RBOC vs. RBOC

[Dave Farber <dave () farber net>]

Delivered-To: dfarber+ () ux13 sp cs cmu edu
Date: Mon, 19 Apr 2004 05:25:51 -0400
From: Daniel Berninger <dan () danielberninger com>
Subject: RBOC vs. RBOC
To: dave () farber net
Dave,

Consider the article below for IP.  The article addresses the "elephant in
living room" issue about the lack of competition between Bell companies.  If
wholesale rates are below cost as asserted by the Bells, why doesn't Verizon
take advantage of SBC's "cheap" wholesale rates?  How do the Bells justify
joint procurement for DSL equipment and the recent fiber RFP?  It seems
inconceivable AT&T and MCI would issue a joint RFP.   What happened to all
of the out-of-region competition promises associated with the merger
agreements?   What happened to the promised national DSL rollouts associated
with SBC's Project Pronto and Verizon's acquisiton of Northpoint?  Why don't
the Bells have any long distance customers out of region?   What accounts
for the fact local rates rose over the last 20 years (and even after the
Telecom Act) faster than oil from OPEC rather than fall along with long
distance and cellular?

Dan

............................................
Daniel Berninger
w: www.danielberninger.com
e: dan () danielberninger com
v: +1.202.250.3428

http://www.americasnetwork.com/americasnetwork/article/articleDetail.jsp?id=
91547

RBOC vs RBOC

Intermodal competitors or cooperative partners?

By: Max Smetannikov
America's Network

As presidential elections draw near, and the D.C. circuit court sets legal
processes in motion again to dismantle the system of tariffs governing
alternative carriers' access to local copper, the talk on the competitive
carrier circuit is turning to topics such as antitrust issues and carrier
competition.

Some industry observers believe that the four remaining Regional Bell
Operating Companies (RBOCs) - Qwest, SBC, Verizon and BellSouth - are
increasingly coordinating their activities, in part to eliminate local
service competitors.

The carriers vehemently deny this claim, and even the strongest supporters
of the supposition concede that there is nothing close to a smoking gun that
proves it. They see only subtle signs: The RBOCs bargaining collectively for
telecom gear from Alcatel a number of years back; RBOCs coming out as a
united front on important industry issues after an annual USTA meeting in
Florida; numerous cases when competitors were quoted tariffs that were
higher than consumer services offered by the RBOCs.

All these little things, which make for great political discussion during a
highly charged electoral season, are greatly compounded by a single big
market trend: There is no an all-out competitive assault by one RBOC into
the territory of another. The RBOCs themselves do compete with each other
with different services (for instance, wireless vs. local telephony), and
they are moving onto each other's turf in vertical markets like Internet
access and enterprise data. But their detractors counter that at the end of
the day, the fight for dominating the U.S. local services market by a single
Bell company would very likely claim casualties among the four carriers, and
the RBOCs have a vested interest to preserve the status quo.

"No grass grew, period, and that means only one thing: that the ground was
poison," says analyst Daniel Berninger, alleging that the RBOCs failed to
take steps to streamline the transfer of customer lines

IMPLIED UNDERSTANDINGS?
"What we have today is an oligopoly: the phone companies are protecting
their regions, and there is an implied agreement they won't go out and
challenge incumbents to be in particular areas," says Dwayne Goldsmith,
chief executive at Inflexion Communications and a former president of
Ameritech, now part of SBC.

Expect more filings with the FCC challenging the RBOCs' explanation of how
they compete out-of-region in the near future. Companies fighting to keep
access to RBOC copper open are planning everything from threatening
President Bush with a mail campaign (in case the FCC fails to protest the
recent D.C. circuit court ruling challenging the RBOCs as not living up to
their promises) to renewed lobbying. In many cases, the RBOCs pledged to
compete with each other as a condition of getting antimonopoly waivers, and
critics believe that the wireless vs. wireline kinds of competitive
arguments simply don't cut it.

"We were planning to file a complaint with the FCC [this month] on the issue
of lack of compliance by the RBOCs to fulfill their obligations to compete
out of region," says Bruce Kushnik, president of Teletruth, a non-profit
organization aiming to foster local competition.

At the heart of this debate is the fundamental question of what kind of
competition was intended by the Telecom Act of 1996: between different kinds
of technologies delivering the dial tone to end users; or between carriers
offering different flavors of local service over the same copper last
mile-centric infrastructure.

UNE-P REVISITED
Copper telephone wire-based networks built with U.S. taxpayer money have
gone from being the property of the federal government to being a property
of regional Bells as a result of 1996 deregulation. The Telecom Act of 1996
gave access to local copper to companies other than the RBOCs via a complex
set of tariffs. At the heart of this tariff system is Unbundled Network
Element - Platform (UNE-P) one of the most popular tariffs out of the
schedule that governs competitors' access to the RBOC networks.

Dozens of carriers use UNE-P tariffs to provide local service to end users,
AT&T and MCI being two large carriers utilizing this service via AT&T One
Rate and MCI Neighborhood service plans. A total of 50 million Americans
have switched their local service to service provider alternatives to the
RBOCs, largely thanks to UNE-P tariff being in place.

The RBOCs, however, don't make any use of this platform. Their rationale?
UNE-P is on shaky legal ground because it is constantly being challenged by
the D.C. Circuit Court and appears to be a pure arbitrage play that won't be
sustainable in the long run.

"To offer sustainable competition ... you would have to be
facilities-based," says Tony DiMaso, Verizon president of corporate strategy
and development. "We don't believe the UNE-P model is sustainable, and now
it is on shaky ground with the D.C. circuit court. UNE-P is not a long-term
solution."

The only way the RBOCs can compete out of region by showing a profit over
the long run is with local services that use technologies other than access
to traditional telephone networks, executives like DiMaso say, echoing an
argument made by the FCC and a slew of companies building new networks,
chiefly cable and wireless carriers. The approach is described through the
latest buzzword: "intermodal" competition, which describes wireless
carriers, RBOCs and cable companies all providing local telephony.

INTERMODAL APPROACH
The facts appear to support the idea that the intermodal approach does
support local competition. Cable companies now cover 97 percent of American
households (that's 104 million), 87 percent of which are passed for
broadband (a pre-requisite for a Vonage-type of service); and 97 percent of
these same households have wireless service available to them. A competitive
tool for these carriers is bundling different services consumers buy - cable
TV and telephony, local and long distance - for a flat fee. As of the
beginning of this year there were 10 unlimited bundles of local and long
distance services sold in the U.S., ranging from $34.99 to $59.99 a month.
The list of alternatives to the copper wire as a local telephone service
medium is growing by day, with new technologies like Wi-Fi and electrical
power lines offering new ways to get the dial tone.

If you are wondering what the RBOCs' out-of-region competition strategy is,
look no further than Cingular Wireless' proposed acquisition of AT&T
Wireless for $41 billion. A wireless joint venture of SBC and BellSouth,
Cingular will now take on Verizon Wireless in a fight to become the nation's
number one wireless carrier. Executives at the RBOCs and many regulators
believe this competition is ample proof the RBOCs compete outside of their
franchise territories.

 "The RBOCs used to be called dinosaurs, but now they are becoming birds,
and I think they have a very bright future ahead of them," says a former FCC
chairman who spoke to America's Network for this story. "They are big,
successful, they have great brands and can adopt new technology. In the 19th
century there was a guy by the name of Graham and you can still buy a Graham
cracker 100 years later - and I am telling you that you will still be able
to buy a communications service from a Bell company 100 years from now."

The pro-UNE-P-based competition crowd doesn't buy this whole intermodal
approach, viewing it as a tactic camouflauging the fact that local
competition has failed.

"If this approach is our future, all this will do is that at the end of the
day we will pay more for HBO. How is this lowering the cost of local
telephony?" asks Vik Grover, principal, equity research, communication
services at Needham & Co.

Proponents of fostering competition on existing telephone networks argue
that the way the RBOCs are handling the UNE-P issue is demonstrative of
their cartel-like ways. Industry watchers like Grover note that the RBOCs'
political muscle (these companies employ millions of taxpaying Americans)
and business influence (fees paid to Wall Street banks for services ranging
from M&A to public offerings are in the billions of dollars) make competing
with them an extremely complicated task.

<snip>

-------------------------------------
You are subscribed as interesting-people () lists elistx com
To manage your subscription, go to
 http://v2.listbox.com/member/?listname=ip

Archives at: http://www.interesting-people.org/archives/interesting-people/