Copyright 2003 Gannett Company Inc.

USA TODAY…01/24/2003

In a move to keep a lid on high-speed Internet prices, regulators are expected to let small broadband rivals continue to lease the copper phone lines of the regional Bells at deep discounts.

But the Federal Communications Commission is likely to lift requirements that Bells rent their newly installed fiber-optic lines to competitors, say people familiar with the matter.

The FCC will likely phase out similar rules letting rivals lease the Bells’ voice networks at cut-rate prices. That could drive up local phone rates, but state regulators are expected to decide whether and when those rules are eliminated in each market.

The proposals are part of an FCC staff recommendation on a sweeping overhaul of a 1996 law designed to spark telecommunications competition.

The plan aims to preserve competition while addressing the Bell’s claim that they have little incentive to upgrade networks if they must share them with rivals at below-cost rates.

The plan could change before the five FCC commissioners vote on it next month. But here’s how the present proposals would affect customers:

The high-speed Internet proposal would benefit consumers. A handful of rivals led by Covad Communications, AT&T and EarthLink offer broadband to about 200,000 households by sharing the Bells’ copper lines. The wire’s frequency is split so rivals can beam their DSL service on part of it, paying the Bells $5 to $10 per line.

The competition forced the Bells and cable giants last year to shave most broadband prices to $40 from $50 a month. An appeals court last year struck down the FCC’s line-sharing rule, saying the agency had not adequately justified it. Some analysts expected the FCC to ditch the rule and make Bell rivals negotiate higher rates. But the proposal would preserve it. “Without competition, (consumer) prices would go up,” says Covad chief Charles Hoffman.

Increasingly, Bells are expected to install fiber lines in new neighborhoods for DSL service. The FCC proposal would free the Bells from leasing those lines to DSL rivals at low rates, offering them more incentive to upgrade. This would hurt competitors such as Allegiance Telecom, which rent the Bells’ fiber lines to offer discount services to businesses.

Broadband rivals could largely continue to lease Bell lines that contain both copper and fiber. Bells often install fiber to neighborhood hubs to soup up DSL lines. From there, copper wires link to homes.

The mandates that Bells lease their call-routing switches to rivals would be phased out. AT&T and WorldCom have gained 10 million local phone customers by leasing the Bells’ networks at low rates, lowering consumer prices.

States would determine in each market whether it’s financially feasible for the rivals to provide their own switches, and whether customers can be easily transferred to those switches. Still unclear: how much discretion pro-competition states would be allowed under FCC guidelines.