BELLS PLEDGE NOT TO RAISE PRICES AS UNE RULES END

A BellSouth spokesman said the company already had made a price stability offer in March. When asked by Powell’s office recently to commit to retaining the status quo, BellSouth simply put its existing offer in writing. He said BellSouth didn’t regard the FCC’s request as a demand because the issue of price stability already had come up during the FCC-ordered negotiations over the Memorial Day weekend: “The letter developed over time.”

However, one industry source said charged that the letters were part of a “quid pro quo” agreement between the White House and the Bells, with the Bells promising there wouldn’t be bad publicity about consumer rate increases or companies going out of business if the White House decided not to appeal the court ruling. An FCC spokesman said only that Powell asked for the letters, which were signed by CEOs of the 4 Bells.

Another source said top advisors to President Bush made the decision on June 8 that the Administration shouldn’t seek a stay of the court’s order. The decision was announced a day later (CD June 10 p1). President Bush had been briefed on the issue late the previous week, the source said. The 2 most critical advisors were Karl Rove, a top domestic advisor to Bush, and Stephen Friedman, dir. of the National Economic Council. Friedman had advocated all along that the Administration shouldn’t appeal. Rove initially wanted an appeal as a hedge against rising telecom prices but was somewhat appeased when he received assurances from the Bells and Powell that prices would remain stable, a source said.

ALTS Gen. Counsel Jason Oxman said “the FCC takes too much comfort from the commitments” by the Bell companies to maintain the status quo through the year. He said some of the Bells limited their promised rate stability to UNE-P, offering little relief for facilities-based CLECs that use individual UNEs such as loops and transport. Verizon limited its commitment to “UNE-P arrangements that are used to serve mass market consumers” and Qwest simply pledged “not to raise UNE-P rates for the remainder of the year.” On the other hand, SBC and BellSouth offered a broader commitment, promising not to increase prices for either UNE-P or “loops and high-capacity transport” through the end of this year.

Excluding facilities-based carriers from some of the commitments could result in a “huge gap in the state of competition and that could happen tomorrow,” said Oxman. He said the Bells already have talked about raising loop and transport rates in negotiations. “It’s puzzling to us that the Commission could leave facilities-based carriers in the lurch” since the agency has been pushing the importance of facilities-based competition, he said. If the FCC doesn’t protect facilities-based carriers, they will have to go to the states, which could result in a patchwork of different regulations,” Oxman said.

Ex-FCC Comr. Harold Furchtgott-Roth predicted several months of “battles… fought in each state capital over the interpretation of detailed specific agreements between each incumbent company and each CLEC.” In an article Tues. in the N.Y. Sun, Furchtgott-Roth, now an economic consultant, also predicted a dire future for CLECs: “The current business model of CLECs leasing facilities from incumbent companies under close government supervision will retreat steadily. The first signs of withdrawal will come this week and next from the financial community as investors and lenders to CLECs will withdraw funding, insist on a change in business plans, or both.”

AT&T Chmn. David Dorman said in an American Enterprise Institute appearance June 2 that AT&T might be forced to exit some markets if the UNE rules are vacated. An AT&T spokeswoman said only that AT&T doesn’t see much stability coming from the letter commitments offered by the Bells. FCC Comr. Copps issued a terse statement late Tues. saying he thought the govt.’s decision not to appeal the court order “means that higher rates are much more likely.”

According to an FCC source there’s another battle looming that many haven’t focused on: Whether the appeals court meant to include high capacity loops among facilities it vacated. The court’s order isn’t as clear on high capacity loops as other areas such as switching and the question already is starting to pop up, the source said.

Meanwhile, Verizon and Granite Telecom announced Tues. they reached a commercial agreement to replace current pricing for mass market UNE-P using Verizon’s Commercial Advantage model contract. Verizon said the agreement includes some services not offered under the current govt.- regulated UNE-P regime.

States Gear Up for Action on UNE Access

The demise of the FCC rules has focused attention on whether state regulators will act to ensure CLEC access to UNEs. To date, 5 states have issued interim orders prohibiting their incumbent telcos from making any unilateral UNE changes without state permission, until the picture at the federal level becomes clearer. They include Conn., Mich., N.J., R.I. and W. Va. Petitions for “stand still” orders are pending in several other states, including Ark., Ohio and Tex.

But the Bell companies’ promises not to change current UNE-P arrangements for the remainder of this year may have taken some steam out of the remaining petitions. The Tex. PUC, for instance, on Fri. denied CLEC petitions for an emergency order banning any unilateral UNE rate changes by SBC and Verizon. The PUC said the incumbents’ assurances that they wouldn’t change UNE rates and terms before the end of this year made emergency relief unnecessary. But the PUC said it will continue proceedings in the docket to determine whether a state UNE preservation order may be needed in the future.

The N.C. Utilities Commission (NCUC) denied a similar CLEC request for emergency action to preserve their access to BellSouth UNEs. The CLECs, through their CompSouth trade assn., had wanted a state order prohibiting any changes to UNE rates and terms in current interconnection agreements without state permission. The NCUC in Case P-199, Sub 133t cited BellSouth’s public promises not to unilaterally disconnect or change rates for UNE services being provided to CLECs under current contracts. The NCUC said it will keep the docket open to monitor further developments at the federal level that may affect the state’s interest in promoting robust competition.

Mich. PSC Comr. Bob Nelson, NARUC Telecom Committee chmn., said he didn’t expect to see immediate wholesale price changes now that the FCC UNE rules have gone away. He said, however, that a U.S. Supreme Court refusal to hear appeals of the D.C. Circuit decision eventually will mean higher wholesale rates that could force smaller local competitors out of the marketplace. NARUC and a group of CLECs are expected to file appeals at the high court.

He said if future FCC rules take away state control over wholesale rates, that could have repercussions for the Bell companies’ long distance authority under Sec. 271 because the FCC’s grants of long distance authority were predicated on states’ ability to police local markets and curb anticompetitive conduct. He also said the Mich. PSC’s endorsement of SBC long distance entry in Mich. was based on the existence of robust local competition made possible by UNE-P: “Once the FCC pulls the plug on UNE-P, we may need to reevaluate.”