PASADENA -- Just hours after Adelphia’s John Rigas was arrested for alleged fraud on Wed., NBC Chmn. Bob Wright, who also serves as GE vice chmn., expressed confidence his company could withstand auditing scrutiny. Addressing TV critics here Wed., Wright said: “I'm very confident, but I will tell you that there really aren’t any such things as simple public companies. The kind of accounting that a public company is required to do is not simple. It’s not straightforward, it’s opaque -- unless you're an accountant. And even if you are an accountant, it has a lot of angles on it so even simple business transactions in simple companies can be difficult to explain to people quickly. We've tried, among the small group of people that I work with, to make it transparent. It just cannot be done. But I'm absolutely comfortable with it.”
Notable CROSS rulings
State regulators Wed. reiterated their position that they be free to modify any FCC national list of unbundled network elements (UNEs) that incumbent telcos must offer to their competitors. In teleconference with reporters, several regulators also called for establishment of federal-state joint conference on UNEs to ensure FCC and states didn’t start working at cross purposes. Wed. was deadline for reply comments in FCC’s triennial UNE review. In comments filed late in day, consumer groups and CLECs also urged Commission not to reduce number of mandatory national UNEs or allow any new restrictions on UNE availability. ILECs on other hand, said it was clear that UNEs weren’t as vital as they once were.
Members of Congress have raised questions about FCC responsibilities in wake of WorldCom scandal in flurry of letters late Thurs. and Fri. House Financial Services Chmn. Oxley (R-O.) sent letter Thurs. to FCC Chmn. Powell asking about Communications Act requirement that FCC “inquire into the management” of communication common carriers. Senate Commerce Committee Chmn. Hollings (D-S.C.) wrote letter Fri. similar to one sent by Rep. Markey (D-Mass.) last week questioning whether FCC is prepared to handle potential WorldCom bankruptcy. And Ranking House Telecom Subcommittee Democrat Markey (Mass.) was critical of Powell’s response to his questions about continuity of service, particularly broadband, should WorldCom file for bankruptcy. Markey said in statement late Thurs. that Powell and other FCC commissioners should “rethink the wisdom” of FCC policies.
Who speaks for independent ISPs? Question has surfaced in FCC rulemaking examining whether ILECs should be required to unbundle DSL components for competitors (CD July 3 p4). Two ILECs, Verizon and SBC, filed with FCC last week Memorandums of Understanding (MOUs) they had reached with U.S. Internet Industry Assn. (USIIA) that committed Bells to offering wholesale interconnection for DSL service to serve ISPs. But Verizon and SBC are USIIA members, with Verizon holding board seat, and other ISP groups charge that USIIA doesn’t speak for ISPs. MOUs “do a disservice to ISPs,” said BroadNet Coalition Exec. Dir. Maura Colleton, whose new group lists both independent ISPs and some state ISP associations as members and is funded primarily by ISPs Earthlink and WorldCom. But USIIA Exec. Dir. David McClure said he wasn’t concerned about criticism “from the latest fly-by-night group funded by a large company that would prefer to remain in hiding.”
FCC Comr. Abernathy told reporters Tues. that among Commission’s “very important” concerns in aftermath of WorldCom scandal were ensuring continuity of service to customers and helping to restore consumer confidence. At regularly scheduled press breakfast, Abernathy also listed what she viewed as “past missteps” of previous Commission in implementation of Telecom Act. Reflecting on her own experience at failed CLEC Broadband Office, she said telecom financial problems such as woes now besetting WorldCom were driven by complex web of market forces, although she stressed importance of regulatory certainty to investors. “What has happened to WorldCom has been a financial blow to capital formation for the telecom industry and that was an industry that was already in cash crisis,” she said. “So anything we can do to boost and restore consumer confidence I think is important,” she said, citing importance of “clear regulations that can withstand judicial scrutiny.” Previous Commission focused on increasing number of competitors without paying close enough attention to long-term sustainability of that competition, she said.
Of all possible outcomes for WorldCom, best for rest of telecom industry would be for company to be liquidated in Chapter 7, worst would be for WorldCom to shed debts and emerge as “leaner, meaner,” Legg Mason analyst Blair Levin said in report issued Wed. Restructuring under Chapter 11 bankruptcy “appears inevitable” despite company’s efforts to avoid it, he said. But because of WorldCom’s size, how it restructures could have significant impact on telecom industry as a whole, Levin said.
Two pro-independent ISP groups released separate studies Mon. saying FCC rulemakings were in danger of eliminating independent ISPs, echoing charges by other ISPs and affiliated groups (CD July 1 p1). Flurry of ISP activity is result of reply comments deadline for FCC in its broadband wireline rulemaking, one of several broadband actions drawing attention of ISPs. While several groups claiming to represent ISPs agree proposed FCC rules would hurt their ability to compete in broadband, there appeared to be disagreement on extent to which Bush Administration was endorsing inclination of FCC Chmn. Powell to favor so-called intermodal competition between broadband platforms, rather than competition among specific companies or sectors on single platform.
Legislation introduced Thurs. by Sen. Feingold (D-Wis.) would expand FCC authority to review proposed radio mergers and curb alleged anticompetitive practices of radio and concert promoters. Feingold said his proposed Competition in Radio and Concert Industries Act was effort to halt damage he said was done by Telecom Act of 1996, which he said was heavily influenced by “soft money.” (CD June 14 p7) Telecom Act eliminated national radio ownership cap and softened local ownership caps, which has “opened the floodgates of media concentration,” he said. As result 4 companies -- Chancellor, Clear Channel, Infinity and Capstar -- control most popular music formats, including 63% of top 40 format and 56% of country format, he said. Feingold said he realized there was not enough time for bill to pass Senate this term, but he hoped to get it through committee, or at least get hearing, before 107th Congress adjourns.
House Commerce Chmn. Tauzin (R-La.) sent letter to FCC Chmn. Powell urging FCC to “complete expeditiously” its rulemaking on newspaper/broadcast cross-ownership rule, asking that Commission take final action by next spring. Tauzin said rule was “antiquated and unnecessary” and vast majority of commenters in proceeding advocated its repeal. “These rules were developed to address concerns of a bygone era,” he said. “Timely resolution of these ownership issues is absolutely essential to alleviating regulatory uncertainty in the marketplace, and will ensure that the broadcast ownership rules more accurately reflect and respond to today’s media marketplace.” Tauzin said he was “heartened” that FCC would address all pending broadcast ownership issues in one “omnibus” proceeding (CD June 18 p1), but said he was disappointed with its decision to defer “what should be an immediate repeal of this outdated rule.” FCC Media Bureau Chief Kenneth Ferree said Commission would be complete report and order on broadcast rules by next spring.
U.S. Trade Representative’s (USTR) office urged FCC to approve proposed U.S.-Mexico settlement rates only for 2002 for now. USTR said Commission should consider deferring approval of 2003 rates “until it becomes clear whether and when the Mexican government intends to reform its long distance rules.” USTR submitted comments June 17 on requests for waivers by WorldCom and AT&T on Commission’s international settlements policy to change accounting rate for services with Telmex. Telmex, WorldCom and AT&T reached agreements to change settlement rates for 2001 through 2003. Agreements introduce 3 new rates for 2002 and 2003 based on final destination of call, with weighted average of 8-9 cents per min. “These rates appear a positive step,” USTR said. “However, the new average rate still appears to be at least double the actual cost of terminating these calls in Mexico and differs only marginally from the single 10 cent rate proposed for 2003 in the WorldCom-Telmex agreement that was filed with the Commission last year.” In March, WorldCom petitioned FCC for waiver to lower accounting rate for international traffic it exchanged with Telmex. That would lower average 19-cent rate now in effect with Telmex. It would provide rate of 15 cents in each direction for 2001 and 13.5 cents in each direction for 2002. For 2003, different rates would apply based on whether traffic was northbound or southbound and, in some cases, in which cities it terminated. WorldCom argued that deal would be in public interest because it would move settlement rates “much closer” to cost-based levels on U.S.-Mexico route and would shift it to levels “far below” 19 cents benchmark rate set by FCC. AT&T petitioned FCC in April to implement similar rates. “While AT&T would like to obtain greater reductions, Mexico’s restrictions on competition continue to prevent the negotiation of competitive, cost-based rates on the U.S.-Mexico route,” AT&T said. USTR told FCC it was “particularly disappointing” that pacts don’t consider even deeper reductions for 2003. “Thus, while the rate reductions proposed in the petitions for waiver are a step forward, the proposed rates are still far above cost -- reflecting the power Mexico’s international long distance rules give to Telmex to negotiate these rates,” USTR said. It said Mexico needed to reform those rules to let competing suppliers negotiate rates and to promote “the public interest of achieving cost-based settlement rates.” Telmex in March filing asked Mexican regulator Cofetel to repeal critical provisions of what U.S. had termed anticompetitive international long distance rules. USTR said: “With this filing, the principal Mexican and U.S. telecom providers are now actively seeking to open the cross- border basic telecommunications market to competition.” But it said Mexican govt. hadn’t yet moved to reform rules and create competitive international telecom market. By approving only proposed rates for 2002, FCC could wait until it was easier to evaluate whether additional reductions for 2003 and beyond were likely, USTR said.