from a competitive carrier that uses the phone companies' infrastructure."

The lack of acceptable service in my 12 story downtown Philadelphia building has been a key factor in our descision to move out of Philadelphia. The rate difference for bussinesses is so inflated as is, you would expect bussiness class service, you would think that improvements would be made. There is no improvement in sight for this CO <a class="jive-link-external" href="http://www.telcodata.us/switchinfo.html?clli=PHLAPAPODS0&#38;results=1" target="_newWindow">http://www.telcodata.us/switchinfo.html?clli=PHLAPAPODS0&#38;results=1</a> that charges premium rates regardless of who provides the service.
Verizon's motivations have been made clear. This petition is testament to Verizon's desire to charge more than the service is worth. They do not want to allow other companies to use the facilities when they could be providing their 85% service to 100% of the customers.

In case your not aware of the 85% service agreement it goes like this. In bussiness, when providing a customer w/ a service, lets say trousers, a given size will only fit certian gentlemen. And so pants come in an array of sizes so that a profitable market is reached. To supply every size possible would for one, be impractical, and two, there would not nessesarily be a gentleman for the very large or small or peculiarly shaped sizes. So 85% of the trouser market is targeted. The remaining 15% will undoubtly be frustrated. Fortunatly tailors and big and tall shoppes can meet there needs, while only a fraction would be concidered special needs. This is the same for all bussinesses. Verizon for instance assumes a small percentage of their customers will have technical connection issues. And so rather than service these customers with costly support or repairs, they forgo that support and those repairs. Afterall 85% of the time the tech isn't qualified to repair it, the right CSR can't figure out whats going on and customers have a hysterical perception of internet services. They also assume that 85% of their customers can be satisfied w/ connection quality that is suitable for web browsing. If the connection was good enough for voip service, they would loose telephone fees. So why improve the connection quality if it is only going to cost profits?

The only problem is that there are no alternatives to this company. Imagine if the water came out of your faucet muddy (which it does but I could go on about Philadelphia)? Or not at all? Or you were charged the same price as bottled water and you needed to fill up a swimming pool? The water company must provide certian level of water service in order to be the water company in a municipality. The water company hasn't beefed up and started playing hardball w/ the electric company. It's a good thing too, afterall alot of the pipes we layed long ago by the city or by developers and the water they sell is the local watershed. If people stopped useing as much water the water companys interests don't need to be protected, it just sells less water, it makes less profit, if any at all and if everyone started bathing w/ bottle water today the water company would quitely and calmly pack up and go home. There is no societal need for incentive to propagate the water company because it is a municipality propped up by the commonwealth. There is no import or export of service and it can't leave. If someone pissed in lake eere we start drinking from lake michaign but the water company can't hold back water in anticipation of what Canadians might do.

I'm not against high speed, wide or narrow, band but Fios was sold a way around copper wire regulation. Now there isn't any. Which is a shame because I could have wired my neighborhood w/ two coax for less than a $1000 in cable, throw a docsis 3.0 modem at every house and while it will never be speed of light fast it will be boats loads faster than anything that can actually make the light and a fraction of the cost at least for the equipment (take cirular saw and run a line down the road to put it in and fill it w/ macadam if someone actually had this thing called a budget). By the way I don't live in Philadelphia but you probably already knew that. It'll take a lot of Universal Service Fees to find the dsl loop for the next tenents but in the meantime they can pay to have my front yard dug up. Who's going to pay to fix it? hmmm . . . Enron lays fibre optics . . .
Posted by vampares (39 comments )
Reply Link Flag
business market
"But in the business market, customers either buy services directly from the local phone company or from a competitive carrier that uses the phone companies' infrastructure."

The lack of acceptable service in my 12 story downtown Philadelphia building has been a key factor in our descision to move out of Philadelphia. The rate difference for bussinesses is so inflated as is, you would expect bussiness class service, you would think that improvements would be made. There is no improvement in sight for this CO <a class="jive-link-external" href="http://www.telcodata.us/switchinfo.html?clli=PHLAPAPODS0&#38;results=1" target="_newWindow">http://www.telcodata.us/switchinfo.html?clli=PHLAPAPODS0&#38;results=1</a> that charges premium rates regardless of who provides the service.
Verizon's motivations have been made clear. This petition is testament to Verizon's desire to charge more than the service is worth. They do not want to allow other companies to use the facilities when they could be providing their 85% service to 100% of the customers.

In case your not aware of the 85% service agreement it goes like this. In bussiness, when providing a customer w/ a service, lets say trousers, a given size will only fit certian gentlemen. And so pants come in an array of sizes so that a profitable market is reached. To supply every size possible would for one, be impractical, and two, there would not nessesarily be a gentleman for the very large or small or peculiarly shaped sizes. So 85% of the trouser market is targeted. The remaining 15% will undoubtly be frustrated. Fortunatly tailors and big and tall shoppes can meet there needs, while only a fraction would be concidered special needs. This is the same for all bussinesses. Verizon for instance assumes a small percentage of their customers will have technical connection issues. And so rather than service these customers with costly support or repairs, they forgo that support and those repairs. Afterall 85% of the time the tech isn't qualified to repair it, the right CSR can't figure out whats going on and customers have a hysterical perception of internet services. They also assume that 85% of their customers can be satisfied w/ connection quality that is suitable for web browsing. If the connection was good enough for voip service, they would loose telephone fees. So why improve the connection quality if it is only going to cost profits?

The only problem is that there are no alternatives to this company. Imagine if the water came out of your faucet muddy (which it does but I could go on about Philadelphia)? Or not at all? Or you were charged the same price as bottled water and you needed to fill up a swimming pool? The water company must provide certian level of water service in order to be the water company in a municipality. The water company hasn't beefed up and started playing hardball w/ the electric company. It's a good thing too, afterall alot of the pipes we layed long ago by the city or by developers and the water they sell is the local watershed. If people stopped useing as much water the water companys interests don't need to be protected, it just sells less water, it makes less profit, if any at all and if everyone started bathing w/ bottle water today the water company would quitely and calmly pack up and go home. There is no societal need for incentive to propagate the water company because it is a municipality propped up by the commonwealth. There is no import or export of service and it can't leave. If someone pissed in lake eere we start drinking from lake michaign but the water company can't hold back water in anticipation of what Canadians might do.

I'm not against high speed, wide or narrow, band but Fios was sold a way around copper wire regulation. Now there isn't any. Which is a shame because I could have wired my neighborhood w/ two coax for less than a $1000 in cable, throw a docsis 3.0 modem at every house and while it will never be speed of light fast it will be boats loads faster than anything that can actually make the light and a fraction of the cost at least for the equipment (take cirular saw and run a line down the road to put it in and fill it w/ macadam if someone actually had this thing called a budget). By the way I don't live in Philadelphia but you probably already knew that. It'll take a lot of Universal Service Fees to find the dsl loop for the next tenents but in the meantime they can pay to have my front yard dug up. Who's going to pay to fix it? hmmm . . . Enron lays fibre optics . . .
Posted by vampares (39 comments )
Reply Link Flag
Here we go again
I'm beginning to wonder why federal agencies like the FCC and the SEC exist. It has been quite awhile since they've actually done the job they were created to do by Congress. But I guess if your only reason for existence is to rubber stamp regulations that are for the sole benefit of Big Business, I'd have to admit that they're doing a great job.
Posted by cardinalbird2 (13 comments )
Reply Link Flag
Here we go again
I'm beginning to wonder why federal agencies like the FCC and the SEC exist. It has been quite awhile since they've actually done the job they were created to do by Congress. But I guess if your only reason for existence is to rubber stamp regulations that are for the sole benefit of Big Business, I'd have to admit that they're doing a great job.
Posted by cardinalbird2 (13 comments )
Reply Link Flag
 

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