Telecom Changes Put Competition on the Line

For most of the industrial age, homes primarily communicated tothe outside world through a basic copper phone wire.

Now, telephone giants are focusing instead on building fiber-optic cables made of glass that can carry far more data than docopper lines. As companies like Verizon Communications spendbillions to replace their century-old systems with these new lines,they're gradually disconnecting the old copper networks.

But smaller competitors say the disappearance of traditionalcopper could put them out of business.

Upstarts like XO Communications and Covad Communications rely ontheir ability to lease access to copper lines from Verizon or AT&Tso they can reach their own customers. Without that access, thosecompanies say they may have to use more expensive lines and raiserates.

The telephone giants -- once part of the Ma Bell monopoly thatstarted laying copper lines in the late 1800s -- are currentlyrequired to lease their copper and limited parts of their fiber-optic networks to rivals to encourage competition. But as theyinvest in the newer fiber-optic networks, Verizon is askingregulators to eliminate requirements to share their networks withcompetitors in several major markets.

Qwest Communications International and AT&T are also replacingsome copper lines but are leaving a portion so that copper lines canbe used along with new fiber lines.

Ed Shakin, an attorney for Verizon, said network-sharingrequirements are no longer needed in certain cities now that cablecompanies and other competitors have rolled out Internet and phoneservice. "What competitors want are artificially low prices," hesaid. "It comes down to a fight about price, not availability."

But this week, 22 companies, including XO in Reston, CavalierTelephone in Richmond and RCN in Herndon, countered Verizon'sargument in a letter to the Federal Communications Commission.Competition is not sufficient to justify Verizon's request not tolease its network to smaller companies in six major cities, thecompanies said in asking the commission to deny the request.

Earlier this year, many of the same companies also protestedVerizon's ability to cut decades-old copper lines in homes as itrolled out its high-speed FiOS service. Some companies rely on thecopper lines not just to offer basic phone service but to provideadvanced services. XO, for example, provides high-speed Internetservice over the existing copper lines, while Cavalier uses them tooffer digital television.

Taken together, cutting traditional copper lines while alsoeliminating access to the new lines could severely hurt competition,the rival companies argue.

"This poses a real threat to competitor viability," said FrancieMcComb, Cavalier's vice president of regulatory affairs. "We have alot of customers that will be affected."

About 3 percent of copper lines get replaced every year, saidMichael Howard, an analyst at Infonetics Research, a market-research firm in Campbell, Calif.

Some policymakers say the combined impact of rivals losing accessto both copper and other lines could impair the United States' pushto catch up to other countries' level of broadband deployment.

Edward J. Markey (D-Mass.), chairman of House telecommunicationssubcommittee, said in an interview that he thinks Verizon's petitionand copper-cutting practice undermines the effort to extend high-speed Internet across the country.

"This is not just a battle between big companies and smallcompanies -- it will be viewed as an indispensable part of ourbroadband policy," he said.

Verizon said it would continue to make its network available tocompetitors but wants to negotiate new rates with the companies sothey can't piggyback on its multibillion-dollar investment in thenetwork.

Verizon also said it would reconnect the copper lines to homes ifcustomers want traditional phone service. Verizon expects to saveabout $1 billion a year by 2010 by moving more of its business tothe fiber-optic network, which is cheaper to maintain than copper.

Howard, the Infonetics analyst, said Verizon has plenty ofcompetition from cable companies that have also upgraded theirnetworks. "As long as consumers have several choices, thesecompanies need to be able to see a return on these massiveinvestments," he said.

The FCC expects to decide on Verizon's petition in earlyDecember.

The main goal is to give large and small companies an incentiveto invest in greater technological development, said Blair Levin, ananalyst with Stifel Nicolaus.

"The core policy question is the same: What drives investment inbetter, bigger, faster networks?" he said. "We want our telephonecompanies to invest in these networks, so what's the best policy toencourage that behavior?"