USTA CALLS FOR WAR, THEN INVITES COMPETITORS TO TALK

Areas of agreement didn’t appear enough to halt battles about competitive use of Bells’ unbundled network elements (UNEs), although Cicconi said even UNE battle appeared to rest on pricing rather than on right of competitors to use those elements on wholesale basis. Shortly after morning session, Consumer Federation of America (CFA) held call-in briefing with reporters to criticize USTA for holding “war council to roll out a strategy to attack the [seeds] of local competition being sown around the country.”

McCormick and outgoing USTA Chmn. Arne Haynes opened Mon. session with strong battle cry against regulations affecting USTA’s 2 key memberships -- larger companies’ concern about sharing network elements with competitors, and rural companies’ fear of losing some of their Universal Service funding to wireless competitors. They said USTA had revised its operations in last year and was more prepared to fight what group considered unfair regulations with stronger, more unified front. Wireless ETCs [eligible telecom carriers) “are raiding the universal service fund without any requirement that they justify the subsidy,” Haynes told audience. Telcos are going “head-to-head with competitors who are not playing by the same rules” such as cable, satellite and wireless, he said. Only way to survive is “we change the rules” through “formidable,” more organized force, Haynes said. “The telecom train wreck was predictable but we weren’t prepared… now we are,” he said: “We simply ask that we are not put at a disadvantage by our government. This is the FCC’s moment to make things right.”

McCormick told group: “Our industry alone faces a truly Orwellian challenge, dealing with heavy-handed monopoly rules and heated competition. We are hemorrhaging minutes of use to new platforms and new competitors but still are regulated to the hilt.” USTA’s members from large and small companies, offering variety of services, are participating more in committees and as result association is more unified and reflects broader range of issues, McCormick said. Attendance is up 15% at conference this year and exhibit sales increased nearly 50%, he said. “The new USTA will not shy away from a fight,” he told audience. “Our members are leaders and your staff are like the Marines.” Among McCormick’s warnings to members: (1) “WorldCom ran itself into the ground. We are not going to let WorldCom take down financially our well-run companies. We are not going to let WorldCom bleed us dry.” (2) “Policymakers are looking for solutions [to poor telecom economy] and our competitors say that the answer lies in more regulation of us, less regulation of them.”

AT&T’s Cicconi told competitors panel that his company also had concerns about universal service system, for example whether wireless substitution and voice over IP technology would decrease amount of money available to fund universal service subsidies. He said CALLS access reform plan was based on agreement between ILEC and long distance companies. Nextel Counsel Laura Phillip said wireless carriers were making “substantial contribution” to Universal Service Fund because contributions were based on revenue. Cox Enterprises Vp Sandy Wilson reminded audience that Cox had been around “almost as long as USTA,” beginning as newspaper, moving to radio, TV, cable and now telephony as new technologies came available. She said some in cable business were waiting for maturity of voice-over-IP technology before entering telephony, but “the phone piece has been terrific” for Cox because it had cut down on churn and given customers more attractive package. Asked by McCormick about long distance service, she said resold long distance was offered to about 75% of Cox’s telephony customers. Asked about universal service funding, she said Cox had gained funding-eligible ETCs in 2 areas “to get subsidies to help build out.” Wilson told group that Cox paid into fund so it had right to take some out in return.

McCormick told 3 panelists that he had noticed “one or 2 of you were rolling your eyes” in earlier call-to-battle presentation. Cox’s Wilson said she rolled her eyes when she heard “a reference to us as insurgents.” Cable is mature, facilities-based industry, too, she said, and 2 groups have similar concerns. “You should see us as a competitor and a fellow,” she said. Nextel’s Phillip said, “We all build networks. We have more common interests than some realize.” AT&T’s Cicconi said there were “areas of disagreement” because “all of us do what we need to do to build our companies.” However, he said, in his 4 years at AT&T he had seen “narrowing of issues.” Some disputes are “conducive to solution if we could sit down and talk,” Cicconi said, citing “history” he said was shared by USTA members and AT&T. He said both sides agreed on need to get broadband going and even fight over UNE platforms appeared to be based more on pricing than competitive access. McCormick said “it’s fascinating that we can gather together like this.”

CFA Research Dir. Mark Cooper said “the Bells are launching a campaign to strangle the buds of local competition” and “you see this campaign wherever regulators have set prices at a level to support local competition.”

One of Cicconi’s comments -- that it might be appropriate to consider treating DSL and cable modem service similarly with respect to universal service contributions -- drew interest from USTA officials at news conference later in day. “I was pleased to hear it,” said incoming USTA Chmn. Margaret Greene of BellSouth. She said she also wondered whether “new AT&T” minus cable assets still would be opposed to Breaux-Nickles bill. “So I look forward to having a conversation with him [Cicconi],” Greene said. Asked about another Cicconi suggestion, that telephone excise tax, which both AT&T and Bells dislike, perhaps could be used to benefit telecom industry, gained less supportive response. Cicconi had suggested that since only telecom industry paid tax, it ought to benefit from it, perhaps to subsidize universal service. Greene said idea had been discussed before and could help fund service in rural areas. Problem is that only telecom industry pays tax, again putting it at disadvantage to competitors using other platforms, she said.

In answer to question, McCormick said USTA liked “connection-based” funding formula for universal service, meaning carriers would be assessed based on their connections to interstate network, no matter what platform they used. He said that type of plan would require cable modem and Internet services to contribute to fund, which they didn’t do now. Current contribution system assesses payments on carriers’ interstate revenue while USTA’s proposal would look instead at how often they actually connected to interstate networks. Since cable modem and ISP services connect to long distance networks, plan assumes they would pay. Greene said proposal undoubtedly would result in more contribution from wireless companies as well. She said wireless companies now had 15% safe harbor, meaning it was assumed 15% of their revenue was interstate and thus eligible for contribution. Connections- based plan would more accurately reflect interstate traffic they carried, which probably was more, she said. Greene said telecom-provided DSL circuits were subject to universal service assessments so it wasn’t fair that similar services such as cable modem service weren’t subject to assessment. Added McCormick: “We want symmetrical regulation. To the extent [a company] accesses interstate service, it should contribute.” Greene said SBC and BellSouth had proposed connection-based system to FCC but critics had said it was too complicated. “We don’t see it as complicated,” she said.

Also at news conference, Greene said her goals for coming year includes: (1) “Broad-based regulatory reform.” (2) Finding industry consensus on universal service funding. (3) Continuing to unify USTA. -- Edie Herman

USTA Notebook…

USTA opened its convention Sun. in Boca Raton, Fla. with videotaped message from House Commerce Committee Chmn. Tauzin (R-La.) thanking his “dear friends” at telecom association for their “extraordinary effort” to win passage in House of Tauzin-Dingell bill. Referring to competitive use of ILEC unbundled network elements, Tauzin told group that “someone should read the Constitution… The government is not supposed to take private property… at below-cost prices. The government needs to respect property rights.” Tauzin said other major challenge was that “we've got to come out of this awful mess of corporate responsibility scandal.” Govt. “has got to find out what went wrong” in executive offices and board rooms, he said. He said he was optimistic “better corporate responsibility rules” would result from scandals, as well as stronger economy for telecom “built on real profits, not phony ones.”

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Panel of bankruptcy attorneys warned USTA members, most of them small and midsized companies, that WorldCom bankruptcy had serious implications for them because carrier continued to use “massive” amounts of ILEC services and it might not be able to fully pay its debts. “The WorldCom challenge is quite unique,” said attorney Jason Gold, who represents midsized telcos in WorldCom and other bankruptcy proceedings. Regulators and courts are reluctant to allow ILECs to require deposits or payment in advance, he said. WorldCom uses $750 million per month in telco services, meaning even one-month deposit would be difficult for company to handle in its present state, Gold said. Court never would approve deposit of that magnitude because “WorldCom doesn’t have that kind of cash,” he said. Attorney Robert Butler, who handles carrier insolvency issues before FCC, said amount of money was huge and could affect telcos’ capital budgets and credit ratings: “Everyone’s in this to some extent” because “under existing tariff provisions and payment cycles you have significant exposure to substantial losses.” Panelists said some inroads had been made to protect ILEC interests, including recent decision by Bankruptcy Court in N.Y. to give telecom companies higher priority in getting paid. Butler said efforts also were being made to encourage FCC to accept plan that would allow “seamless transition” of customers to other carriers in event of defaults.