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FCC Deregulates Verizon's Big-Business Market
Action Lifts Price Controls, But Absence of Guidance Sows Confusion in Industry
By Amy Schatz
Tuesday, March 21, 2006

WASHINGTON -- Verizon Communications Inc. got a boost in the big-business market as federal regulators agreed to deregulate its high-volume data lines for its largest corporate customers.

The decision by the Federal Communications Commission essentially lifts price controls and possibly reverses some conditions imposed on the New York telecommunications company last year during its acquisition of MCI Inc.  It also gives Verizon pricing flexibility for lucrative high-volume services sold to major corporations, although regulations may continue to stay in effect for smaller business customers.

The action signaled the FCC's willingness to expand phone companies' control over high-speed Internet lines to cover the large corporate market as well as residential customers.

But by granting Verizon's request without guidance, the FCC prompted confusion in the industry Monday.  The action could lead to legal challenges by smaller competitors, particularly companies that resell high-volume services, such as Internet access, to small businesses.  Also, other phone companies are likely to file requests for similar relief with the FCC.

"It's the most lucrative market today, and this ensures Verizon remains dominant in its territory," said Jessica Zufolo, a telecom analyst for Medley Global Advisors.

Verizon Monday said in a statement it appreciated the FCC's actions.  In December 2004, the company asked the FCC to ease rules on data pipes used by its enterprise customers, freeing it from common-carrier obligations, notably rules guaranteeing access at "just and reasonable" rates.  The FCC lifted similar rules last year on residential high-speed Internet lines.  The change frees Verizon from a variety of rules, including requirements to interconnect with other providers or contribute to the Universal Service Fund, which subsidizes phone services for low-income residents and rural communities.

FCC Chairman Kevin Martin has supported giving the Bells more control over data lines, saying it will encourage investment and the spread of high-speed Internet access.  He asked the commission's other members to approve Verizon's request last month, but the effort failed after the FCC's two Democrats voted against the measure, saying it would restrict competition in the enterprise market.

"Like everyone else, it puts us at the mercy of Verizon.  If we pay them enough money, I guess we'll get service," said Earl Comstock, chief executive of Comptel, an association of smaller phone companies that compete with the Bells.

The Verizon proposal went into effect Sunday night because an FCC rule grants petitions automatically if the commission doesn't respond.  Commissioner Michael Copps, one of the panel's two Democrats, said the decision "erases decades of communications policy in a single stroke. In effect, we provide industry the pen and give it the go-ahead to rewrite the law."

The decision to grant Verizon's request without FCC guidance could prove problematic since the original request was somewhat broad.  It is also unclear if the decision only applies to Verizon or all carriers who provide such services.  AT&T Inc. said in a statement it was evaluating the decision, but believes it "should apply to all market players."

And it is unclear which obligations Verizon still has on its high-volume lines.  For example, rules requiring telecom companies to cooperate with law enforcement on wiretapping and other electronic surveillance may no longer apply.  Mr. Martin is already planning to circulate an order to reimpose Universal Service Fund obligations, FCC officials said Monday.  The action may also effectively undo some conditions imposed on Verizon last year in its acquisition of MCI, such as requiring it to lease access to high-volume lines to competitors along with a limited price freeze on rates.

Write to Amy Schatz at Amy.Schatz@wsj.com

http://online.wsj.com/article/SB114289216601003318.html?mod=home_whats_news_us