BELLS' LONG-DISTANCE PLANS DELAYED BY COURT RULINGS

Section 271 timetable could affect carriers' consolidation efforts

The Bell company express train to the land of Section 271 approvals is being slowed by a series of regulatory and judicial decisions, but industry analysts believe these events represent short stops — not derailments — in the carriers' entry into the long-distance arena.

The latest obstacle is a federal appeals court. The court ruled that the FCC must justify its decision to dismiss competitors' complaints of “price squeezing” by SBC Communications before allowing the Bell company to provide long-distance service in Kansas and Oklahoma.

Approved in January 2001, SBC's applications in those two states were the first granted in largely rural states with relatively little competition. Led by Sprint, plaintiffs in the case argued that the dearth of competition is attributable to the rates SBC charges for its unbundled networks elements (UNEs).

In granting SBC's applications, the FCC dismissed the concern as “irrelevant” because SBC's rates met the total long-run incremental cost (TELRIC) standards included in the Telecom Act. But the U.S. Court of Appeals for the District of Columbia ruled that the FCC should have investigated competitors' “price squeezing” complaints thoroughly.

“The issue is not guarantees of profitability but whether the UNE pricing selected here doomed competitors to failure,” Judge Stephen Williams wrote in the court's opinion. That opinion opens the door to closer judicial scrutiny of 271 procedures, according to Mike Smith, managing director of research for Stratecast Partners. “The court may be sending a signal to the industry in general — and to the FCC in particular — that it is going to be taking a harder look at the activities of the RBOCs and the Section 271 approval process,” Smith said.

The court's decisions to dismiss all other complaints in the case and not reverse the Kansas and Oklahoma approvals is a victory for the FCC and the Bell companies. The court's request that the commission fully explain the reasons behind its dismissal of the “price squeezing” argument should be relatively simple, according to Scott Cleland, CEO of The Precursor Group.

“The FCC can rejustify this in their sleep with their hands tied behind their back,” Cleland said.

The timing of the case is ironic because the Supreme Court already is deliberating a case in which Bell companies argue that TELRIC pricing is unfairly low. Spokesmen for Sprint and the FCC declined to comment, but an SBC spokesman said the carrier does not believe the appeals court ruling “will hamper any 271 applications.”

SBC's greatest challenges appear to be at the state level. After securing 271 approval in five Southwestern Bell states, the RBOC is meeting significant resistance in California — a Pacific Bell state — and in much of its Ameritech territory, where PUCs in Wisconsin and Illinois have halted OSS testing.

Qwest Communications is finding the same difficulties. Thus far, no state has recommended the carrier to the FCC for 271 approval, although the carrier claims its Arizona application is on track. Qwest has claimed it will be the first Bell company to secure long-distance approval throughout its territory after its testing program is accepted by its other 13 states.

Like Qwest, BellSouth has yet to enter the long-distance market in any of its states and recently withdrew its FCC applications for Georgia and Louisiana. Cleland said those applications should be approved on resubmittal.

Still, such delays may make it difficult for the Bell companies to realize their goals of securing 271 approvals throughout their territories by the end of the year, according to Ron Cowles, analyst for Dataquest.

“Everyone is predicting a whole slew of states to be approved for 271,” Cowles said. “This will certainly slow things down.”

The timetable is important because lengthy delays could impact the Bell companies' legislative and consolidation strategies.

For instance, if Bell companies secure 271 approvals by the end of the year, there is little need for the long-distance data relief to be included in the controversial Tauzin-Dingell bill. Instead, legislation could focus solely on Bell companies' desire to recoup their investments when extending their broadband service areas — an aspect of the measure that analysts believe is much more difficult to oppose than long-distance relief.

Long-distance approvals also open the door for Bell/interexchange carrier (IXC) consolidation.

But Cleland said the recent Bell setbacks are little more than “regulatory blips” that should not delay any of the Bell companies' long-distance plans by more than a quarter or two. “I don't think they have to wait [to merge with an IXC],” he said. “I don't think [271 approval] is a gating factor.”

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With additional reporting by Glenn Bischoff and Toby Weber in Chicago.