Competitors Want FCC to Bar Bells From ‘Tying’ DSL and Voice

The FCC shouldn’t let the Bells force consumers to subscribe to voice service in order to get DSL, competitors said in comments filed in response to a BellSouth petition for rulemaking (03-251). Instead, the Bells should be required to sell DSL as an independent product, sometimes called “naked DSL,” the competitors argued in reply comments filed July 12. BellSouth’s petition seeks an FCC ruling that bars state regulators from requiring it to sell DSL as a separate product. However, competitive LECs say the Bells’ packaging practices make it difficult for them to compete for voice- only customers.

The debate waged in reply comments filed July 12 boiled down to a dispute over whether the Bells are engaging in such “tying.” Bell companies said they're bundling, not tying, DSL and voice. Bundling is a convenience for consumers, who have the option of going to competitors if they don’t wish to subscribe to both services, the Bells told the FCC. That rationale is merely semantic, competitors said, claiming the packages offered by Bells harm competition. The Bells still have market power and consumers don’t have that much of an option, they said.

“This Commission should not sanction tying arrangements that prevent a consumers from purchasing different services from different providers,” said ITC DeltaCom. “BellSouth’s real motivation is to lock in its local voice customer base… Does this Commission really want to send the message to all broadband providers that it is appropriate to tie the availability of one product to another?”

T-Mobile said the FCC should adopt “narrowly targeted” rules requiring the Bells to provide naked DSL: “ILECs’ provision of naked DSL in addition to their other offerings will promote the development of innovative offerings like the potential new… IP-based applications that T-Mobile is assessing.”

Vonage said “even where consumers can choose between ILEC DSL and cable, they remain vulnerable to tying practices in a duopoly market.” For example, “millions of consumers do not have access to cable,” Vonage said: “The Commission must not ignore customers without broadband choices simply because some consumers have some form of choice.”

BellSouth said this debate isn’t necessary because the market is competitive enough to guard against ILECs controlling prices or demand. “The Commission should allow the competitive market to work and avoid implementing any regulation,” BellSouth said in its comments: “The Commission should close this proceeding and find that no further action is needed.” The company said bundling DSL and voice services “is a function of network design and efficiency… Because of the efficiencies gained from offering the services as a bundle and because of the additional costs of offering DSL on a standalone basis, BellSouth has made a business decision to only provide DSL in a bundle with its voice service.”

Qwest, which offers standalone DSL, said it still doesn’t think there should be an FCC requirement that all Bells do it. Rather than “imposing new rules of general applicability,” the FCC should address specific instances of harm, Qwest said. For example, conditioning approval of the SBC-AT&T and Verizon-MCI mergers on “the merged entities’ willingness to offer naked DSL” would be justified, Qwest said. The Commission should focus on areas where there’s obvious market power, Qwest said. If a Bell refused to offer stand-alone local voice services, it would be illegal because incumbents have market power there, Qwest said. However, that’s not the case in the broadband market, the carrier said.

“Communications bundles, including [DSL] bundles offered by many local exchange carriers, promote efficiency and benefit consumers,” Verizon said. “The Commission should allow competitive forces, rather than regulatory mandates, to drive broadband providers’ marketing decisions,” Verizon said, claiming opponents have made “misplaced” arguments about anticompetitive effects of bundling DSL: “While they base their claims on the imagined anticompetitive effects created by carriers’ offering DSL only as part of a package with local voice service, the fact of the matter is that the broadband marketplace is characterized by vigorous competition and local exchange carriers are not the leading providers.”