TELECOM Digest OnLine - Sorted: Re: Verizon Plans to Offer Naked DSL on 4/5 of Wirelines

Re: Verizon Plans to Offer Naked DSL on 4/5 of Wirelines

Fred Goldstein (
Wed, 16 Feb 2005 23:43:18 -0500

On Wed, 16 Feb 2005 06:53:43 GMT, Verizon attorney Michael D. Sullivan

> In article <>,
> says:

>> In article <>, Clark W. Griswold,
>> Jr. <> wrote:

>>> What's a bit more unfortunate is that the telcos have successfully
>>> managed to exempt themselves from sharing any new fiber that gets
>>> buried. Since the capacity of fiber exceeds that of a copper pair in a
>>> bundle with a bunch of other copper pairs by a factor of a million to
>>> 1 or more, the long term viability of naked DSL is questionable at
>>> best.

>> That's not just "a bit more unfortunate" -- it's a massively socially
>> undesirable policy.

> Except that rolling out fiber costs exactly the same for a telco as
> for a non-telco. If the telcos had to allow others to use their fiber
> as unbundled network elements (UNEs), priced in accordance with
> TELRIC, they wouldn't bother, and there would be no fiber to the home,
> and no competition for the cable operators. For installing fiber to
> the home, telcos have no "natural monopoly" advantages, so nobody else
> is "impaired" without access to that fiber at UNE prices, because they
> could install the same fiber at the same cost.

Theoretically correct -- there are small towns where others are
beating Verizon to the punch on FTTH. However, there is still a
SUBSTANTIAL advantage to their incumbency. If a newcomer pulls FTTH,
it has to take over the dial tone business of existing ILEC
subscribers. VZ, on the other hand, can simply drop in FiOS and shove
its 90+% of phone lines onto it. Talk about advantaged! The only
reason anybody competes is that there are enough subscribers who hate
Verizon (and SBC, etc.) that a risk-loving competitor (if it can find
the money -- equity markets have no truck for overbuilding) has a
chance of grabbing that business pretty easily.

> Why should a telco have to lease out that fiber to others at what
> amounts to a below-cost rate? If they had to do that, their
> competitors would automatically be able to profitably provide
> broadband service cheaper than the telco, because they wouldn't have
> to bear the cost of deployment. It seems to me that the FCC's
> decision not to require sharing of FTTH was the only way to give the
> telcos an incentive to deploy fiber. That's a socially desirable
> policy, while requiring them to offer fiber to others at UNE prices
> would be massively socially undesirable.

That, however, is typical Verizon double-talk. No, a telco should not
have to lease anything to competitors below cost. BUT the FCC's
normal TELRIC formula for UNEs is not below cost! TELRIC cost is
based on the efficient incremental cost of a new deployment, assuming
existing wire center locations but no embedded plant, and (this is
important!) INCLUDING a share of common corporate expenses PLUS a fair
return on the investment. Now when you're talking about, say,
unbundled local switching (UNE-P), one can argue that the incremental
cost of capacity today is sometimes unrealistically low, given that
the post-meltdown (fire sale) recent price of switches is so much
lower than the ILECs paid for them, and is a temporary fluke. But
FTTH is precisely where TELRIC shines. It really is a new deployment,
usually on a wire-center basis, and it really is incremental capacity.
So properly computed, TELRIC should be very, very close to the ILEC's
actual costs, with a fair profit thrown in.

The ILECs however are gaming the system. They know they have a
compliant FCC, so they simply refused to deploy plant upgrades until
the rules were changed. It's like Bill Gates' alleged recent threat
to pull his development center out of Denmark if they voted against
software patents. It's an example of throwing one's weight around to
unduly influence regulators.

What Verizon wants in FiOS is nothing less than an absolute monopoly
on control of information. They have asked that it NOT be common
carriage, so there is NO right of other ISPs to ride it, and NO common
carrier expectation of either privacy or non-interference with
content. They can demand their advertising be included, for example,
on all outgoing email, and they can decide what their subscribers can
and cannot read, watch, or listen to via their network. (Repeating
another current thread here in the Digest, ISPs are NOT common
carriers.) And once FiOS is installed, independent ISPs lose their
copper-loop access to the subscribers. (Please don't tell me again
about cable being the alternative, or idiotic notions like BPL,
satellite, or cWAP.) *I would much rather have 512 kbps access to the
information of my choice than terabit/sec access to Verizon Online!*

While I'm at it, Mr. Sullivan also wrote,

> Re: Powell Rips FCC Delay on Connection Fee Reform
> Date: Wed, 16 Feb 2005 08:01:26 GMT

> In article <>,
> says:

>> "Reform" is what those advocating any particular change always call
>> it, progressive or regressive. As I recall, the last "reform"
>> slaughtered competitive DSL. The CLEC settlement rules, which the
>> Bells wrote, but miscalculated, are probably the next target. That
>> should allow them to kill competitive VoIP. OTOH, maybe I am too old
>> and cynical. Or worked in telecom too long.

> Actually, the real battle involves the rapacious rural ILECs, who want
> everything to subsidize them and they want it now. Since the VoIP
> providers aren't carriers, they are the party that is conspicuous by
> its absence from the scheme. The VoIP providers typically use CLECs
> to front for them in terms of obtaining interconnection and
> origination/termination of calls on the PSTN, so the CLECs would be
> their proxy in this proceeding.

True. The rurals live on subsidies, with no incentive to be efficient.

> As to the CLEC settlement rules, the Bells didn't write them; the FCC
> initially gave the CLECs what they asked for, but when it turned out
> the CLECs had played the FCC for a fool and were engaging in
> gamesmanship (e.g., signing up ISPs with no outgoing minutes and
> massive incoming minutes), it reversed course as to their internet
> terminations.

That's an outright lie. In 1996, the early CLECs (mostly the big
IXCs) asked for Bill and Keep. It was Mr. Sullivan's Bell Atlantic
Corporation that filed a now-famous statement with the FCC calling it
"bilk and keep". Here's the direct quote, as I used it in Chapter 9
of Meltdown:

The most blatant example of a plea for a government handout comes from
those parties who urge the Commission to adopt a reciprocal compensation
price of zero, which they euphemistically refer to as 'bill and keep.' A
more appropriate name, however, would be 'bilk and keep,' since it will
bilk the LECs' customer out of their money in order to subsidize entry by
the likes of AT&T, MCI, and TCG.

And here's the cite:

Bell Atlantic Reply Comments in FCC docket 96-98, at 20. Also see
hearing transcript on HR4445 before the House Subcommittee on
Telecommunications, Trade and Consumer Protection, June 22, 2000:

> For everything else, the CLECs have made out just fine.

Give me a break. There is no harder business in the country,
nowadays, than being a CLEC. I work directly with a couple of dozen
of them, and none are nearly as fat, dumb and lazy as any of the
Bells. The 1996-1999 Rules were modestly pro-competitive. Since
then, the FCC majority has been working overtime to shut down the
Telecom Act and rebuild the old Bell System monopolies, only without
the regulation that kept the old one in check.

Fred Goldstein k1io fgoldstein "at"
ionary Consulting

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