Bad FCC Decision Could Cost Consumers Billions

Trying to figure out what goes on at the Federal Communications Commission (FCC) is a daunting task, particularly when it gets to the telecommunications/telephone issues. Like those new commercials for the Chevy Malibu when a woman runs into a car because it's too boring to be seen, the concepts at the FCC are viewed from the outside as totally boring and technical, not worthy of attention to all but the most dedicated reporter or public advocate.

Here's one of those concepts: Forbearance. Here's a rule of thumb: The more innocuous the word, the more money is on the table.

"Forbearance" means a company asks the FCC not to regulate it, even though the Commission legally has the power to do so. In this case, Verizon has asked the FCC to "forbear" from regulating some of the services it provides in New York, Boston, Philadelphia, Pittsburgh, Providence and Virginia Beach. It just so happens that the services it wants to be essentially deregulated are the very ones on which Verizon's competitors depend.

Applying the rule of thumb to the obscure word "forbear," how many reasons are there for the FCC to reject the deregulation petitions? How about 2.4 billion? That's not a number pulled from the air. A new study, sponsored by XO, Covad and other of the hardy band of surviving competitive local exchange carriers (CLECs), found that if the petitions are granted, consumers and businesses will pay $2.4 billion more for local phone service, high-speed Internet service and business connections.

The study by QSI Consulting said that if the FCC grants the "forbearance" petitions Verizon requested for Boston, New York, Philadelphia, Pittsburgh, Providence and Virginia Beach, not only will prices increase for consumers, but what little competition that currently exists will be put into jeopardy.

Think of it in terms of the classic detective novel. Verizon has the motive, the means and the opportunity to take a chunk of their competition out of action. The motive, according to the study, is to consolidate market share. The means to do so are its control over essential telecom connections competitors use. The opportunity, provided by the FCC, would allow it to eliminate competitors by charging rates much higher than those competitors pay now.

Here's how the increases break down by sector. Consumers of basic voice services will see their rates rise by another $1 billion. Business customers would pay another $751 million and broadband customers would see their rates go up by $564 million per year.

Here's how it breaks down geographically: New York consumers will pay another $1.3 billion annually; Philadelphia, $345.7 million; Boston, $280.2 million; Pittsburgh, $177.4 million; Virginia Beach, $104.1 million; Providence, $85 million.

Why would those prices go up? Pull on your hiking boots, because we're going to be tromping around in the weeds of the telecom world. Competitive telephone companies need to buy certain types of lines from the regular phone company, because after all, they are not about to duplicate the existing network. The way things stand now, Verizon charges the competitors according to a price schedule worked out by the FCC designed to give the competitors some breathing room and provide some competition.

The "relief" that Verizon is asking for would make those price schedules go away, and Verizon would then be allowed to charge its competitors anything it wanted at the wholesale level. Verizon has said that if it wins its "forbearance" relief, it will charge its competitors according to a different price schedule - one that's higher than the prices they pay now.

For example, in Boston, a particular type of circuit for which a competitive company now pays $572.12 monthly for under the current pricing plan would cost $2,375.50 under the price schedule Verizon has said it will use. In New York, another type of service that competitors needs now costs $60.57 monthly; it would go to $328.70 under the plan Verizon has in mind.

The price increases for these internal services would then be passed on to consumers, forcing the competitors to raise prices. The study found the result disquieting: "In short, the elimination of retail competitors, CLECs, from the market as a result of the requested forbearance would increase the degree of Verizon's market power and, potentially, induce collusion, and is yet another reason to anticipate higher retail prices as well as diminished consumer choice if forbearance is granted."

There's little competition around already for consumers and, surprisingly, for big business. Most people had assumed that big businesses could take care of themselves. But the Government Accountability Office, in a landmark study found that in places where the FCC has already given telephone companies new "pricing flexibility" on the assumption that competition would keep prices in line, prices are either the same or higher than in places where prices are still regulated. That's because the market for certain heavy-duty services used by businesses is much less competitive than previously thought.

The majority of the FCC believes in the myth of competition, even as it helps to kill off competitors. There's no reason to think that at the end of the year, Verizon won't get much of what it wants when this request comes up for a decision, even though there are lots of reasons it shouldn't.