ABERNATHY: CLEC WITHDRAWALS WON'T AFFECT FCC RULES

Recent announcements by AT&T and Z-Tel that they'll pull out of residential markets in several states didn’t come as a surprise and won’t affect the way new FCC’s rules will be written, FCC Comr. Abernathy said in an interview. “I think the interim rules are meant to create a stable environment while we come up with final rules, so I haven’t really factored [the announcements] in,” she said. She said the actions also “can’t affect the final rules. The final rules have to be driven by the direction from the court.” Addressing a FCBA luncheon Thurs. in Washington, she said she was “very pleased” the Solicitor Gen. and the FCC decided not to seek Supreme Court review of the D.C. Circuit’s decision. “Our job at this stage is to follow a more market-oriented path towards sustainable facilities-based competition.”

Abernathy told us she thought the Commission’s decision not to appeal was still right, despite the AT&T and Z-Tel’s actions: “I think that stability and certainty are the important signals to send to the market and I never thought the decision would be sustained on the appeal anyway. So you just tie up even more time and resources and the appeal probably ends up the same way. So the better course is to take the direction from the court and really finalize the rules so all the parties have a better idea about how to structure their businesses over the next 2 to 3 years.”

Abernathy told us she had expected CLECs like AT&T and Z-Tel would “re-evaluate their business strategies. Remember, they are pulling out of residential [market], they are not pulling out of small business or enterprise. I think part of it is because if you look at the residential market, cable competing, there is wireless competing and there is wireline. I guess I am not surprised that they might look at that market and say well in certain states that’s not such a great business. But they are staying in the small business and enterprise market, which is where wireless and cable aren’t that competitive. When I look at the competitive landscape I think it still plays out okay.”

Asked what she thought about some analysts and industry sources speculating AT&T’s decision was a political rather than business one, Abernathy said: “I find that hard to believe. At the end of the day Wall Street is judging their overall business strategy and when I look at the level of competition in residential market vs. small business, I can understand why they are making [such moves]… Even if you want to make a political statement, usually you don’t do that at the expense of your bottom line; usually you make that kind of decision based on your business strategy.”

Abernathy said in the speech she was “particularly pleased” that the FCC removed “a significant impediment for [broadband] investment by both incumbent LECs and competitors” in the Triennial Review Order. She said that decision was “already bearing fruit. Many large and small carriers are stepping up plans to deploy fiber deeper into the network, including fiber all the way to the home in several areas.” She said the increased investment “has brought new life to the equipment vendors and should spark a revitalization of research and development activity.” She said she was “confident” that eliminating “burdensome unbundling regulations will have a very positive impact on broadband deployment, which in turn will speed the adoption of faster and more exciting consumer applications.”

Abernathy expressed concerns that Cal. PUC recently adopted a set of regulations on wireless services and that several other states were considering similar actions. “While such actions are well-intentioned, I cannot quite figure out what it is that they are trying to fix.” She said in a market with 6 nationwide wireless providers and many local and regional providers, “the carriers have powerful economic incentives to provide the best possible service to their customers. They compete not only on price, but also on service quality.” She said while the additional regulations were “unlikely” to improve wireless service quality or the way carriers treat their customers, they were “likely to add costs and result in unintended consequences, and consumers will ultimately pick up the tab. Regulations concerning contractual terms, billing practices, service quality, and the like force carriers to develop new systems and safeguards and inevitably engender litigation. Such costs divert capital away from investment in new cell towers and other more productive uses. I sincerely hope that other states will think twice before following a similar path.”

Abernathy said she was also concerned about the efforts of several states to regulate VoIP: “There is no dominant provider of IP voice service and the absence of a monopoly together with the very low entry barriers makes it hard to understand the justification for seeking to regulate these services.” She said she was concerned some states wanted to move “far beyond” social policy issues when addressing IP- enabled services. “A wider course of action is to show restrain with respect to these nascent services. If providers are forced to deal with a patchwork of disparate state rules, many providers may be unable to survive, and costs to consumers will rise.” Abernathy said she supported “a layered regulatory model.” “At the network layer, we should ensure that service providers comply with these basic social responsibilities and posses whatever basic right are necessary for the market to operate efficiently. And at the application layer, we should generally avoid regulation altogether.”

Abernathy said “the FCC in the future… will need to rethink its functions by reorienting itself from a rulemaking body to one focused on enforcement and consumer education.” She said the movement away from economic regulation “undoubtedly will translate into a substantial reduction in rulemaking activity. But with fewer prescriptive rules, there is a heightened need for stringent enforcement of the core mandates. This will produce a better, leaner model as the FCC focuses on the policies that are the most important and ensures strict compliance with them.” She said the Commission should also continue to improve its consumer outreach and education efforts.

On the Brand X case, involving the regulation of cable modem service, Abernathy said it would be difficult to find justification for the FCC to forbear on its rules, based on the record and that it would be difficult to build a record for forbearance. However, she said she was encouraged that Congress is interested in amending on the Communications Act to help the service be treated as an information service rather than as POTS. She also said she was encouraged that commenters on the service seem generally to embrace the idea of rights and responsibilities, including participating in E911, CALEA and universal service for anything that does resemble POTS. Abernathy said she liked voluntary measures, as opposed to regulation.