FCC Warns Verzion and BellSouth on DSL USF

It seems some of the folks at the FCC have caught wind of plans by Verizon and BellSouth to continue charging consumers, in effect, the USF surcharge on DSL lines, but calling the charge a "regulatory recovery fee" and pocketing the money.

According to the Wall Street Journal, the carriers should check the mail for a letter of inquriry asking for "documentation about how the surcharges are consistent with federal Truth-in-Billing laws as well as how the underlying costs of providing high-speed Internet services are supported by the surcharges. Additionally, the FCC wants information on why the companies are imposing the surcharges on all Internet customers, both those who buy bundled packages and those who subscribe only to high-speed Internet."

Its nice to see the FCC taking pro-active, pro-consumer enforcment role and we hope its a trend.

BellSouth and Verizon Swap USF Charge for "Regulatory Cost Recovery Fee"

Last year when the FCC effectively removed all common carrier regulation from DSL services provided by the RBOCs the Commission also removed the obligation of DSL providers to pay Universal service surcharges on their DSL line revenues. Great news for end users, who will no longer have to pay those assessments, right?

But according to today's Wall Street Journal BellSouth and Verizon won't be passing the savings on to their customers. "Verizon recently emailed subscribers announcing that it dropped the universal-service fee as of Aug. 14 and will impose a new "supplier surcharge" beginning Aug. 26. The new fee -- $1.20 a month for slower-service customers and $2.70 a month for faster ones -- is almost exactly what consumers would have saved with the government's change. BellSouth yesterday said it also intends to continue charging Internet subscribers its $2.97 a month "regulatory cost recovery fee.'"

We are shocked! This is just like the "Missoula Plan" a/k/a Pimp Plan, which is supposed to "fix" the universal service problem without impacting incumbent revenues. Call us crazy, but we see a pattern emerging here.

Mixed Messages From Verizon on Future of Local?

There was lots of print this week about the health (or lack of) and future (or lack of) of the wireline telephone business.

The week started off with the story that Verizon is again looking to dump tens of thousands of access lines in Maine, Vermont and possibly New York (though a previous plan to throw off those lines didn't go over so well with the NYPSC). This was ironic news, in light of the fact that Verizon's Doreen Toben told analysts on the 2Q 2006 earnings call just a few weeks ago that "We remain confident that wireline margins will expand and show sequential improvement as we go through the year." I guess she meant as a result of the liquidation? The same old VZ double talk? You decide. At the same time Business Week Online had a story about the rough time the guys at the Carlyle Group (headed by former FCC Chairman Bill Kennard) are having with their own 2004 acquisition of Verizon's Hawaiian local business.

No matter what VZ says, it's clear that while the local business is tough these days, its far from dead. We think that the predictions of 100% VoIP replacement within 5 or even ten years are a bit optimistic and rumors of the death of local are exaggerated a bit.

Verizon In a "Race for Survival"

We were amused today by the New York Times story below the fold on the cover of the Business section headlined: "Verizon is Rewiring New York, Block by Block, In a Race for Survival." Our amusement was compounded by the fact that the headline appeared on the same day that two of the few remaining CLECs that were born out of the 1996 Telecom Act and who suvivied the telecom bust, US LEC and Paetec, announced that they are combining, with US LEC being acquired by Paetec.

The New York Times story shows the brilliance of Verizon's PR and legal machine, which has sought (successfully in many cases) to convince regulators that they and the other 2 remaining BOCs are on the verge of being put out of business by the cable companies and Vonage. Verizon and AT&T (the new new AT&T) are always one piece of legislation away from being able to "compete" in the marketplace. In fact, Verizon's version of "barely surviving" is having cash flow from operations for 2Q '06, according to the transcripot of the VZ analysts call, "total $11.5 billion, which is $1.6 billion better than the first-half of last year."

Pardon me while I dab a tear.

in the meantime, the few remaining competitors who remain are scrambling to sell assets at fire sale prices. The US LEC deal comes just on the heels of the closing of the TelePacific acquisition of Mpower. As we've said before, hopefully the remaining competitors and the cable companies will take a page from the BOCs war plans and fight the fight on every front.

More From WSJ's Wanna-Be FCC Commissioners

We remain fascinated by the focus of the Wall Sreet Journal's editorial board on the arcane world of telecom regulatory policy. The omniscient editors have never been shy about pontificating about things they clearly know little about.

Today's WSJ editorial page carries an editorial about Sprint's announcement this week that it plans to build a multi-billion dollar WiMAX network over the next several years. According to the closet FCC commissioners at the Journal this announcement solves virtually every major policy debate now happening in DC because "high-speed wireless Internet access, however, means no more duopoly." As a result, there is no more duopoly (according to the Journal) and therefore is no need for any "net-neutrality" guarantees, no need to regulate broadband in any way, and no need to regulate access the last mile.

Gosh, that was so easy!

WaPo Newsflash: Comm. McDowell Is Independent!

An interesting story in today's Washington Post about Commissioner McDowell asserting his independence on the Commission, most notably, according to the Post, in his refusal to sign onto the Chairman's "must carry" item.

While this fact may surprise some (including, apparently the Post editors who viewed the story as worthy of the Business section cover) those of us who know Commissioner McDowell from his years in the telecom industry are not surprised. While we had predicted here that Chairman Martin would seek to take advantage of having a Republican majority in the early days following his swearing-in, we never predicted that Commissoner McDowell would be a rubber stamp. He has always been independent, fair and thoughtful and we expect that he will continue to be on the Commission.

Another interesting thing in the article is the description of what happened on the XO Forbearance Petition (see our June 22, post). It appears that the regrettable decision to pull the petition at the last minute was made to avoid putting Commissioner McDowell in a "difficult position." We are sure that Commissioner McDowell could have handled the pressures assoicated with voting on the item, and it would have been nice to see the competitive industry not back down for a change. Maybe the industry will have another chance to prove its mettle soon.

AT&T BellSouth Merger Docket Quiet: Tunney Act Fallout?

We have been closely monitoring the FCC docket in the AT&T/BellSouth merger and its been pretty quiet for the past few days. We're not sure whether the parties are reassessing strategy in light of next week's Tunney Act hearing or whether all of the lawyers for AT&T and BellSouth have retreated to their vacation homes on Martha's Vineyard for the month of August. In any event, today is day 105 on the FCC's 180 day self-imposed deadline for merger reviews and the conventional wisdom is that this merger will not be completed within the deadline.

The factors for the slow-down include first and foremost the November election (regulators and Congress don't want this anticompetitive debacle to be any kind of issue in the Election) and the Tunney Act bump in the road. Look for activity to pick up after Labor Day when the AT&T and BellSouth lawyers and executives get back from their vacations.

Vonage and Verizon report earnings ...

Verizon announced a 24% drop in it second quarter profit do at least in part to customers switching to competitors, such as Vonage and cable operators. At the same time it's losing core customers, its expending huge sums on its FiOS fiber optics rollout.

Meanwhile, Vonage reports adding 1,005,000 net subscriber lines during the year ending June 30, 2006 -- with a whopping 256,000 coming in the most recent quarter. Vonage now boasts 1,853,000 total subscriber lines, a quarterly increase of 16% and an annual increase of 119%. It remains to be seen when Vonage will turn a profit, but it looks like the company is increasing its subscribership while decreasing its losses ... a positive combination that proved very elusive for first generation competitors.

The combination Vonage and Verizon announcements may very well explain Verizon's incessant legal and policy attacks on Vonage and other competitors. If you can't compete on the field, work the referees.