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Allegiance Telecom Inc. could be mere months away from a bankruptcy filing. But at least the company’s executives don’t have to lose sleep over what’s worrying everyone else in the local telecom biz: the forthcoming results of the FCC’s latest “triennial review.” The “what, me worry?” attitude is the result of Allegiance’s canny infrastructure buildout. Any day, FCC Chairman Michael Powell is slated to release the results of the review, the process by which every three years the FCC scrutinizes — and tweaks — its own regulations. The results will offer the best insight to date into how Powell interprets the Telecommunications Act of 1996 — the legislation that promised to end the Bells’ monopoly over local telephone service. The biggest issue on Powell’s plate is this: whether to raise the top rates the Baby Bells can charge competitors for access to the Bells’ networks. It may sound like so much Beltway arcana. But this issue is, in the words of one Verizon lawyer, “perhaps the biggest to hit telecom since the act itself.” Understanding why requires a little background. When the act was passed, few startups had the money — or equipment — to compete with the Bells. So the FCC passed rules requiring the Bells to lease portions of their networks to upstarts that wanted to sell local telephone service. The rules enabled lots of CLECs (Competitive Local Exchange Carriers) [see " Do You Speak Telecom?"] to compete with the Bells without first having to build their own infrastructure. Many telecom wonks figured the arrangement would be temporary. Over time, they thought, the promise of higher profits would lead CLECs to invest in their own facilities. Ultimately, CLECs would wean themselves off the Bells’ equipment, and the country would get a competitive industry. But, except in the case of Allegiance and a few others, that hasn’t happened. So, in the Bells’ opinion, now is the time to cut the cord. They claim the current rock-bottom lease rates are actually discouraging CLEC investment and unfairly eroding the Bells’ market shares. Meanwhile, they argue, they’ve got their hands full fending off competition from fledgling wireless, satellite and broadband providers. In this fight, AT&T Corp. and WorldCom Inc. — both of whom have jumped into the local service market — are actually the Bells’ most vociferous opponents. Like many smaller CLECs, they haven’t done much network building. But they claim that a huge lease-rate hike would price them and others out of the local telephone game. And that, in their opinion, would nullify a lot of what the act was set up to accomplish. So why doesn’t Allegiance care about the FCC’s decision? Because at the company’s inception, CEO Royce Holland ignored the skeptics and built his own telephone network. It took blood, guts, and lots of cash, but the company did it. Today Allegiance owns facilities in 36 markets across the country, more than just about every other CLEC. As a result, Allegiance doesn’t need to lease anything from the Bells aside from access to the “local loops,” the lines that run into individual office buildings. So if Powell hikes the rates, as many expect he will, Allegiance won’t be affected nearly as much as will AT&T, WorldCom and most other CLECs, which are dependent on big portions of the Bells’ infrastructure. Still, Powell’s decision will have a big impact on the local telecom landscape, which might affect Allegiance down the road. For example, higher rates could provide Allegiance with more small telecoms to swallow up. Or, in the eyes of an AT&T, a hike might actually make the well-positioned Allegiance look pretty attractive.

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