Client Alert

FCC Proposes Radical Changes to Broadband Internet Access Regulation

3/5/2002

In a rulemaking proceeding initiated on February 14, 2002, the Federal Communications Commission ("FCC" or "Commission") proposes changes to its regulations that could drastically change the legal environment of the Internet service provider ("ISP") industry and the competitive local exchange carrier ("CLEC") industry on which the ISPs depend as a competitive source of local telephone services.

Under the FCC's present regulations, the incumbent telephone companies ("ILECs") must make their services and facilities available to CLECs and ISPs on nondiscriminatory terms and conditions. Specifically, CLECs must be permitted to use access lines, interoffice trunks, switch ports and other ILEC facilities to provide service in competition with the ILECs. Similarly, the Bell operating companies ("BOCs"), which operate the largest ILEC networks, must provide telecommunications services to competing ISPs on nondiscriminatory terms and conditions.

All of this could change if the Commission follows the roadmap set out in its new rulemaking. Specifically, the Commission requests comment on new rules under which ILEC facilities used for broadband Internet access services no longer would be available to competitors, or would be available at deregulated rates that may further erode the narrow profit margins that competitors in this industry can achieve. The Commission also asks for comment on the reduction or elimination of the present rules governing BOC provision of services to competing ISPs, and asks whether ISPs that control the telecommunications facilities on which their services are based should contribute to the universal service fund ("USF").

The impact of these proposals will be even greater if the Commission adopts its proposals, made in another recently-initiated rulemaking, to deregulate the rates charged by ILECs for their own broadband Internet access services. If CLECs are unable to obtain reasonably-priced access to ILEC network elements needed for broadband service, ISPs will be forced to deal with the incumbents or pay higher rates to CLECs for local service. If ISPs are forced to contribute to the USF fund, their costs will rise still further. At the same time, if the Commission deregulates ILEC broadband services, ISPs could be faced with more aggressive pricing by ILECs for the broadband services with which the independent ISPs compete.

The broadband rulemaking promises to be one of the most important regulatory battles in the history of the Internet industry, and one in which providers of Internet-based services should participate, either independently or as members of coalitions. Comments on the most recent FCC proposals are due April 15, 2002, and reply comments are due May 14, 2002.

For more information on the Commission's broadband initiatives, or assistance with filing comments in the present proceeding, contact Cheryl A. Tritt, ctritt@mofo.com, or Charles H. Kennedy, ckennedy@mofo.com.

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