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Federal Communications Commission Chairman Michael Powell on Wednesday defended a controversial plan to deregulate local phone competition, arguing that the moribund telecommunications industry is overdue for change. “I believe the current system creates a distraction from the kind of productive investment we need to create a competitive environment,” he said in a meeting with reporters. “If the status quo is so compelling, how is it that across the board incumbents and entrants alike are continuing to suffer every day?” Powell said existing local phone rules, under which the so-called Baby Bells must lease their networks to rivals at low prices, undermine long-term competition and investment by discouraging telecoms from spending money to build new networks. The FCC chief also criticized competitive local exchange carriers, which compete with the Bells to offer local phone services, for reneging on promises to expand their own networks and leaning on guaranteed cheap access to the Bell systems. Though the FCC has yet to formally release its plan for telecom competition, Powell said agency commissioners will vote on the proposed local phone rules by Feb. 13, a week before a court-mandated deadline that would vacate the existing regulations. Many observers believe the five commissioners are divided over the Bell access rules. With the deadline fast approaching, they expect Powell to ask for more time to lobby the commissioners for their support in changing the existing regulations, which means the vote could be postponed. Echoing Powell’s concerns, the Progress & Freedom Foundation released a study Tuesday claiming that the Bell network leasing requirements “reduce telecommunications investment by as much as $12.74 billion each year.” The group, a privately financed Washington think tank, receives funding from the Bells. The prospect of deregulation in local phone competition has alarmed many consumer groups and lawmakers. Former Senate Commerce Committee Chairman Ernest Hollings has frequently said that releasing the Bells from providing low-cost access to rivals will force many smaller telecoms into bankruptcy. Eliminating such requirements will allow Bell regional monopolies to dominate the business and residential broadband and phone markets, the South Carolina Democrat warns. Many CLECs say they are only now getting a competitive foothold in these markets. Joseph Gregori, CEO of Melville, N.Y.-based InfoHighway Communications Corp., said Tuesday at a telecom industry forum that the capital markets are unwilling to fund the enormous cost for startups to build their own networks. Until the economy and telecom sector turn around, cheap access to Bell lines is critical for competition, he said. InfoHighway competes with Verizon Communications Inc. for corporate customers in parts of New Jersey and New York, where there are no other broadband competitors. “Changing the rules could throw many Bell rivals into bankruptcy just as competition is starting up,” he said. The FCC began a review of the Bell access rules in December 2001. In May the U.S. Court of Appeals ruled that the agency failed to justify the requirements and ordered it to develop new, stronger regulations by Feb. 20. “We have to come up with a standard that the courts will accept,” Powell said. “That demands a heavy level of rigor.” Powell declined to comment on a proposal many critics believe the agency is considering that would give rival telephone companies and Internet service providers access to existing local networks, but restrict them from using new fiber-optic systems owned by the Bells. Tom Tauke, a senior executive at Verizon and a former congressman from Iowa, introduced the proposal, called “new wires, new rules.” Powell did say that fiber-optic technologies are key to developing new, more powerful telecom services. “We have to get companies that are able to migrate to the digital platform,” he said. But Sue Ashdown, director of the American Internet Service Provider Association in Washington, expressed concern with the Tauke plan. Speaking at the telecom forum, she said that denying Bell rivals’ access to their advanced networks and limiting their use to older networks will put most ISPs out of business. “The future for broadband competition is sacrificed,” Ashdown said. Copyright �2003 TDD, LLC. All rights reserved.

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