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The Federal Communications Commission late Thursday released a 576-page report on rules governing competition in the local telephone and broadband industry. The long-awaited report, based on agency rules adopted in February, details regulations that generally make it harder for long-distance phone carriers and other rivals to compete with regional Bell operating companies. The rules introduced in February outlined a policy to give state utility officials control over the rates Bells charge for competitors to lease their copper-based local phone networks. This policy is meant to help Bell rivals, but an unanticipated change outlined in the report identifies an important rule that could boost Bells. State utility representatives retain control over key Bell switching equipment, as outlined in February. But in some major cases, according to the report, national FCC rules will take precedent. In markets where at least three Bell competitors offer local residential phone service, states will not be able to offer rivals discounted price plans. States will also not be able to offer Bell rivals special cheap prices in markets with at least two wholesale telecommunciations companies providing switching services to other competitors. All this means that Bell competitors such as MCI (formerly Worldcom Inc.) that lease Bell lines in large cities will not get discounted prices and could be forced to move their operations out of densely populated areas. One telecom attorney who requested anonymity said he thought it may have a major impact, noting that he was concerned about the market definition of cities and towns. He said that if the new rules destroy a state’s ability to require that Bells offer discounted prices to rivals in most major markets and all their suburbs, it will have a significant impact on the success of Bell rivals. “Will Bell rivals lose their special prices in a small downtown core or in every small suburb and the densely populated center?” he asked. FCC officials said they did not know how many markets have the level of competition that would trigger the end of a special price regime. As anticipated, the new rules also free Bells from leasing the portion of their phone lines that rivals use for broadband services at discounted rates. This rule has the largest impact on the broadband firm Covad Communications Inc., which takes advantage of wholesale pricing of access to Bell lines for its residential broadband service. As anticipated, Bell competitors will lose their special price access to Bell lines for broadband services over three years. In the first year, Bell rivals will still be able to add new customers, but they will be charged 25 percent higher than the existing rate. In the second year, no new customers can be added, and Bell competitors will be charged 50 percent more to use the lines. In the third year, Bell rivals will be charged 75 percent more to use the lines. Other aspects of the order remain consistent with the original rules. Bells will not be required to offer rivals access to new fiber-optic lines and switches, as anticipated. It limits leasing on hybrid lines using some copper and some fiber. An FCC Democratic commissioner, Michael Copps, dissented on this subset of rules, dubbed “New wires, new rules.” He said in a statement Thursday that he was concerned that releasing Bells, such as Verizon Communications Inc., from pricing and access obligations would undermine competition. “This is not a brave new world of broadband, but simply the old system of local monopoly dressed up in a digital cloak,” Copps said in a statement. “I fear this decision will result in higher prices for consumers and put us on the road to re-monopolization of the local broadband market.” The Bells have said they plan to file court challenges to the rules as soon as they are formally released. State regulators, arguing that the rules take away too much of their power, are also likely to appeal the rules with court challenges. States, which have nine months to comply with the order, can already start proceedings to comply, an FCC official said. A number of states have already started proceedings, individually and in groups, to comply with the full order. An FCC official said the new rules will become effective in about a month and a half. Many lobbyist groups have been pressing the agency to alter the rules during the six-month period since they were introduced. The six-month delay between introducing the new rules and issuance of the order can be blamed partially on conflicts between commissioners, FCC sources said. Two different majorities on different sections of the order, combined with other pressing rule-making proceedings, caused complications, sources said. The original rules introduced in February were seen as a major blow to Powell, who dissented on giving states control over prices for Bell copper lines. This section of the rules was backed by a majority made up of the Republican commissioner Kevin Martin and two Democratic commissioners. “There are some important achievements in this order that have long been objectives of mine — namely substantial broadband relief,” Powell said in a statement. “Yet, regrettably, there are some fateful decisions as well that I believe represent poor policy and flout the law.” �Copyright 2003, The Deal, LLC. All rights reserved.

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