How to Become a Multi-Billion Dollar Long-Distance Data Carrier

by Andy Oram
May 28, 1999

Telephone and cable TV companies are falling over each other to bring data to our homes and small businesses. They are merging, expanding, building, and even (to some extent) competing with each other.

Deliberately pitting one corporate behemoth against another, the 1996 Telecom Act promised the Bell telephone companies they could enter the long-distance market in their geographic areas, but only if they facilitate competition in local service. The appeal of both the local and the long-distance markets is their rapidly-growing Internet and intranet traffic. If the only new revenues were coming from Sunday afternoon calls to Grandma, companies would not be so avid to invest.

There’s another reason the fight over long-distance is hot: it’s become a battleground for competing ideologies in Congress. Several Republican Congressmen, notably Billy Tauzin of Louisiana, have accused the Federal Communications Commission of holding back the Bells from legitimate expansion. Because of this and other activities that smack to them of over-regulation, they’re threatening to overhaul the FCC. Senator John McCain introduced a bill on May 14 that would essentially remove the Telecom Act’s requirements for Bell companies to foster competition.

Are Tauzin’s and McCain’s reforms necessary? Let’s take a look at what the Telecom Act and the FCC are asking for, and how the Bells are adapting.

The Requirement to Open Local Markets

Before offering long-distance service in their own territories, Bell companies are supposed to prove to the FCC either that competing companies are offering residential—not just business — service, or that the conditions are present for competition but no companies has tried. In particular, the Telecom Act laid out a list of criteria the Bells must meet, known in the industry as the 14 points.

Five times since the enactment of the Act, a Bell company has submitted a request to enter long-distance in a particular state. The FCC (backed by the Department of Justice) has turned them down every time. But the applications are gradually coming closer to approval, and one company is poised to win the big prize.

It’s pretty obvious to everyone that competition doesn’t exist in residential service. If competing telephone carriers could afford to wire every home, the Bells wouldn’t be on the hook. But for a long time to come, the competitors—aside from cable TV companies, which have separate regulatory and technical issues—will have to rely on the Bells for at least part of their telephone network. For that reason, the Telecom Act forces the Bells to let competitors put equipment in their central offices (collocation, in official lingo), to buy or rent lines from the Bells (unbundled network elements or UNEs), and to exchange traffic with the Bell network (interconnection).

The FCC has gone even farther in demanding that the Bells cooperate with those who are after their profits. The Commission realized that competition can’t succeed unless the Bells offer services to competitors. For instance, when a customer wants to sign up with a competitor, service can’t start until the Bell makes the proper connection, and if the Bell waits too long the customer will get disgusted and drop the new competitor. The same thing can happen if the Bell doesn’t provide information that the competitor needs to repair a service outage, or usage information needed for billing. An enormous range of such logistical tasks are grouped under the term Operations Support Services (OSS).

Essentially, the FCC is telling the Bells to do for competitors everything that the Bells do for themselves—just as fast, and just as well. And this is a tough requirement. While I haven’t noticed horns on any of the Bell representatives I’ve seen, they don’t wear halos either. They’d have to harbor the best of intentions to open their data systems fully to competitors, and many competitors claim the Bells are using every stratagem to thwart them.

Which Lens You See Through

At this point, observers break into two camps.

Those who distrust large companies and have faith that the government can act in the public interest jeer at the Bells for putting barriers in the way to competition. The FCC, in the eyes of these observers, is protecting the public from such monopoly practices as charging high prices in local markets to subsidize other markets and undercut competitors.

The other camp, who find regulation burdensome, are rolling their eyes. They see the FCC as a stereotypical Jewish Mom who can never be satisfied, and call for the Bells’ expedited entry into long-distance.

Which camp are you in? Before joining the debate, check my summaries of the five applications. If you have to wait a few hours for your system to reboot sometime, you can follow my links to print and read the FCC orders themselves.

Breaking the Deadlock

Recently the public utility commission of New York State and the FCC have suggested that Bell Atlantic may win the right to offer long-distance service. While that application is still pending, the commission in Texas voted has unanimously to let SBC into long-distance. If one of these attempts makes it through the FCC process, everybody will have to re-evaluate the potential for competition and whether the law has to be changed.

How did Bell Atlantic get this close? I talked to spokesperson Mark Marchand to hear their story.

Back in 1990, long before the Telecom Act, Bell Atlantic began working toward a competitive local market in collaboration with the public utility commission of New York. The state hired an independent firm to rigorously test Bell Atlantic’s OSS down to such details as the readability of their error messages. (I wish the programming tools and network services I used had been tested for that). Out of thousands of tests, only 49 failed, and Bell Atlantic is halfway toward eliminating those problems. They’ve spent a billion dollars on satisfying the 14 points—a billion dollars one could say they’ve spent on their competitors.

SBC has been through a similar process in Texas, according to spokesperson Selim Bingol.

Even a successful entry would leave lots of questions. Did Congressional pressure soften the FCC’s standards? Can New York state — with its voluptuous market of highly-concentrated information users — be a model for other states? Analysts will have a field day for years.

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Andy Oram is an editor at O’Reilly Media. This article represents his views only. It was originally published in the online magazine Web Review.