THE BLAME GAME HEATS UP AS TELECOM STOCKS TANK

There's plenty to go around, but most fingers point at regulators

Tom Tauke needs only to read the agate type in the business section of the paper to know there's something terribly wrong with the telecom industry.

“Telecom stocks are a disaster,” said Tauke, senior vice president of public policy and external affairs for Verizon Communications, speaking at last week's Precursor Group investor conference. “The message is clear: People don't want to put any more money into this industry.”

A major reason for the malaise that shrouds the industry is the chokehold being applied by state and federal regulators, he said. “Regulators have to stop wringing their hands and do something that encourages investment in the sector.”

Rep. Billy Tauzin, R-La., said the FCC should speed up the Section 271 process for allowing the Bell companies into in-region long distance. He called the FCC's administration of the process “a mess.”

FCC Chairman Michael Powell acknowledged the current regulatory structure “doesn't move fast enough or fair enough” and that the commission needs to do something about it.

Tauzin accused the FCC of changing the rules by adding conditions the Bell companies have to meet. He said the controversial broadband deregulation bill he is co-sponsoring with Rep. John Dingell, D-Mich., is designed to prevent that from occurring in the high-speed data transport sector.

“Tauzin-Dingell is about saying to the FCC: ‘If you want to drag 271 into the next century, go ahead — but keep your grubby hands off broadband,’” he said.

A key component of Tauzin-Dingell — scheduled for a House vote on Feb. 27 — would relieve the Bell companies from giving competitors access to new data infrastructure such as remote data terminals at total element long range incremental cost (TELRIC) pricing. Bell companies maintain that only after this burden is lifted will they invest heavily in their data networks — capital expenditures that would give vendors a much-needed boost.

But many of telecom's woes are being attributed to the collapse of the competitive carrier sector. Surviving CLECs have drastically reduced — or stopped — buying gear, and some have sold their equipment on the secondary market, tightening the squeeze on vendors.

A concern with Tauzin-Dingell is that it will devastate the remaining CLECs, leaving fewer carriers to buy equipment and giving investors more reason to avoid telecom.

Competitive carriers accuse incumbent carriers of gaming the current system, particularly prices charged for unbundled network elements (UNEs). Their complaints are beginning to find sympathetic ears, as the New York PUC recently ordered Verizon to lower its UNE rates by 30%.

Leonard Cali, vice president of federal government affairs for AT&T, said the carrier had seen a “drastic increase in the cost of the local loop,” in New York. The order will let AT&T gain a “substantial toehold” in the state and foster facilities-based competition. “We hope this is the beginning of a trend,” Cali said.

Incumbent and competitive carriers should worry less about UNEs and more about offering value-added services to their customers, said Dorothy Attwood, FCC common carrier bureau chief. “They need only to look toward the wireless carriers for an example of what consumers will pay if the value proposition is there,” she said.