FCC Regulators Give SBC Permission to Build DSL Facilities

(September 11, 2000) The FCC released a second order in its SBC Ameritech merger review proceeding. This order modifies the condition imposed upon SBC in its first order that a separate affiliate must own equipment used to provide advanced services. This new order means that SBC can provide DSL service through neighborhood broadband gateways to be deployed as part of its $6 Billion Project Pronto.

The Federal Communications Commission released its Second Memorandum Opinion and Order (Second Order) in its merger review proceeding concerning the SBC Ameritech merger on September 8, 2000. The two companies filed their original application with the FCC on July 28, 1998. Nearly 15 months later, on October 6, 1999, the FCC approved the merger, with numerous conditions, in a lengthy First Memorandum Opinion and Order (First Order).

One of the conditions imposed by the First Order was that a SBC separate affiliate must own equipment used to provide advanced services, such as digital subscriber line service (DSL) broadband Internet access service.

Currently, the availability and quality of DSL service depends on the distance between a customer and the local exchange carrier's (LEC's) local office. DSL technology allows transmission over the existing copper wire loop at speeds up to one hundred times faster than conventional dial up service. However, the signal degrades rapidly over distance. Customers not located close to existing local offices cannot receive DSL service.

SBC plans to create 25,000 "neighborhood gateways" that will shorten the distance that the signal will pass over the local loop. In addition, SBC plans to build another 12,000 miles of fiber transmission facilities. It has named this $6 Billion initiative "Project Pronto."

Under this plan, SBC will build and own the new facilities. This violates the terms of the FCC's First Order. Hence, SBC requested that the FCC modify or waive portions of its First Order. The FCC granted its permission, but promised to continue its "compliance oversight and enforcement processes".

The Second Order explained the decision: "we find that the public interest is served".

SBC expressed satisfaction with the Second Order. "We are pleased with the FCC ruling, which allows SBC to bring the benefits of broadband Internet service to millions of consumers who were previously outside the range of our DSL service," said SBC Broad Services President Mike Turner in a release. "In addition to expanding our DSL footprint, the neighborhood gateways will also enhance the quality of our network, making it easier to provide voice and data services."

The timing of SBC's application may be significant also. SBC announced its Project Pronto less than two weeks after the FCC issued its First Order in the SBC Ameritech proceeding. Hence, it is likely that SBC consented to the condition that it not own DSL facilities knowing that it was planning a project that entailed that it own DSL facilities.

Then, the FCC approved a violation of its First Order. In effect, the condition imposed by the First Order operated here, not as a ban, but as a grant of authority to the FCC to exercise continuing jurisdiction over the activity covered in the condition.

The FCC, which has no statutory authority to license or regulate DSL service, acquired such de facto authority by withholding approval of the license transfers in the SBC Ameritech merger proceeding until the parties consented to such authority.

FCC Commissioner Harold Furchtgott-Roth, who opposes FCC antitrust merger review proceeding on the grounds that the FCC has no authority to conduct them, and has adopted no regulations to implement them, wrote a separate dissenting opinion.

He wrote that "the merger conditions were the product of negotiations that were hidden from the public and possibly unlawful under the Administrative Procedures Act. Some of the specific negotiated conditions are unlawful under the Communications Act. In my view, the Commission had no statutory authority to require SBC to comply with the merger conditions at issue, and I consequently cannot support its effort to tinker with these requirements here. I would, however, vote to approve a permanent waiver of all the merger conditions, recognizing that they should not have been imposed in the first instance."

In addition to allowing SBC to proceed with its Project Pronto, the FCC Second Order includes several provision pertaining to open access to its facilities. The FCC ordered that "No later than September 15, 2000, the SBC/Ameritech incumbent LECs will offer all telecommunications carriers, including their separate Advanced Services affiliate(s), nondiscriminatory access to a combined wholesale broadband service where the SBC/Ameritech incumbent LEC deploys a NGDLC architecture that supports both POTS and xDSL services."

In addition, "The rates, terms and conditions of this end-to-end wholesale broadband service will be nondiscriminatory and such service will be priced in each state in accordance with the pricing methodology then applicable to unbundled network elements under Sections 251(c)(3) and 252(d)(1) of the Communications Act, except that the service will not be subject to geographic deaveraging. Rates charged for the broadband service will be just and reasonable."

Finally, the Second Order states that "... the SBC/Ameritech incumbent LEC must permit unaffiliated telecommunications carriers to order the broadband service offering under the same rates, terms, and conditions, and to utilize the same ordering interfaces, processes, and procedures as are made available to the separate Advanced Services Affiliates.  The SBC/Ameritech incumbent LECs have and will continue to provide the SBC Advanced Services Affiliates and unaffiliated telecommunications carriers field by field usage rules, documentation, technical requirements and parameters that can be used by those carriers to interface with the SBC/Ameritech incumbent LEC ordering interfaces."