Bad FCC Decision Could Cost Consumers Billions

Trying to figure out what goes on at the Federal Communications Commission (FCC) is a daunting task, particularly when it gets to the telecommunications/telephone issues. Like those new commercials for the Chevy Malibu when a woman runs into a car because it's too boring to be seen, the concepts at the FCC are viewed from the outside as totally boring and technical, not worthy of attention to all but the most dedicated reporter or public advocate.

Here's one of those concepts: Forbearance. Here's a rule of thumb: The more innocuous the word, the more money is on the table.

"Forbearance" means a company asks the FCC not to regulate it, even though the Commission legally has the power to do so. In this case, Verizon has asked the FCC to "forbear" from regulating some of the services it provides in New York, Boston, Philadelphia, Pittsburgh, Providence and Virginia Beach. It just so happens that the services it wants to be essentially deregulated are the very ones on which Verizon's competitors depend.

Applying the rule of thumb to the obscure word "forbear," how many reasons are there for the FCC to reject the deregulation petitions? How about 2.4 billion? That's not a number pulled from the air. A new study, sponsored by XO, Covad and other of the hardy band of surviving competitive local exchange carriers (CLECs), found that if the petitions are granted, consumers and businesses will pay $2.4 billion more for local phone service, high-speed Internet service and business connections.

The study by QSI Consulting said that if the FCC grants the "forbearance" petitions Verizon requested for Boston, New York, Philadelphia, Pittsburgh, Providence and Virginia Beach, not only will prices increase for consumers, but what little competition that currently exists will be put into jeopardy.

Think of it in terms of the classic detective novel. Verizon has the motive, the means and the opportunity to take a chunk of their competition out of action. The motive, according to the study, is to consolidate market share. The means to do so are its control over essential telecom connections competitors use. The opportunity, provided by the FCC, would allow it to eliminate competitors by charging rates much higher than those competitors pay now.

Here's how the increases break down by sector. Consumers of basic voice services will see their rates rise by another $1 billion. Business customers would pay another $751 million and broadband customers would see their rates go up by $564 million per year.

Here's how it breaks down geographically: New York consumers will pay another $1.3 billion annually; Philadelphia, $345.7 million; Boston, $280.2 million; Pittsburgh, $177.4 million; Virginia Beach, $104.1 million; Providence, $85 million.

Why would those prices go up? Pull on your hiking boots, because we're going to be tromping around in the weeds of the telecom world. Competitive telephone companies need to buy certain types of lines from the regular phone company, because after all, they are not about to duplicate the existing network. The way things stand now, Verizon charges the competitors according to a price schedule worked out by the FCC designed to give the competitors some breathing room and provide some competition.

The "relief" that Verizon is asking for would make those price schedules go away, and Verizon would then be allowed to charge its competitors anything it wanted at the wholesale level. Verizon has said that if it wins its "forbearance" relief, it will charge its competitors according to a different price schedule - one that's higher than the prices they pay now.

For example, in Boston, a particular type of circuit for which a competitive company now pays $572.12 monthly for under the current pricing plan would cost $2,375.50 under the price schedule Verizon has said it will use. In New York, another type of service that competitors needs now costs $60.57 monthly; it would go to $328.70 under the plan Verizon has in mind.

The price increases for these internal services would then be passed on to consumers, forcing the competitors to raise prices. The study found the result disquieting: "In short, the elimination of retail competitors, CLECs, from the market as a result of the requested forbearance would increase the degree of Verizon's market power and, potentially, induce collusion, and is yet another reason to anticipate higher retail prices as well as diminished consumer choice if forbearance is granted."

There's little competition around already for consumers and, surprisingly, for big business. Most people had assumed that big businesses could take care of themselves. But the Government Accountability Office, in a landmark study found that in places where the FCC has already given telephone companies new "pricing flexibility" on the assumption that competition would keep prices in line, prices are either the same or higher than in places where prices are still regulated. That's because the market for certain heavy-duty services used by businesses is much less competitive than previously thought.

The majority of the FCC believes in the myth of competition, even as it helps to kill off competitors. There's no reason to think that at the end of the year, Verizon won't get much of what it wants when this request comes up for a decision, even though there are lots of reasons it shouldn't.

Comments

[pimothy]

Verizon shall always be suspect.
As we read this Verizon ia in process of DUMPING it's poor quality landline service (?)in northern Vermont, New Hampshire, and Maine to FairPoint Communications.
What a Public Scam. It is called a Reverse Morris Trust. Congress should eliminate it.
See www.stop-the-sale.org/files/RMT.pdf
I recently had Verizon here to correct 2 noisy lines. Sorry that's the best we can do, but we won't service charge you (I'll have to check my next bill).
Their OLD utility truck was rusted out through the cab. But that's part of what you will read about in stop-the-sale.
I'll bet Verizon thinks that their Wireless sales will soar after FairPoint goes under.

[TucsonEd]

I couldn't believe that people were not protesting in the streets when they de-regulated and broke up the Bell System. For years afterwards I listened to untold numbers of complaints concerning the new rules. I wanted to tell people "well YOU let it happen"

[Twocentsworth245]

We should all know by now that when it comes to this abysmal administration, whatever Big Business wants, Big Business GETS, and the little guy will get shafted every time!

[usapatriot1973]

I was going to say the same thing. Look at how banks are allowed to ship our personal information to Mexico and other foreign countries and not even tell us about it, let alone give us the opportunity to say "no". Two bipartisan bills have been proposed in recent years to stop or at least curb this, and neither one passed. It's because politicians have become traitors, and do not serve the American people.

[Sciguy]

I think the problem is the definition of "reasonable" in "reasonable profit." To most folks, making some money is fine, as long as we don't soak our customers. To others, "reasonable" means "as much as we can get away with."

And for those who think VOIP is the answer, I must point out that not everyone can get an Internet connection that's fast enough for it. I live out in the middle of nowhere, and even our dedicated satellite connection isn't fast enough for VOIP. Nothing else exists out here - no cable, no decent phone lines, no wireless. Although an awful lot of people live in cities, not everyone does. VOIP leaves out the entire rural population of the US.

[wrabbitt]

what a surprise that another governmental agency is making big business rich. Aren't lobbyists wonderful? not bad for criminals, selling a vote is just as illegal as buying a vote. we need to make our government more money why don't they just print 900 billion and give each member of congress a billion dollars then they won't have any reason to stab the people in the back (not like they need the money.)

[splashy]

Another deregulation idea that will hurt the regular people.

There was a reason the regulations were imposed to begin with. It appears that every generation has to learn the same lesson: the sociopaths that run many companies will be ruthless and greedy - EVERY TIME! You CAN'T TRUST THEM to do the right thing, they have to be MADE to do the right thing to level the playing field for the decent, humane and non-mentally ill businesspeople to be able to compete.

[ibsteve2u]

Oh. I wondered why Verizon was so quick to turn over their phone records to the NSA...apparently, tit for tat is where its at.

[miami]

Guitarsandmore asked "why should the Verizons of the world be forced to sell services at cost to anyone?" Actually, according to the Federal Telecom Act of 1996, all telecom companies, not just "the Verizons of the world" are obligated to resell "services." (The resale rate is not set "at cost"; it's set at "avoided cost." Big difference.) The federal law additionally requires that incumbent telcos provide access to "network elements" at rates that are based on cost as well as "a reasonable profit." So, rates set by the states in lengthy rate proceedings were not rates set "at cost"; the rates included a profit for the telcos. Also, cost of maintaining the network elements definitely was a "cost" element included in the studies. The public policy of requiring competitors' access to network elements at a "cost plus a profit for the telcos" was created due to the recognition that for decades our public policy was to protect, maintain and guarantee the profits of telcos via a rate-setting machinism of "rate of return." Under this policy, regulators granted telcos the right to charge consumers rates at levels that guaranteed a set profit level. Not too many private business enjoyed the luxury of having a guaranteed profit. So, the telco infrastructure at the heart of the "forbearance" debate was paid for by consumers due to a previous public policy decision to enforce and reinforce the telcos' monopoly and due to the telcos' guaranteed profits under rate of return. The CLECs never had access to the historic luxury of "rate of return" guaranteed profits that proliferated in a monopoly market. And CLECs have "come up with something truly new and creative" while leasing unbundled network elements. Additionally, it was CLECs who pushed the issue of accessing the high frequency portion of the loop ("HFPL") in order to deploy DSL; the incumbents repeatedly attempted to block DSL rollouts by using their own spectrum management "studies" because they did not want to canabalize their T-1 market.

[llozano]

I am comforted to know that we have watch dogs to let us know what is going on with these commissions especially under the current administration that will do whatever the corporations want when it comes to derregulation and privatization. It is in the business of corporations to maximize profits but when it comes to communications most of us have no alternative but telephones or the internet. These would better serve us if they were treated as utilities rather than allowed to operate as they are at this time. Thank you for your informative article.

[GuinnessJ5]

So, what's the surprise? The FCC like any other Federal agency under this Bush administration is in place to assist big business in fleecing the public and to get away with it. Verizon, of course, like any other major business, knows the FCC will concur with its wishes. When it does, Verizon's unabashed practices will spread like wildfire across the USA. As for "deregulation" it's like NAFTA - intended to make the powerful moguls richer than ever by cleverly pretending to favor the working man and woman of the USA. GOP really means "Give Out Perks!"

[GeneTouchet]

Um...if the FCC has 3 Republicans and 2 Democrats, isn't it obvious that the headline for this and the article itself should be cast in terms of "Verizon gains billions"?

Let's get real. The Republicans sold their souls for a tax cut in the primaries of 2000; they need some sort of comfort in this world...before they have to pay the debt. Let's have some compassion for those conservatives.

[wrabbitt]

have you ever looked at your cell phone bill? now, they are going to add 1.00$ a month for eavesdropping charges.and, at least $2.00 a month to congress. get the feeling we are getting screwed again????

[Opus007]

Corporate greed- business as usual these days. The consumer will get gouged as usual. VOIP is very inexpensive but the broadband connection you need to use it is going to cost you $30-$60. It doesn't work that well with the slower connections. The more you spend on utilities the less money you have to pump into the economy.

[realitytrumpsbull]

What if you just forbear from signing up
with one of these communication companies
to begin with, and get a card phone? Or,
better yet, save your breath until you're
standing in front of the person you want
to talk to? Email works, too...I hate having
to hear other people's phone conversations
all the time, the thrill is gone, the novelty
of always-in-touch 24/7 communication has
worn off...and apparently there's OTHER issues
with cellphones, too...so turn the damn thing
off, already. Screw these people, let them
find the old fashioned Honest Work, there...

[realitytrumpsbull]

Well, what if I stopped 'consuming' cell phone service altogether, and just used like, standard
long-distance or even the VoIP service, like
Skype or something, or one of the messenger With Voice programs etc? Screw them and their
overpriced garbage, there's only about so
much money you can make off of dialtone, and
I don't care how cool the ringtones are.

[Guitarsandmore]

"Competitive telephone companies need to buy certain types of lines from the regular phone company, because after all, they are not about to duplicate the existing network."

This statement you make here is really the crux of the problem. Hot shot CLECs have convinced everyone that the phone company is not competitive and not rolling out new services fast enough and if only there was more competition the CLEC could provide tons of new services that the phone company can"t afford to do. And so the CLEC wants to rent bandwidth at cost from the phone company.

There are several problems with this logic.

First, why should the Verizons of the world be forced to sell services at cost to anyone?
Who would pay to maintain the network if it is being sold at cost?

Second, why don"t the hot shot CLECs build their own network if they"re so hot? Why do they depend on the local operating companies and the carriers so much to make the CLEC service competitive?

Third, I don"t think the CLECs really have anything the phone companies don"t have.
The Verizon"s of the world do business with the same equipment manufacturers that the CLECS do; Cisco, Nortel, AT&T, Alcatel, NEC, etc.

If the CLECS want to rent a T-1 carrier circuit or a PRI at cost and mark it up for resale then where is the value added? No, let the CLEC come up with something truely new and creative on their own.