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Phone deregulation is a road show
Letting Verizon enter long-distance market debated at hearings
By Andrew Ratner
Sun Staff
Originally published November 3, 2002

During a recess from the long-distance phone hearings in Maryland last week, representatives for the competing phone companies wondered aloud whether they could switch sides when they returned after lunch and whether anyone would notice because they knew each other's arguments so well.

"We were just saying we should swap roles," said Mark A. Keffer, a regional vice president for AT&T Corp. "We just take this from state to state to state."


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Welcome to the "271" hearings - the telephone industry's equivalent of a traveling stage company, only it brings its own audience, too.

Today, Baltimore. Tomorrow, Charleston, W.Va.

Named for the section of the 1996 Telecommunications Act that prescribed them, the hearings were created to manage the deregulation of the telephone industry.

The industry's upheaval is signified by the fact that you can't turn on a television or radio or pick up a newspaper these days and not see the likes of actress Catherine Zeta-Jones, the trench-coated Sprint guy or someone else trying to persuade you to switch to a provider you'd never heard of five minutes ago.

If the $230 billion phone business seems confusing these days, the odd theater of the 271 hearings fits right in. Their purpose is to enable government regulators to determine whether the nation's four major local-phone companies are honoring a trade-off that was struck in the 1996 law: If those companies, which made up the Bell System before its monopoly was ended 18 years ago, open their local markets to competitors, they can enter the long-distance business.

Verizon Communications Corp., the largest phone company in the United States and the major local-phone provider in the East, was the first former Bell to successfully go through the process, in New York in 1999.

Basically, the companies have to prove to state, and ultimately federal, regulators that they've met a laundry list of 14 items, such as whether they allow competitors to lease their equipment and if they refrain from interfering with customers switching to another company.

The FCC has approved long-distance service for the regional Bells in 23 states, including Virginia last week. The agency is deciding on 12 Western and Southern states, including California and Florida, by the end of this year.

The remaining 16 jurisdictions, including Maryland and the District of Columbia, have begun wending through the state agencies in some cases, but haven't made it to the FCC yet.

In the East, dozens of Verizon employees - lawyers, engineers, public relations and support staff hauling attache cases fat with documents - and similar, smaller entourages for their competitors have traveled to make the same argument time and again to different panels of state officials for the past three years.

"This is like a road show that actually started on Broadway," said Don Laub, a telecommunications expert for the Maryland Public Service Commission, which oversees and regulates utilities in the state.

The quasi-judicial hearings are very technical and arcane, delving into discussions of billing systems, trunk lines and enough strange acronyms to fill a bowl of alphabet soup. The participants themselves describe the testimony as "excruciating" and "eye-glazing."

Verizon attempts to show that it has cooperated to open the local phone market, while competitors contend Verizon resists letting them lease its network at a fair price.

That's another built-in oddity of the industry: The companies are each other's suppliers and competitors. The communications infrastructure is so extensive, the companies often lease each other's lines and equipment to complete a call. Congress decided six years ago that the only way deregulation could succeed was if the regional Bells offered their networks at low prices to competitors who couldn't replicate the intricate grid Ma Bell wove during a century-long monopoly.

The system has fostered greater choice for consumers - but also infighting, accusations and lawsuits between the companies who contend the other side isn't fighting fair. Among the complaints last week, competitors said that Verizon had no capacity left to lease to them, while Verizon responded that the law doesn't require it to expand just to accommodate a competitor. Maryland Commissioner Gail C. McDonald said she felt as if she had gotten dropped in the middle of a family argument, full of hidden codes and meanings.

"Since we've been through this successfully 10 or so times before, there is a tendency for the parties to speak in shorthand," acknowledged Michael D. Lowe, vice president and associate general counsel for Verizon. "Mr. Keffer and I have sat across the table many times. A lot of it is pretty dry stuff."

Verizon provided numbers last week that appear to show its competitors are thriving, only later revealing that the figures might have as much to do with increased Internet traffic as with true phone competition. Competitors, meanwhile, pointed to their paltry market share as evidence against Verizon - even as they argue in Washington that phone competition is vigorous because they don't want to see the 1996 reform act rolled back.

Eyeballs were the main thing rolling back in the hearing room of the state commission, which would have overlooked the downtown harbor if the blinds weren't drawn tight. Four gray walls were bare but for a small poster of the "Great Seals of Maryland." (There were also 237 ceiling tiles, 64 fluorescent light tubes and the U.S. and Maryland flags up front, but who was counting?)

At least, some of the combatants said, the cushioned seats were more comfortable than in New Jersey, where the hearing-room benches were hard as church pews. And the facilities were more convenient than in Pennsylvania, where the circuitous trek to the bathroom might have tested Lewis and Clark, some recalled. And the acoustics were better than in Massachusetts, where some said they couldn't hear the testimony.

The audience has become smaller over the years, as telecommunications startups whose officials once filled the seats have gone bankrupt.

As Verizon engineer Don Albert grabbed his umbrella to leave the hearings Wednesday night, Keffer of the AT&T team that had grilled Albert moments before waved and said with a smile, "See ya in Charleston." Hearings resume in West Virginia this week, followed by a round for the District of Columbia later this month.

Harry J. Mitchell, a Verizon spokesman, said the practiced professionalism of the barnstorming battle sometimes reminds him of an old Looney Tunes cartoon in which a sheep dog and a fox chase and bash each other until the 5 o'clock whistle, when they exchange pleasantries and punch out on a time clock.

But if the hearings had the air of rehearsed combat, the consequences aren't small change for Verizon, AT&T, WorldCom and others. Thousands of customers and millions of dollars in revenue may shift as a result.

Verizon has had double-digit growth in residential long-distance business in several states where it won "271" approval, said Pat Brogan, a telecommunications analyst for the Precursor Group in Washington. Conversely, the long-distance companies have become more aggressive in pursuing local-phone customers, especially if Verizon has to lower the price of leasing its system to win approval.

Bret L. Mingo, the ponytailed chief executive officer of Core Communications Inc., an Annapolis phone service provider, considered the stakes during a break in the proceedings and paraphrased Mark Twain.

"Play for the boy," the small- company executive said, "means life and death for the frog."

Copyright © 2002, The Baltimore Sun


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