FCC Ruling A Blow to DSL Providers

The FCC voted Thursday to allow competitors to continue using RBOCs' existing networks at a discount. But the commission also said the RBOCs do not have to offer discounts on new high-speed fiber-optic networks, a move many industry pundits fear will drive up broadband prices.

The FCC also ruled that the RBOCs no longer have to lease high-speed portions of their copper lines to DSL providers. In an arrangement called line sharing, DSL providers use the RBOCs' local phone loop to provision services.

In a statement, DSL provider Covad Communications said phasing out line sharing would result in less choice and increased prices for customers should a local phone company set unreasonable prices for last-mile access.

"The ultimate effect on our consumer broadband business will depend on our ability to negotiate fair and reasonable prices substantially lower than the whole loop cost that will ultimately be permitted under FCC rules," said Charles Hoffman, president and CEO of Covad, in the statement.

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Covad now faces the task of transitioning its line-sharing customer base to new pricing arrangements over the next three years. This will affect mainly the consumer side of Covad's business, said Hoffman, who, in a call with analysts, did not rule out the possibility that the company could exit the consumer market altogether. But at this point, Covad, which relies on partners such as EarthLink to deliver residential DSL, will begin pricing negotiations with the RBOCs, Hoffman said.

The FCC ruling does not directly affect Covad's access to second-line loops and T1 facilities, which the company uses to serve business customers, said Hoffman. Those customers accounted for 60 percent of the company's revenue in 2002.

Michael Brandofino, CTO of Covad partner Wire One Technologies, Hillside, N.J., said he is unclear at this point how the FCC ruling will impact his company. The videoconferencing solution provider provides video-over-IP solutions to large and small companies with the last mile being delivered via a Covad Symmetric DSL solution.

"What we have to figure out is by how much and how quickly the price model may change, or if this means that the RBOCs will jump on delivering services that Covad has traditionally delivered and squeeze [Covad] out," said Brandofino. "We could handle a bit of a [price] increase, but not a drastic, quick change."

In reaction to the FCC ruling cutting off access to hybrid copper and fiber networks, Covad's Hoffman said the FCC "passed on an opportunity to guarantee that broadband competition continues on a level playing field across the country."