Telecommunications Reports - January 29, 2001

FCC Expands ILEC Line-Sharing Mandates To Fiber Loops, Confirms 
Line-Splitting Duty
Critics Worry White House `E-rate' Proposal May Reduce Funding, Discourage 
Participation
FCC Gears Up To Enforce E-rate 'Net-Filter Mandate
Large Carriers Want 700 MHz Auction Postponed, But Small Providers, 
Broadcasters Oppose Delay
FCC Takes Additional Steps To Help Clear 700 MHz Band
The FCC's Enforcement Bureau is a proposing a monetary forfeiture...
Easing Spectrum Crunch Tops CTIA's 2001 Lobbying Agenda
Nextel Communications, Inc., has agreed to purchase specialized mobile 
radio...
Commission Examines Merits Of Lifting CMRS Spectrum Cap
Bookham Technology plc, an Oxfordshire, England-based...
Appellate Court Upholds Nextel Tower Permit
Finance Panel Senators Back Broadband Service Tax Credits
Verizon Wants Law Changing Approach to Broadband Regs
Utah Bill Would Halt Plan To Merge Consumer Agencies
Reps. Cannon, Eshoo Unveil Internet Privacy Measure
Appeals Court Says FCC Erred in Rejecting U S WEST Bid for `Nondominant' 
Regulation
The FCC's Enforcement Bureau has issued a monetary forfeiture...
FCC Gives Bells `Blueprint' In OK of SWBT's InterLATA Bid
FCC Rethinks Limitations On Carriers' Use of EELs
Pole Attachment, TELRIC Rates To Be Challenged in High Court
Supreme Court Again Refuses To Hear State Immunity Cases
'Net-Based Directory Publishers Can Access LEC Data, FCC Says
Analysts See Lucent Plan Leading To Profitability, But Not Growth
Court Says WorldCom Tariff Trumps Service Pact with ICOM
Long Distance Revenues Head North, FCC Reports
Telefonica, Portugal Telecom Foresee Brazilian Consolidation
Losses in Handset Operations Spur Ericsson To Exit Business
CRTC Nixes Vancouver Bid For Fiber-Deployment Fees
Brazil, France Face Setback In Awarding Wireless Licenses
Wireless Industry Seeks Changes In Antenna-Collocation Agreement
The Telecommunications Industry Association has published...
Carriers, Others See Problems In FCC's ID-Number Proposal 
Building Owners, Carriers Spar over FCC Proposal To Block Service, Extend Ban 
on Exclusive Pacts
Missouri Lawmakers Seek To Oust Three PSC Members
FCC Says ATU Must Refund $2.7M For Misallocating Costs
`C,' `F,' Block Reauction Nets Record $16.8B; Large Carrier Participation May 
Be Contested
Pa. ALJ Slams Verizon Plan To Avoid Full Structural Split
Carriers Back Simplified Transfers Of International Authorizations
Personnel
Regulatory & Government Affairs
Industry News
Verizon-Vodafone Assets
DT Acquisitions
What's Ahead. . .
Falling Credit Ratings Create Costly Obstacle for Carriers
Telecom Sector's Dubious Debts Create Drag on Financial Markets
Conn. Draft Decision Would Let SNET Drop Cable TV Business
Executive Briefings

FCC Expands ILEC Line-Sharing Mandates To Fiber Loops, Confirms 
Line-Splitting Duty

The FCC has given data CLECs (competitive local exchange carriers) a major 
win by expanding incum-bent local exchange carriers' "line-sharing" and "
line-splitting" duties.  The FCC tinkered with its rules governing those 
duties in an order and further notice of proposed rulemaking released in 
Common Carrier dockets 96-98 and 98-147.  The order addressed petitions for 
reconsideration and clarification of a previous order on line sharing (TR, 
Nov. 22, 1999).

Line sharing is the requirement that incumbent local exchange carriers 
(ILECs) allow competitors to offer high-speed service over the high-frequency 
portion of a loop, while the ILEC continues to offer voice service over the 
low-frequency portion.

In the order adopted Jan. 19, the FCC said ILECs must provide line sharing 
over the entire loop even if they've deployed fiber in the loop to supplement 
or replace the original copper line.  The order was one of many actions that 
the FCC took on the last day of Chairman William E. Kennard's tenure but that 
were not immediately available, eventually trickling out of the Commission 
last week.

Rhythms NetConnections, Inc., had filed a petition for clarification with the 
FCC, complaining that some ILECs were contending they didn't have to unbundle 
fiber portions of the loop when those portions were used to provide xDSL 
(digital subscriber line) services.

"In the absence of this clarification, a competitive LEC might undertake to 
collocate a DSLAM [digital subscriber line access multiplexer] in an 
incumbent's central office to provide line-shared xDSL services to customers, 
only to be told by the incumbent that it was migrating those customers to 
fiber-fed facilities," the FCC said.  In that case, the CLEC would have to 
collocate another DSLAM in a remote terminal to continue offering line-shared 
services to the same customers.

"All indications are that fiber deployment by incumbent LECs is increasing 
and that collocation by competitive LECs at remote terminals is likely to be 
costly, time-consuming, and often unavailable," the FCC said.

The FCC says ILECs must allow for "line splitting," so competitors that offer 
voice service using the unbundled network element platform can provide-or 
partner with another data CLEC to provide-DSL service on those same lines.

"Incumbent LECs are required to make all necessary network modifications to 
facilitate line splitting, including providing nondiscriminatory access to 
[operation support systems] necessary for preordering, ordering, 
provisioning, maintenance and repair, and billing for loops used in 
line-splitting arrangements," the FCC said.

The FCC "strongly urged" ILECs and CLECs to "work together to develop 
processes and systems to support competing carriers' ordering and 
provisioning of unbundled loops and switching necessary for line splitting."

The FCC, however, denied a related petition for clarification filed by AT&T 
Corp.  It had asked the FCC to require ILECs to make their xDSL services 
available to customers even if they obtain voice service from competing 
carriers using the ILECs' lines.  AT&T was worried that customers wouldn't 
switch their voice service to a competitor if that change would eliminate 
their ability to get DSL services.

"Although the line-sharing order obligates incumbent LECs to make the 
high-frequency portion of the loop separately available to competing carriers 
on loops where incumbent LECs provide voice service, it does not require that 
they provide xDSL service when they are no longer the voice provider," the 
FCC said.

"To the extent that AT&T believes that specific incumbent behavior constrains 
competition in a manner inconsistent with the Commission's line-sharing rules 
and/or the [Communications Act of 1934, as amended] itself, we encourage AT&T 
to pursue enforcement action," it said.

The FCC also denied requests from Bell Atlantic Corp. (now Verizon 
Communications, Inc.).  It had asked the FCC to (1) reconsider the 
requirement that ILECs refusing to condition a loop for the provision of DSL 
service demonstrate to the relevant state commission that conditioning that 
loop would degrade voice services and(2) permit a line-sharing deployment 
schedule other than the one it adopted.

Rhythms applauded the FCC's decision.  "By expanding the definition of line 
sharing to include fiber loops and ensuring our ability to use consumers' 
existing voice lines for data services, we can bring the benefits of the most 
robust broadband service offerings to consumers," said Jeffrey Blumenfeld, 
chief legal officer and general counsel for Rhythms.

During a press briefing last week (see separate story), Thomas J. Tauke, 
senior vice president-public policy and external affairs at Verizon 
Communications, Inc., criticized the FCC's decision, specifically the 
provisions requiring line splitting.  The FCC "didn't address how this is to 
be done," he said.

Jonathan Lee, vice president-regulatory affairs at the Competitive 
Telecommunications Association, said the order was an "unmitigated win" for 
data CLECs.  But he said the FCC's decision not to grant AT&T's petition for 
clarification was "regrettable."

Residential consumers who have DSL available only from the ILEC won't be able 
to switch their voice service without losing their DSL service, he said.  Mr. 
Lee compared the ILECs' "tying" of voice and DSL service to Microsoft Corp.'s 
practice of linking its Internet Explorer Web browser with its Windows 
operating system.  The ILEC practice "could run afoul of antitrust laws," he 
said.

Critics Worry White House `E-rate' Proposal May Reduce Funding, Discourage 
Participation

The education reform package that President Bush sent to Congress last week 
is drawing criticism from policy-makers who helped draft and implement the "
E-rate" telecom discount program.  It's also sparking concern among schools 
and libraries that have participated in the program and benefited from it.

They're worried that the president's E-rate proposal, if adopted in its 
current "blueprint" form, would discourage certain schools from applying for 
discounts on telecom and Internet services and internal connections.  In the 
long run, they fear that the president's proposal would lead to decreased 
funding for the program, which currently stands at $2.25 billion a year.

The main problem, these critics say, is that shifting administration of the 
program to the Department of Education, as President Bush has said he intends 
to do, would render E-rate funding dependent on congressional 
appropriations.  In its current form under the FCC's oversight, the program 
is funded by universal service contributions assessed from telecom carriers.

The technology part of the president's education reform initiative unveiled 
last week calls for combining the E-rate with several Department of Education 
programs to form one "performance-based technology grant program."  Then, it 
says, funding for that program would be disbursed "by formula" to states 
through block grants.

The aim is to streamline the many "duplicative technology programs" into one 
education grant plan, the Bush administration says.  Such streamlining would 
go a long way toward reducing the E-rate program's "burdensome paperwork" 
requirements and adding more flexibility to those program, the proposal says.

"Flexibility will be increased by allowing funds to be used for purposes that 
include software purchases and development, wiring and technology 
infrastructure, and teacher training in the use of technology," it states.  
It also would permit E-rate recipients to use federal funds to pay for 
Internet filtering software, which is being mandated for the first time this 
year by the Children's Internet Protection Support Act of 2000 (TR, Jan. 22).

But key U.S. lawmakers and education officials aren't prepared to embrace the 
plan yet.  They say more details are needed from the Bush administration on 
several issues, including how the E-rate program would be funded and what 
formula would be used to distribute money among the states.

Jeff Burnett, director-government relations at the National Association of 
Independent Schools, says the language of the proposal is cloudy when it 
comes to whether the program would be supported by the Universal Service 
Fund, as it is now, or by general tax revenues.  "That's a huge question 
mark, and we are highly nervous about it because it does appear that it would 
become part of the Department of Education's budget," he says.

Mr. Burnett says making the E-rate dependent on general tax revenues could "
destabilize" its funding and discourage some private and parochial schools 
from applying for telecom discounts.  "It would go from where it is now, a 
pretty stable $2.25 billion per year, to where you would have arguments every 
year in Congress over how much money it would get."

Plus, he says, E-rate funds "no longer would be string-free" if they were to 
be allocated by the federal government.  Moving the program to the Department 
of Education could discourage religious schools from participating because of 
potential "church-state problems," he says, referring to the First Amendment 
to the U.S. Constitution, which prohibits congressional establishment of an 
official religion.  And some states may be restricted by their state 
constitutions from providing federally funded educational services to private 
and religious schools, he adds.

Former FCC Chairman Reed E. Hundt, who oversaw the implementation of the 
E-rate program back in 1996, fears that the end result could be the "killing 
of the program altogether" or a "chopping of it down from a significant 
program to an insignificant one."    

Having the Education Department oversee the E-rate program would remove 
stability from the program, Mr. Hundt stressed.  "Where are they going to 
find 2, 3, or 4 billion dollars in the general [tax revenues] to pay for it?" 
he asked.  "The bigger [telecom service] providers probably would be happy, 
but the [support] would be reduced," Mr. Hundt told TR last week.

He also rejected the administration's claims that consolidating the education 
technology programs would reduce applicants' paperwork and filing 
requirements.  "Moving it to the Department of Education is not a way to 
simplify paperwork," Mr. Hundt said.  "Nothing is simpler than the way it's 
done now.  These forms don't even go to the government; they go to a 
privately run trust fund," he added.

A source who works with schools on fine-tuning their E-rate applications 
foresees a "food fight at the state level" if the Bush administration 
institutes a block-grant program.  "There won't be the same spirit of 
cooperation among the schools and libraries that there is today," the source 
says.  "Instead, they'll see each other as competition."

A library official said that even if the E-rate program remained part of the 
USF, expanding its scope to include software purchases and teacher training 
could give telecom carriers grounds for a legal challenge of the assessments 
made on their revenues.  "If the money is to come from the service provider, 
then the program must directly relate back to the services that they 
provide.  I could see someone challenging the software and teacher-training 
aspects," the source says.

Snowe, Rockefeller Are Skeptical

The program has received an icy response from two U.S. senators who were 
among the original sponsors of the legislation that added the E-rate 
provisions to the Telecommunications Act of 1996:  Republican Olympia J. 
Snowe (Maine) and Democrat John D. Rockefeller IV (W.Va.).

In a statement issued soon after the Bush education proposal was released 
Jan. 23, Sen. Rockefeller vowed to "aggressively fight" the E-rate aspects of 
the proposal.  It would be a "grave mistake" to fold the E-rate into a block 
grant program with the Education Department technology programs, Sen. 
Rockefeller said.

"Under the Bush block-grant approach, local schools would have less 
flexibility, not more," Sen. Rockefeller said.  "Private and parochial 
schools would have to negotiate with state education agencies and worry about 
entanglements of federal regulations.  Most importantly, the secure funding 
for the E-rate and investments in technology would be jeopardized," he said.

Sen. Snowe also worries about turning the E-rate into a block-grant program.  
Among other things, she says, such a proposal could deter private and 
parochial schools from participating in the program.  

"We plan to work with President Bush and our colleagues in the Congress to 
ensure that the current program is protected, as we don't support any efforts 
that would undermine its goals," a Snowe aide told TR.  

New House telecommunications subcommittee Chairman Fred Upton (R., Mich.) has 
told President Bush in a letter that he plans to hold several hearings this 
year on "aspects of your proposal that fall under the subcommittee's 
jurisdiction," including the E-rate plan.

Rep. Upton has asked the Bush administration to focus on broadband service 
deployment, "particularly as it relates to how increased access to high-speed 
data services in our homes and schools could vastly improve educational 
opportunities."  Numerous calls to the White House seeking comment weren't 
returned before TR's Friday afternoon news deadline.

FCC Gears Up To Enforce E-rate 'Net-Filter Mandate

The FCC wants advice on how to implement the Children's Internet Protection 
Act of 2000 (CIPA), which requires schools and libraries that receive "
E-rate" discounts for Internet services and internal connections to use "
filtering" technology that prevents minors from accessing "harmful" material 
over the 'Net.

The FCC has suggested that recipients certify compliance with the CIPA on 
forms they must file when applying for E-rate discounts on telecom services, 
Internet services, and internal connections.

Under the CIPA, the "Internet safety technology" must filter out "visual 
depictions" of "obscene" material or "child pornography," even when adults 
are using the computers.  Schools and libraries are required to bar access to 
visual depictions that are "harmful to minors" only when minors are using the 
computers.

The law requires E-rate recipients to certify each program year that they are 
complying with the filtering mandate and that they monitor the operation of 
the filtering technology while the computers are in use.  The law allows an 
administrator to disable the filtering technology while the computer is being 
used by an adult "for bona fide research or other lawful purpose."

Schools and libraries have one year to adopt an Internet safety policy; in 
the first year after the effective date of the law, they either must certify 
that they have such a policy or that they are developing one.

The law also allows schools and libraries to seek a waiver from the FCC 
during the law's second year, if state or local procurement rules or 
competitive bidding requirements have prevented them from implementing an 
Internet safety policy.

The FCC's further notice of proposed rulemaking released last week in Common 
Carrier docket 96-45 proposes that E-rate recipients this year certify either 
that they have complied with all relevant provisions of the CIPA or that the 
CIPA requirements don't apply.  The certifications would appear on their "
receipt of confirmation" forms (FCC Form 486).

The CIPA doesn't require schools and libraries that use E-rate funds only for 
telecom services-and not for Internet access or internal connections-to 
install the filtering technology.

The FCC proposes that in future years recipients include their compliance 
certifications on FCC Form 471, which is used to describe the services to be 
funded.  It asks how to implement the "remedial" provisions of the CIPA, 
which detail ways an applicant can correct its noncompliance or 
noncertification.  Comments are due 15 days after publication of the 
rulemaking notice in the Federal Register; replies are due 30 days later.

The American Library Association has announced plans to challenge the 
constitutionality of the CIPA (TR, Jan. 22), whose Internet-filtering 
requirements extend to other federal programs that subsidize schools' and 
libraries' purchases of computers and Internet access.

The ALA, which notes that the CIPA takes effect April 20, has launched a Web 
site where it will post information about its activities regarding the CIPA 
(http://www.ala.org/cipa).

Meanwhile, President Bush last week announced a proposal for modifying the 
E-rate program, including reducing the paperwork demands on applicants (see 
separate story).

Large Carriers Want 700 MHz Auction Postponed, But Small Providers, 
Broadcasters Oppose Delay

Large wireless carriers are once again asking the FCC to postpone the 
scheduled auction of licenses for the 700 megahertz band, citing a host of 
familiar concerns that they say could dampen enthusiasm for bidding on the 
frequencies.

But rural carriers and TV broadcasters are urging the Commission to begin the 
auction March 6, as scheduled, noting that the sale already has been 
postponed three times.  They say that large carriers have had plenty of time 
to prepare for the auction and that further delays would be unfair to them.

They offered their views in comments filed with the FCC last week in response 
to a request by Verizon Wireless to delay the sale until September (TR, Jan. 
22).  Several large carriers that supported the request asked for an even 
longer postponement.

Supporters of postponement cited the presence of broadcasters in the spectrum 
and the need to negotiate band-clearing agreements as evidence to support 
their cause (see separate story).  Most of their arguments echoed those of 
Verizon Wireless.

TV broadcasters don't have to evacuate the spectrum (channels 60-69) as part 
of the transition to digital TV until 2006 at the earliest.  But wireless 
carriers, citing the uncertainty about when the frequencies slated to be 
auctioned will be available for use, have asked the FCC and Congress to force 
the broadcasters out early.

In addition to the presence of the broadcasters, other reasons the large 
carriers said the auction should be delayed included concerns that (1)a 
reauction of "C" and "F" block PCS (personal communications service) licenses 
hadn't finished in time for carriers to assess their spectrum needs in the 
700 MHz auction (see separate story), (2)companies need more time to prepare 
for package bidding rules that will be used for the first time in the auction 
(TR, July 10, 2000), and (3)a high-level effort to identify and allocate 
frequencies for third-generation (3G) services will affect carriers' interest 
in the 700 MHz band (see separate story).

The Cellular Telecommunications & Internet Associationsaid carriers 
interested in participating in the 700 MHz band auction wouldn't have time to 
assess their bidding strategies and spectrum needs and form alliances because 
the C and F block reauction concluded last week, after the comments were 
filed.  In addition, the Commission's anticollusion rules limit contact 
between bidders, CTIA noted.

CTIA added that prospective 700 MHz band bidders wouldn't have time to 
negotiate the band-clearing agreements the FCC is encouraging.  And it cited 
carriers' need to prepare for package-bidding rules.  In the end, the same 
factors that led the FCC to delay the auction last year still exist, CTIA 
said.

AT&T Wireless Services, Inc.,asked the FCC to delay the auction until March 
2002.  Such a move "will give incumbents, prospective bidders, and the 
Commission an opportunity to resolve much of the uncertainty associated with 
this band," the carrier said.  AT&T Wireless also said more time was needed 
to assess whether recent FCC actions designed to speed broadcasters' 
transition to digital TV would accomplish their goals.

It suggested that the FCC schedule the auction of channels 60-69 in 
conjunction with a sale of channels 52-59, which the FCC is statutorily 
required to license by September 2002.

Cingular Wireless LLCasked the FCC to delay the auction until at least 60 to 
90 days after it acts on all "long form" applications filed by winning 
bidders in the C and F block reauction.  It also suggested that FCC 
coordinate the timing of licensing channels 60-69 and channels 52-59.

Nextel Communications, Inc.,wants the auction delayed until November.  That 
move would give carriers time to assess the spectrum-allocation decisions 
made under the 3G initiative, Nextel said.  Although the 30 MHz of commercial 
spectrum in the 700 MHz band is not under consideration as part of that 
effort, the frequencies are considered ideally suited for such advanced 
services.

Telephone and Data Systems, Inc.,filing on behalf of itself and its United 
States Cellular Corp.subsidiary, supported a delay until September or later 
if several other related proceedings aren't completed.

A postponement is "essential" for smaller and midsize companies that need 
time to assess 700 MHz market valuations, to locate funding sources, and to 
prepare for the package-bidding methodology, TDS said.

"In July of 2000, the Commission postponed this very auction for precisely 
these same reasons, a decision strongly supported by the wireless industry," 
said Motorola, Inc."The logic of that postponement should apply with equal 
force to the present request by Verizon."

It added "that forcing carriers to engage in competitive bidding for spectrum 
without adequate preparation will itself create a market distortion both in 
the actual process and in the rapidly evolving mobile marketplace."

The Association of Public-Safety Communications Officials-Internationalsaid 
it backed a postponement "to the extent that such a delay may facilitate the 
ultimate clearing of television broadcasters from the 700 MHz band. . .Any 
effort that facilitates band-clearing on channels 60-69 is likely to benefit 
public safety agencies waiting to use the 700 MHz band."

Spectrum Exchange Group LLCsought a delay of two to six months, saying such 
an action would strike "the appropriate balance between the needs of the 
bidders and incumbent broadcasters to establish a band-clearing agreement, 
and the urgency of putting this valuable spectrum to its best use."

Ronald M. Harstad and Michael H. Rothkopfof Rutgers University and Aleksandar 
Pekecof Duke University also argued for a delay, citing the 3G initiative, 
the need to negotiate band-clearing agreements, and the introduction of 
package bidding.

Rural Carriers, Broadcasters Object

But a group representing rural carriers urged the FCC to hold the auction as 
scheduled.  "The Commission should not establish auction deadlines that 
comport with the business plans of any private company," the Rural 
Telecommunications Groupsaid.  "And, stripped to its essence, Verizon urges 
the Commission to delay the 700 MHz [band] auction merely for Verizon's 
business convenience."

Delaying the sale would benefit Verizon Wireless at the expense of 
competitors that skipped the C and F block reauction with the expectation of 
bidding in the 700 MHz band sale, the group said.  It added that it opposed 
any linkage between the 700 MHz band auction and the initiative to allocate 
3G spectrum.

"This informal daisy chain between auctions-and between auctions and other 
allocation proceedings-can only serve to advantage the largest carriers who 
seek to participate seriatim in each and every auction," it said.

Paxson Communications Corp.,the largest incumbent broadcaster in channels 60-
69, also asked the FCC to reject the postponement request.  Further delay "is 
unfair to incumbent broadcasters who are seeking to get past the auction and 
determine the future availability of this spectrum for both their digital and 
analog operations," it said.

The broadcaster added that wireless carriers had plenty of time to prepare 
for the sale.  And it noted that the FCC already had missed a September 2000 
statutory deadline for depositing proceeds from the sale into the U.S. 
Treasury.  Equity Broadcasting Corp.said it supported Paxson's comments.

"Further delay will slow the digital transition, violate congressional 
directive, and will not benefit potential bidders for the spectrum," agreed 
Shop At Home Network."Moreover, Verizon's arguments that a further delay will 
benefit it and other potential auction participants are specious at best."

FCC Takes Additional Steps To Help Clear 700 MHz Band

The FCC has taken additional steps to help spur the relocation of incumbent 
TV broadcasters from the 700 megahertz band in order to make way for wireless 
carriers.  But it said it wouldn't force the incumbents to clear the 
frequencies-at least not yet.

In a third report and order released last week, the Commission said it had 
decided to allow the private sector to determine what band-clearing 
mechanisms best suited the needs of broadcasters and wireless carriers.

Specifically, the FCC has decided not to impose cost-sharing rules, cost 
caps, or cost-recovery guidelines at this time on the relocation of incumbent 
broadcasters.  Last year the agency asked whether it should impose such rules 
(TR, June 26 and July 10, 2000).

`Secondary Auctions' Touted

The FCC also will leave it up to industry to decide if "secondary auctions" 
should be organized to facilitate band-clearing agreements before the 
auction, which is scheduled to begin March 6.  The FCC earlier asked for 
comments on whether it had the authority to conduct such auctions.

In the order released last week, the FCC reiterated its view of the benefits 
of such auctions, saying they "have potential to offer both broadcasters and 
new entrants additional opportunities to reduce the potential transaction 
costs of negotiating with each other directly after the auction."

As part of their transition to digital TV (DTV), broadcasters don't have to 
leave the 700 MHz band (channels 60-69) until 2006 at the earliest.  They may 
stay longer if less than 85% of households in their markets have access to 
DTV signals.  That timetable has created uncertainty among wireless carriers 
about how much to bid-or whether to bid at all-on the spectrum when it is 
auctioned.

Wireless carriers have asked the FCC to force TV broadcasters out of the 
spectrum before they are required to leave (TR, Aug. 21, 2000).  For their 
part, broadcasters have fought such band-clearing mandates and instead have 
urged the FCC to address larger issues related to the DTV transition, 
especially digital "must-carry" cable TV rights.

The FCC recently took several actions that it said would facilitate 
broadcasters' transition to DTV, including those dealing with must-carry 
rights.

In its 700 MHz band order, the FCC said it wanted to give voluntary 
mechanisms a chance in clearing the frequencies for wireless services.  "We 
believe that voluntary agreements between broadcasters and licensees should 
result in the effective clearing of the 700 MHz band," it said.  "However, we 
will revisit this issue in the future if we find it necessary."

The FCC's latest action builds upon the policies it adopted last year to 
provide guidance to broadcasters and carriers regarding the regulatory 
treatment of private band-clearing agreements.

For example, the agency extended to three-way agreements a general "
rebuttable presumption" adopted last year for bilateral pacts.  The 
presumption is that such agreements are in the public interest.

The FCC also provided guidance on interference issues arising from relocation 
agreements that involve moving a broadcaster to a channel below channel 59.  
And it has streamlined the review of band-clearing agreements and affirmed 
that it expeditiously will process band-clearing agreements.  It also 
clarified that voluntary agreements to temporarily relocate licensees into 
channels 52-58 would be permitted.

Commissioner Gloria Tristani dissented in part from the report and order.  In 
a statement, she said she opposed the decision to extend the rebuttable 
presumption to three-way agreements.  She expressed concern that such 
agreements would result in a loss of TV service for viewers and said she 
wanted to consider band-clearing agreements case by case.

"As I have stated previously, my ultimate concern is that the presumption in 
favor of band clearing reflects a diminishing regard for the public value of 
free, over-the-air television services," Commissioner Tristani said.

She also took exception with the FCC's statement that it might revisit issues 
surrounding the mandatory relocation of broadcasters.  "I remain convinced 
that such action would contravene the statute" establishing broadcasters' DTV 
transition, she said.

The FCC's order was adopted Jan. 18 in Wireless Telecommunications docket 
99-168, Cable Services docket 98-120, and Mass Media docket 00-39.  A news 
release on the action and the text of the document were released Jan. 23.

Kennard Requests Hard Stand

In a related development, former FCC Chairman William E. Kennard has asked 
Congress to take a hard stand against broadcasters in their transition to 
DTV.  Writing Jan. 19 to Sen. Ernest F. Hollings (D., S.C.), Mr. Kennard 
suggested that Congress set a firm deadline of Dec. 31, 2006, for TV 
broadcasters in channels 52-69 to relocate.  

He also proposed that broadcasters using channels 2-51 after that date be 
charged an escalating fee to encourage them to clear the spectrum.

Writing Jan. 26 to Senate Commerce, Science, and Transportation Committee 
Chairman John McCain (R., Ariz.), Lyle Gallagher, president of the 
Association of Public-Safety Communications Officials-International, 
expressed support for Mr. Kennard's proposals to help clear the 700 MHz band.

At the very least, steps should be taken to clear channels 60-69, Mr. 
Gallagher said.  Public safety agencies urgently need access to 24 MHz of 
spectrum in the 700 MHz band that the FCC has reallocated for their use, he 
said, but much of it is occupied by broadcasters.

"By making the Dec. 31, 2006, date firm for channels 60-69, state and local 
governments throughout the nation could plan on spectrum being available no 
later than Jan. 1, 2007, and could proceed with necessary funding, frequency 
planning, design, and construction for new radio systems," he added.  "APCO 
also supports adoption of legislative and regulatory provisions that may 
allow for clearing of channels 60-69 even prior to 2006."

The FCC's Enforcement Bureau is a proposing a monetary forfeiture...

The FCC's Enforcement Bureau is a proposing a monetary forfeitureof $5,000 
against Verizon Southwest, Inc., for operating a paging station in Juno, 
Texas, without Commission authorization.  Verizon told the agency that it 
operated the station without authorization between Nov. 1, 1998, and Feb. 7, 
2000.  The bureau released a notice of apparent liability for forfeiture 
against Verizon Jan. 25 in file no. EB-00-TS-212.

Easing Spectrum Crunch Tops CTIA's 2001 Lobbying Agenda

Spectrum issues will top the wireless industry's Washington agenda for this 
year, according to Cellular Telecommunications & Internet Association 
President and Chief Executive Officer Thomas E. Wheeler.  A scarcity in 
frequencies is hurting U.S. carriers' competitiveness with their foreign 
counterparts and thwarting development of the wireless Internet, he said.

Mr. Wheeler urged the FCC to lift the cap on how much spectrum a carrier may 
hold in any one market while a high-level effort to identify and allocate 
frequencies for third-generation (3G) services proceeded.  Such a move would 
ease the spectrum crunch, he reasoned.

At a briefing for reporters last week, he said the Bush administration had 
its work cut out for it in collaborating with the FCC to find suitable bands 
for 3G use.

U.S. Seen Falling Behind

"God bless the Clinton administration for starting the spectrum policy review 
process, but [it] couldn't bring it to fruition, and it now falls to the Bush 
administration to deal with the really hard parts and to make decisions," Mr. 
Wheeler said.

"Those decisions will probably take time.  We can't afford time.  It's what 
we don't have.  Japan and Europe are already building the [networks while] we'
re still trying to figure out where we should get it," he added.

Then-President Clinton launched the 3G initiative by executive memorandum in 
October 2000 (TR, Oct. 16, Nov. 6, and Nov. 20, 2000; and Jan. 8 and 22).  
The memorandum calls for the FCC to license the spectrum by Sept. 30, 2002, 
after a collaborative effort led by the FCC and the Commerce Department's 
National Telecommunications & Information Administration.

But a key obstacle is that the bands being examined most closely for 3G 
applications already are occupied by military, commercial, and educational 
users.

Mr. Wheeler said that the time it would take to allocate 3G spectrum made it 
even more important for the FCC to lift the spectrum cap immediately.  The 
FCC asked for comments on the issue last week (see separate story).

He said he had "some very profitable discussions" with Bush transition team 
officials on spectrum issues, although he wouldn't elaborate.  He also said 
he was pleased that Donald L. Evans stressed the importance of allocating 3G 
spectrum in his Senate confirmation hearing for secretary of commerce earlier 
this month (TR, Jan. 8).

Mr. Wheeler said another key issue for the coming year was finding ways to 
use wireless technologies to bridge the "digital divide."  He stressed that 
the gap wouldn't "be bridged by just pumping more money into existing subsidy 
programs," although he said changes in the universal service program were 
needed.

On other issues, Mr. Wheeler said CTIA also hoped there would be 
congressional or FCC action on Internet privacy, "calling-party-pays" billing 
arrangements, and reciprocal compensation.  Regarding privacy, he said the 
trade group had gotten a positive response from members of Congress and 
regulators to its proposed principles for location-information services (TR, 
Oct. 30 and Nov. 27, 2000).

Mr. Wheeler defended the industry's claims regarding the safety of mobile 
phones.  A new book by George L. Carlo, a scientist who led a seven-year, $27 
million industry-funded initiative to study the issue, says the wireless 
industry has downplayed evidence that the phones can cause illness (TR, Dec. 
25, 2000).  The book is particularly critical of Mr. Wheeler.  The industry 
also has suffered recent setbacks in pending court cases that claim mobile 
phones are dangerous to humans (TR, Jan. 22).

"I don't think that the issue is George Carlo or Tom Wheeler or CTIA," Mr. 
Wheeler said.  "The whole issue is, What's the science? . . .We've supported 
independent science and will continue to support independent science."

As for litigation, he said that lawsuits alleging a link between exposure to 
radio frequency emissions and health effects such as cancer had been 
dismissed in the past.

Nextel Communications, Inc., has agreed to purchase specialized mobile 
radio...

Nextel Communications, Inc., has agreed to purchase specialized mobile 
radio(SMR) licenses from Arch Wireless, Inc., for $175 million and invest $75 
million in the paging carrier.  In exchange, Nextel will receive a new series 
of Arch preferred stock.  The two companies also will explore ways to 
collaborate on marketing.  Arch said it didn't expect to need the SMR 
spectrum because of upgrades to its two-way messaging network.  Nextel said 
the transition would give it about 20 megahertz of SMR spectrum in the 800 
and 900 MHz bands in 52 of the top 100 U.S. markets.

Commission Examines Merits Of Lifting CMRS Spectrum Cap

The FCC is reexamining whether to lift its cap on the amount of spectrum 
wireless carriers may hold in any one market.  The Commission also is 
considering whether it should eliminate its cellular cross-interest rule.

In a notice of proposed rulemaking released last week, the FCC asked for 
comments on whether the spectrum cap should be retained, modified, or 
eliminated to comply with the public-interest standard set forth in section 
11 of the Communications Act, as amended.

Specifically, the agency is soliciting views on whether "meaningful economic 
competition" in the commercial mobile radio service (CMRS) market has 
rendered spectrum aggregation limits, including the cellular cross-interest 
rule, unnecessary.

Under the agency's rules, carriers aren't allowed to hold more than 45 
megahertz of spectrum in urban markets and 55 MHz in rural markets.  The 
cellular cross-interest rule restricts an entity's ownership interest in 
cellular carriers operating in the same market.  The FCC wants to know 
whether those limits are still needed to prevent harmful concentration of 
spectrum holdings or ensure opportunities for new players to enter the market.

The Commission is asking for comments on what constitutes "meaningful 
economic competition" under section 11 and how competitive conditions have 
changed since it last reviewed the restrictions in 1999.

In the largest metropolitan areas, where seven in 10 Americans live, at least 
five mobile telephone carriers are offering service, the agency noted last 
week.  As a result, it said, prices are declining, coverage areas are 
expanding, and new service packages are being offered.  It wants to know if 
there are public-interest reasons for maintaining the cap regardless of such 
competitive developments.

Large wireless carriers have lobbied the FCC to lift the cap, saying it has 
thwarted the U.S. wireless industry's deployment of third-generation (3G) 
services, placing it at a disadvantage with foreign competitors.  Some 
smaller carriers, however, have asked the FCC to retain the cap, saying it's 
needed to ensure that they remain competitive against their larger 
counterparts.

In a broad review of the cap conducted in 1999, the FCC decided to retain the 
restriction, although it eased the limit in rural markets (TR, Sept. 20, 
1999).  At the time, it concluded that the cap was a safeguard against 
excessive concentration in the CMRS market, preserving competition and the 
consumer benefits it had produced.  It also determined in 1999 that the 
cellular cross-interest restriction was necessary to protect competition.  
The agency eased the rules somewhat, however, permitting some degree of 
cross-interest.

In November 2000, the FCC denied two petitions for reconsideration of its 
1999 decision but said it would reexamine the cap as part of its 2000 
biennial review (TR, Nov. 13, 2000).  The notice of proposed rulemaking, 
adopted Jan. 19 and released Jan. 23 in Wireless Telecommunications docket 
01-14, stems from that review.  Comments are due 60 days after the notice's 
publication in the Federal Register, and replies are due 30 days after that.

In a separate statement, Commissioner Harold W. Furchtgott-Roth said that he 
supported the rulemaking notice but that he tentatively would have concluded 
that the cap should be lifted.

"The use of a spectrum cap is a drastic regulatory remedy that continues to 
search for a corresponding competitive ill," he said.  "I have grown 
impatient with the Commission's repeated reexaminations of these issues 
without substantial alterations in our policy approach."

Industry Praises Review

Thomas E. Wheeler, president and chief executive officer of the Cellular 
Telecommunications & Internet Association, said that lifting the cap was 
crucial while a high-level effort to identify and allocate 3G bands winds 
through the regulatory process (see separate story).

Mr. Wheeler told reporters at a luncheon last week that such access to 
additional spectrum was necessary for the U.S. to maintain its leadership in 
the development of the Internet as it moves to wireless devices.

Japan and European countries have moved more quickly to allocate frequencies 
for 3G services, setting aside twice as much spectrum as the U.S. has, he 
said.

The Personal Communications Industry Association, however, has said the cap 
is necessary to give smaller carriers a chance to enter the CMRS market.

Mr. Wheeler noted that newly named FCC Chairman Michael K. Powell had said he 
would favor lifting the spectrum cap.  "Clearly in some of the opinions that 
he's written in the spectrum proceeding, he's asked the question, Why should 
this continue?" Mr. Wheeler said.  "We're hopeful."

Then-Commissioner Powell voted to retain the cap in November 2000 but said he 
tended to agree with Commissioner Furchtgott-Roth's conclusion that the cap "
has outlived its usefulness."

Notice Explores Alternatives

In its rulemaking notice, the FCC seeks comments on alternatives to lifting 
the spectrum cap entirely or leaving it untouched.  For example, it asks 
whether it should apply the cap only to spectrum used for voice services.  It 
also asks whether it should retain the cap in markets where there is less 
competition and eliminate it in other markets where more carriers are 
offering service.

The FCC also solicits opinions on whether to treat already-licensed spectrum 
differently from frequencies licensed in the future.  "As a general matter, 
we believe that newly available CMRS-suitable spectrum either should be 
excluded from the spectrum cap, or, if it is included, that the cap should be 
adjusted accordingly," the Commission said.

The FCC also wants opinions on how eliminating or relaxing the cap would 
affect its authority to review license-transfer requests under section 310(d) 
of the Act.  If it makes such changes to the cap, it wants to know whether it 
could or should "incorporate other methods" into its license-transfer review 
to prevent consolidations "that would eliminate the benefits brought by 
competition."

It also seeks comments on whether removing the cap would place more of a 
burden on the FCC and industry in the review of license transfers.

If the Commission decides to keep the spectrum cap for now, it wants to know 
what further market developments could make the cap unnecessary and whether 
it should set a "sunset" date for the restrictions.

Regarding the cellular cross-interest rule, the FCC asked whether the 
restriction was still necessary to prevent cellular carriers from merging in 
markets where there is little or no other competition.

Bookham Technology plc, an Oxfordshire, England-based...

Bookham Technology plc, an Oxfordshire, England-basedoptical 
network-components manufacturer, has signed a "multimillion-dollar" contract 
to provide wavelength division multiplexing equipment to Fujitsu 
Telecommunications Europe Ltd.  Bookham agreed to deliver up to 10,000 
bidirectional transceiver modules per month to Fujitsu Telecom, a unit of 
Fujitsu Ltd. Japan.  Fujitsu will use the components in SONET (synchronous 
optical network), fiber-to-the-curb, and other telecom network-access 
equipment deployments.  

Appellate Court Upholds Nextel Tower Permit

A Pennsylvania state court has upheld a local zoning board's decision to let 
Nextel Communications, Inc., build a communications tower under a special 
exemption provision for radio transmitters.  Residents opposing the tower had 
argued that the entire 150-foot structure didn't qualify as a transmitter.

The opinion, written by Commonwealth Court President Judge Joseph T. Doyle, 
affirmed a trial court decision that upheld the action of the Newlin Township 
Zoning Board.

The township's zoning ordinance limits the types of buildings that can be 
constructed but allows the board to grant a special exemption to authorize 
the construction of a "radio or television transmitter."  But the ordinance 
doesn't define radio transmitter.

The residents asserted that the "radio transmitter component of the facility 
is but a minor element" and said the tower "falls far outside any commonly 
understood definition of radio transmitter."  They argued that because the 
tower didn't fit into that or any other category, the zoning ordinance didn't 
permit it to be constructed within the township.

Judge Doyle ruled that the record supported the board's decision. The judge 
noted that testimony by a Nextel engineer demonstrated that the tower was an 
integral part of the facility.  He concluded that the "entire system operates 
together in order to transmit the necessary information for the cellular 
network to function."

Senior Judge William J. Lederer and Judge Bonnie B. Leadbetter joined Judge 
Doyle's opinion in Robert and Loren Pearson v. Zoning Hearing Board of Newlin 
Township and Nextel Communications of the Mid Atlantic, Inc. (case no. 3182).

Finance Panel Senators Back Broadband Service Tax Credits

Former New York Sen. Daniel Patrick Moynihan (D.) may have retired, but his 
push to extend tax credits to carriers that deploy high-speed Internet 
facilities is being revived by key Democrats and Republicans who control the 
congressional purse strings.  Its proponents also have asked President Bush 
to include the measure in his initial budget submission to Congress.

On Jan. 23, Sen. John D. Rockefeller IV (D., W.Va.) led a bipartisan group of 
more than 30 U.S. senators-including freshman Hillary Rodham Clinton (D., 
N.Y.), who won the seat left vacant by Sen. Moynihan-to introduce the 
Broadband Internet Access Act (S 88).  A companion bill is expected to be 
introduced in the House Ways and Means Committee this week by committee 
members Philip English (R., Pa.) and Robert T. Matsui (D., Calif.)

The Senate bill is a slightly altered version of Sen. Moynihan's legislation 
of the same name, which almost cleared the Senate last fall as part of the "
New Markets" tax-break package (TR, June 12 and Oct. 2, 2000).  

"This bill represents my commitment to making sure that no community is left 
behind in the technology revolution," Sen. Rockefeller said in a statement.  
The bill "will ensure that communities everywhere, whether rural or urban, 
will have the tools necessary to compete in the global economy," he 
continued.  Added Sen. John F. Kerry (D., Mass.), a co-sponsor: "Too many 
businesses are shying away from areas where broadband access is either too 
expensive or unavailable, and underserved areas are put at a tremendous 
disadvantage."

Like the Moynihan plan, the new bill would provide a tax credit equal to 10% 
of a carrier's investment in equipment used to provide "current-generation 
broadband" services to business or residential customers in rural and 
low-income areas.  It defines current-generation broadband services as 
services that can transmit at least 1.5 megabits per second downstream (to 
the subscriber) and at least 200 kilobits per second upstream (from the 
subscriber).

Carriers also could claim a tax credit equal to 20% of a carrier's investment 
in equipment used to deploy "next-generation" broadband services to "all 
residential customers," according to Sen. Rockefeller.  His bill defines 
next-generation services as those able to transmit at least 22 Mbps 
downstream and at least 5 Mbps upstream.  A Rockefeller aide said the 
upstream transmission requirements were lower than those in last year's bill 
because lawmakers "didn't want to cut out any potentially good broadband 
suppliers, like wireless and satellite providers."

Because the measure would amend the Internal Revenue Code of 1986, it has 
been referred to the Senate Finance Committee, where several of its members 
are co-sponsors, including Sens. Rockefeller and Kerry, Minority Leader 
Thomas A. Daschle (D., S.D.), Finance Committee ranking Democrat Max Baucus 
(Mont.), Orrin G. Hatch (R., Utah), Olympia J. Snowe (R., Maine), Blanche L. 
Lincoln (D., Ark.), and Kent Conrad (D., N.D.).

"It is crucial that we act quickly," the lawmakers said in a Jan. 22 letter 
to President Bush.  "A number of other nations, including China, Japan, 
Sweden, and Singapore, are moving aggressively to surpass the U.S. in 
broadband infrastructure over the next five years."

The proposed Broadband Internet Access Act "is a truly bipartisan measure," 
they told the president.  "Clearly, such support indicates a general 
recognition of the need to extend a high-speed information system to all 
Americans.  This legislation provides the vehicle for delivering such a 
system, and we hope you will support it in your upcoming budget proposal," 
they said.

The support of Republicans Hatch and Snowe is important because they give the 
bill much-needed bipartisan support on the Finance Committee, something it 
didn't have last session, the Rockefeller aide said.  "We're hopeful" that 
new Finance Committee Chairman Charles E. Grassley (R., Iowa) will allow the 
measure to come up for a committee vote.  Calls to Sen. Grassley's office 
were not returned by TR's deadline.

Meanwhile, one day later, Sen. Kerry introduced a portion of the broadband 
tax-credit bill as a separate, stand-alone measure.  His bill, S 150, would 
authorize a tax credit equal to 10% of a carrier's investment in equipment 
used to provide current-generation broadband services to underserved areas.  
But it wouldn't provide tax credits for investments to deliver those services 
to rural areas, nor would it provide added tax credits for delivering 
next-generation services.

A Kerry aide said the senator crafted the separate bill to attract more 
attention to the lack of high-speed deployment to low-income communities.  "
That's the area he's most concerned with," the aide told TR. 

Verizon Wants Law Changing Approach to Broadband Regs

The "time is ripe" for legislation creating a new regulatory regime for 
broadband services and networks, similar to the regime that governs the 
wireless industry, according to Verizon Communications, Inc.  Such an 
approach would entail "no economic regulation and minimal rules," and states 
would be preempted from regulating broadband services.

Meeting with reporters in Washington Jan. 25, Verizon executives said recent 
court decisions had made it more important for Congress to develop a new 
regime for such services.

Thomas J. Tauke, Verizon senior vice president-federal government relations, 
said representatives of incumbent telephone companies, cable TV providers, 
and telecom equipment providers had discussed with each other the need for 
new broadband legislation.

"There has been no organized effort" by the industry segments to coordinate 
lobbying efforts, Mr. Tauke said.  "But it's fair to say there's been a lot 
of discussion among the players."

Recent court decisions on the appropriate regulatory regime for cable modem 
services (TR, April 17, May 22, and June 26, 2000) have troubled the cable TV 
industry by suggesting that they could be considered telecom services, Mr. 
Tauke said.

He also cited the recent federal appeals court decision overturning the FCC's 
regime for advanced services affiliates (TR, Jan. 15).  The court rejected 
the FCC's finding that incumbent local exchange carriers could avoid 
unbundling and resale mandates for their digital subscriber line offerings if 
they provided those services through a separate affiliate.

"This court case really highlighted the point that the FCC doesn't have the 
ability to come up with, on its own, a new regulatory structure covering 
broadband services," Mr. Tauke said.

Mr. Tauke said the Freedom and Broadband Deployment Act drafted last year by 
Reps. W.J. (Billy) Tauzin (R., La.) and John Dingell (D., Mich.) would have 
provided a "little bit" of the regulatory reform sought by Verizon.  But Mr. 
Tauke said he hoped lawmakers would "look at it in somewhat broader terms" 
this time around.

Mr. Tauke suggested that this type of broadband legislation had become 
Verizon's top priority and that its push for legislation to allow Bells to 
offer interLATA (local access and transport area) data services was becoming 
less so.

Asked if interLATA data relief was still the most important legislative issue 
to Verizon, Mr. Tauke said, "It certainly would have been two years ago.  Is 
that the most important thing now?  It's certainly important. . .But of equal 
importance, if not more importance, is getting some clarity on the broadband 
world."

Verizon still is pushing for legislation to change the existing reciprocal 
compensation regime.  Edward D. Young III, SVP-federal government relations, 
said payments to compensate competitive local exchange carriers for 
terminating calls to Internet service providers ran Verizon about $1 billion 
a year.

Although the FCC has been promising to act on the reciprocal compensation 
issue, Congress may need to step in, Mr. Young said.  "The FCC is still 
trying to work through the issue, but obviously it's a different dynamic" 
given the change in chairmen from William E. Kennard to Michael K. Powell, he 
added.

Mr. Tauke said it was "shameful" that the FCC hadn't resolved the issue.  "
Two years ago they knew there was a problem, but they didn't have the courage 
to preempt the states," he said.  "They could see the problems coming, but 
they thought it would work itself out."

Joan H. Smith, chairwoman of the National Association of Regulatory Utility 
Commissioners' telecommunications committee and a member of the Oregon Public 
Utility Commission, said she was "puzzled" by the bid to preempt state 
regulators in a new broadband regulatory regime.  "We don't regulate 
broadband" services, she told TR.  "Our biggest issue at the state level is 
promoting broadband [deployment], not regulating it."

Utah Bill Would Halt Plan To Merge Consumer Agencies

Legislators in Utah have passed a measure to repeal a year-old law that would 
have folded together two state agencies that represent utility customer 
interests before the Public Service Commission.  Absent the repeal measure, 
the legislation passed in 2000 would have combined the Committee of Consumer 
Services and the Division of Public Utilities, effective July 1.  The new 
entity would have been called the Office of Public Advocate.

House Majority Whip David Ure (R.), who sponsored last year's restructuring 
legislation, also was behind the bill to repeal it.  The legislative staff 
said he'd decided that the time wasn't right to overhaul the state's utility 
regulatory system.  The repeal measure sped through the Utah Legislature last 
week, progressing from its first House reading through passage by both houses 
in just two days.

Rep. Ure rejected alternative proposals for re-structuring the state's 
regulatory agencies, settling for a straight repeal of last year's 
legislation.  One proposal would have expanded the PSC's membership, the 
legislative staff told TR.

Another version that circulated between the end of last year's legislative 
session and the beginning of this year's would have merged the PSC and the 
Division of Public Utilities.  

The staff said Rep. Ure pulled those drafts after deciding that the state's 
regulatory structure shouldn't be altered in the midst of the current energy 
crisis.

The Division of Public Utilities is charged with representing the public 
interest before the PSC and ensuring that all utility customers have access 
to safe, reliable service at reasonable prices.  The Committee of Consumer 
Services represents residential, small- business, and agricultural consumers 
before the PSC.  Some parties had expressed concern that merging the two 
entities would decrease the amount of information available for PSC decision 
making.

Consumer group opposition last year persuaded Gov. Michael O. Leavitt (R.) to 
call for a review of the law after the legislative session ended in March.  
He allowed the bill to become law last year without signing it.

Reps. Cannon, Eshoo Unveil Internet Privacy Measure

Reps. Chris Cannon (R., Utah) and Anna G. Eshoo (D., Calif.) have introduced 
a bill to require operators of commercial Web sites that collect personally 
identifiable information to explain to site visitors what information is 
collected, how it will be used, and who is collecting it.  The proposed 
Consumer Internet Privacy Act (HR 237) would authorize the Federal Trade 
Commission to assess civil penalties of up to $22,000 per violation, or a 
total of $500,000 against a particular violator.

Rep. Cannon said the bill was a good starting point for addressing Internet 
privacy, a topic that many observers see as the top Internet-related issue in 
the 107th Congress.

"We are going to rely heavily on the marketplace to help define how to 
implement the guidelines established in this bill's language, just as the 
market has commendably worked with government officials to develop other 
standards and seals for privacy," Rep. Cannon said.

Rep. Eshoo, who said consumers shouldn't have to "reveal their life story 
every time they surf the Web," said their privacy must be protected without 
impeding the free flow of information on the Internet.  "This legislation 
achieves that goal-the bill doesn't regulate the Internet; it empowers the 
consumer," Silicon Valley Democrat Eshoo said last week.

The measure also would require Web site operators to give users an 
opportunity to limit the use and disclosure of their personal information for 
marketing purposes in a "clear," "conspicuous," and easily executed manner, 
the legislators said in a press release.

Appeals Court Says FCC Erred in Rejecting U S WEST Bid for `Nondominant' 
Regulation

A federal appeals court agrees with former U S WEST Communications, Inc. (now 
Qwest Corp.) that the FCC erred by focusing on the company's market share 
when considering its request to be freed from "dominant"-carrier regulation 
of certain services.

The U.S. Court of Appeals in Washington last week remanded to the FCC a 1999 
order rejecting a U S WEST request to forbear from applying such regulation 
to the company's special-access and high-capacity dedicated transport 
offerings in the Phoenix and Seattle metropolitan statistical areas (MSAs).  
In the 1999 order, the FCC said U S WEST could refile its request for relief 
under a separate deregulatory regime it had set up to allow incumbent telcos 
to seek pricing flexibility for some services (TR, Nov. 29, 1999).

Chief Judge Harry Edwards wrote the Jan. 23 decision in AT&T Corp. v. 
FCC(consolidated cases beginning at 99-1535).  He was joined by Judges David 
Sentelle and A. Raymond Randolph.  

The court found that the FCC failed to conduct its review of U S WEST's 
request in compliance with section 10 of the Telecommunications Act of 1996, 
which directs the FCC to forbear from applying regulations deemed no longer 
necessary.

The court explained that the FCC's order "rests solely on the view that, 
because U S WEST offered no reliable data on market share, the petition for 
forbearance failed to make a prima facie showing that sufficient competition 
existed to satisfy section 10."

But in relying so heavily on market-share data, the FCC "departed from its 
traditional nondominance analysis without explanation," the court said.  The 
FCC's decision to rely on that data "may well be reasonable, but until the 
Commission has adequately explained the basis for this conclusion, it has not 
discharged its statutory obligation under the Administrative Procedure Act," 
the court said.

In the past, the FCC had "gone so far as to view market share as irrelevant 
where there was other evidence that a carrier lacked market power," the court 
said.

"Were this the first time the FCC was asked to consider whether a carrier was 
dominant in a given market, the explanation provided by the Commission in the 
forbearance order may well have been accurate," it said.  "But it is not the 
first time that the Commission has addressed this issue."

The court said it might be "reasonable" for the FCC to demand a showing on 
market share in every inquiry on dominant regulation.  But it is "not 
reasonable for the Commission to announce such a policy without providing a 
satisfactory explanation for embarking on this course when it has not 
followed such a policy in the past," it said.

Court Nixes IXCs' Claims

As was apparent during oral arguments (TR, Dec. 4, 2000), the court was 
unconvinced by the arguments of AT&T and WorldCom, Inc., which had challenged 
the order to the extent that it granted U S WEST pricing flexibility for some 
services.

In the forbearance order, the FCC stated that it granted the relief requested 
"to the extent that the pricing flexibility order establishes a framework 
pursuant to which [Bell operating company] petitioners may obtain relief by 
demonstrating satisfaction of the competitive triggers adopted in that order."

The court rejected the AT&T and WorldCom petitions to overturn the pricing 
flexibility "relief," saying their argument "borders on being disingenuous."

"When the forbearance order is read in its entirety, it is absolutely clear 
that U S WEST was granted no relief whatsoever," the court said.  "U S WEST 
sought forbearance, and it was categorically denied."  The FCC simply "
reminded" U S WEST that it was eligible to apply for pricing flexibility 
under the regime for reviewing such requests, the court said. 

The court added, however, that the FCC couldn't use its pricing flexibility 
rules as a substitute for its statutory mandate to consider requests for 
forbearance.

"Congress has established section 10 as a viable and independent means of 
seeking forbearance," the court said.  "The Commission has no authority to 
sweep it away by mere reference to another, very different, regulatory 
mechanism."

The FCC's Enforcement Bureau has issued a monetary forfeiture...

The FCC's Enforcement Bureau has issued a monetary forfeitureof $5,000 
against Carmelita T. Gossard (d/b/a AA Beep) for operating a paging system in 
Cudjoe Key, Fla., without Commission authorization.  The forfeiture order was 
released Jan. 22 in file no. EB-00-TS-044.

FCC Gives Bells `Blueprint' In OK of SWBT's InterLATA Bid

The FCC's authorization for Southwestern Bell Telephone Co. to offer 
interLATA (local access and transport area) services in Kansas and Oklahoma 
could offer insights to other Bell companies planning their own interLATA 
service bids-especially for rural states.  In granting SWBT's application, 
the FCC marked some clear guideposts it will use for evaluating future bids, 
including issues relating to late-filed data and other procedural matters.

In an order adopted unanimously Jan. 19 and released Jan. 22 in Common 
Carrier docket 00-217, the FCC doubled the number of states in which Bell 
companies are permitted to provide in-region interLATA services.  In an 
unprecedented move, the FCC delayed the effectiveness of its decision for 43 
days.

Under section 271 of the Telecommunications Act of 1996, the FCC must 
determine that a Bell company has met a 14-point "checklist" of 
market-opening mandates in a given state before authorizing it to provide 
interLATA services there.  The FCC must consult with the U.S. Department of 
Justice and the relevant state commission before granting such an application.

The FCC said it imposed the 43-day delay because it had based its approval, 
in part, on UNE (unbundled network element) rates that SWBT changed after 
submitting its application.  Competitors had argued that the new rates 
shouldn't be considered when evaluating SWBT's application.  At the time, the 
FCC said it wasn't sure "what reliance, if any," it would place on the new 
rates.

In a Jan. 19 statement, then-FCC Chairman William E. Kennard said the 
original rates were "not acceptable" and praised SWBT for voluntarily 
reducing them.  But it may not be so easy in the future for Bell companies to 
amend their interLATA service applications.  In last week's order, the FCC 
said "it would be rare for other parties to meet the high bar [for accepting 
the late-filed rates] set here in other applications."

Then-Commissioner Michael K. Powell objected to the 43-day delay and 
cautioned that Bell companies "risk rejection if they file evidence after the 
due date for initial comments."  Mr. Kennard said the FCC "must ensure that a 
pattern of last-minute rate reductions or other changes in [section] 271 
applications does not develop in the future."

In justifying the inclusion of the new rates in its consideration of SWBT's 
application, the FCC cited its authority to waive its own procedural rules in 
cases where doing so will serve the public interest.  It said that "a number 
of circumstances" supported its waiver of the "complete-as-filed" doctrine, 
including the fact that the rate changes "were limited in nature."

The FCC indicated it wouldn't accept certain other types of data filed after 
Bell companies submit interLATA service applications, such as "more complex 
rate revisions."  It also indicated that it wouldn't consider late-filed "
measures designed to achieve nondiscriminatory performance in the applicant's 
provision of service to competitive [local exchange carriers], since it is 
difficult to determine the actual effect of such changes on performance in 
advance."

The FCC's Kansas-Oklahoma order also offers guidance for regulators in other 
rural states.  It encourages rural states to "pool their resources" and 
conduct multistate reviews of Bell companies' compliance with the section 271 
checklist, when appropriate.  It said the "general approach" of the Kansas 
and Oklahoma commissions could be "used as a model" for future applications.

Financial analysts last week saw the FCC's approval as a boon for Bells in 
other states, particularly rural ones.  "While these markets are relatively 
small, Oklahoma at $220 million and Kansas at $170 million, their approval 
signals a positive trend for future approval, particularly with the 
appointment of Michael Powell as the new FCC chairman," said USB Warburg LLC.

The FCC's action represents the first successful multistate application-and 
the first time a single Bell company has gained FCC approval in more than one 
state in its service territory.  SBC last summer gained FCC approval to offer 
interLATA services in Texas (TR, July 3, 2000).

Evidence from Other States Accepted

The FCC also offered clues about how it would view future applications that 
rely on a Bell company's performance in one state to show its compliance with 
the section 271 mandates in another state.  There were no independent 
third-party tests of SWBT's operation support systems (OSSs) in Kansas and 
Oklahoma, but the company did provide third-party verification that those 
systems were the same as the OSSs used in Texas.

The FCC said that such an approach was appropriate, given that the Texas 
proceeding served as "a precursor and a model" for the proceedings in Kansas 
and Oklahoma.

The FCC also was clear about the types of issues it would recognize in 
opponents' filings on future interLATA applications.  It noted that the 
statutory 90-day review period was designed as a "fast-track, narrowly 
focused adjudication" process.  It said that such proceedings are "
inappropriate forums for the consideration of industry-wide local competition 
questions of general applicability."

If SWBT fails to continue to comply with any of the requirements under 
section 271, the FCC can hold the telco liable for up to $45 million annually 
in Kansas and $44 million annually in Oklahoma.  SWBT must meet a series of 
anti-"backsliding" and performance-measurement requirements or it could face 
fines or other legal action, the FCC said.

International Service OKs Granted

The Telecommunications Division of the FCC's International Bureau last week 
also granted SWBT authorization under section 214 of the Communications Act 
of 1934, as amended, to provide international services for calls originating 
in Kansas and Oklahoma.  In file ITC-214-20001130-00713, the division said 
SWBT's long-distance subsidiary, Southwestern Bell Long Distance, would be 
subject to "international dominant carrier regulation" on three routes where 
SWBT has an affiliation with the foreign-market carriers.

The three routes are those between the U.S. and Belgium, Denmark, and South 
Africa.  It will be subject to nondominant carrier regulation on routes 
between the U.S. and Canada, the Czech Republic, France, Germany, Great 
Britain, Lithuania, the Netherlands, Norway, and Switzerland.

FCC Rethinks Limitations On Carriers' Use of EELs

As it promised to do last year, the FCC has begun reexamining its policy 
limiting how requesting carriers can use enhanced extended links (EELs)-
combinations of unbundled loops and transport purchased from incumbent local 
exchange carriers.  The FCC previously ruled that requesting carriers can't 
use EELs to provide exchange access services exclusively.

The FCC had imposed that prohibition in response to incumbent local exchange 
carriers' fears that competitors could use EELS to avoid paying special 
access charges (TR, Sept. 20, 1999).  The Commission later extended the 
prohibition and promised to revisit the issue early this year (TR, June 12, 
2000).

In a Jan. 24 public notice seeking comments on the issue (Common Carrier 
docket 96-98), the FCC asked if the exchange access and local exchange 
markets were "so interrelated from an economic and technological perspective 
that a finding that a network element meets the `impair' standard under 
section 251(d)(2) of the [Telecommunications Act of 1996] for the local 
exchange market would itself entitle competitors to use that network element 
solely or primarily in the exchange access market."

The "impair" standard requires the FCC to evaluate whether the failure to 
unbundle each network element would impair competitors' ability to provide 
service.

The FCC asked whether the local exchange and exchange access markets are "
economically and technically distinct."  If the markets are distinct, does 
lack of access to loop-transport combinations impair requesting carriers' 
ability to provide special access services? the FCC asked.

It asked about the availability of "alternative elements" aside from those 
offered by the incumbents.  It asked whether it should treat special access 
and private line services as a single market.

The FCC also sought comment on the nature of the special access and private 
line markets for business and residential end-users.  "In some markets, 
particularly those markets serving high-volume business customers, it may be 
practical and economical for carriers to compete using self-provisioned 
facilities," the FCC said.  But in residential and small-business markets "
the delay and cost associated with self-provisioning will preclude carriers 
from serving that market without access to unbundled network elements."

The FCC also asked whether requesting carriers should be permitted to combine 
unbundled network elements with tariffed access services purchased from 
incumbents.  That kind of commingling is now prohibited by FCC rules.

"Specifically, if a requesting carrier converts special access circuits to 
combinations of unbundled network elements, we ask parties to comment on 
whether such circuits may remain connected to any existing access service 
circuits without regard to the nature of the traffic carried over the access 
circuits," it said.

Comments on the public notice are due 30 days after its publication in the 
Federal Register; replies are due 45 days after publication.

Pole Attachment, TELRIC Rates To Be Challenged in High Court

The U.S. Supreme Court has agreed to hear two cases involving lengthy 
disputes over FCC rules.  One case stems from a challenge of the FCC's 
methodology for setting rates for interconnection and unbundled network 
elements (UNEs).  In a separate case, the court will consider whether the 
agency has authority to regulate the rates utility companies charge wireless 
and cable TV service providers for attaching equipment to their utility poles.

Oral arguments in the cases haven't been scheduled yet.  As she has done in a 
number of other telecom-related cases, Justice Sandra Day O'Connor recused 
herself from the court's deliberations.

In the first case, a federal appeals court had overturned the FCC's use of 
TELRIC (total-element long-run incremental cost) pricing rules for setting 
rates for interconnection and UNEs (TR, July 24, 2000).

The high court said it would focus on the following questions:  

(1)Whether the TELRIC methodology is unlawful under section 252(d)(1) of the 
Telecommunications Act of 1996, 

(2)Whether the Act or the "takings clause" of the Fifth Amendment to the U.S. 
Constitution requires incorporation of an incumbent local exchange carrier's 
(ILEC's) historical costs in its UNE rates, and 

(3)Whether section 251(c) (3) of the Act prohibits regulators from requiring 
that ILECs combine certain previously uncombined network elements at the 
request of a new market entrant. 

The consolidated cases beginning with Verizon Communications, Inc., v. FCC et 
al.(no. 00-511) came from the U.S. Court of Appeals for the Eighth Circuit 
(St. Louis).  In what many incumbent local exchange carriers (ILECs) 
considered a victory, the Eighth Circuit last year overturned the FCC's 
TELRIC pricing rules.  But the court didn't go so far as to agree with ILECs 
that rates for interconnection and UNEs must be based on historic costs.

In the second case, the Supreme Court will consider whether the "pole 
attachment" provisions of the Communications Act of 1934, as amended, apply 
to cable TV facilities that also are used to provide high-speed Internet 
access and to equipment used to provide wireless services.

The U.S. Court of Appeals for the 11th Circuit (Atlanta) had held that the 
FCC didn't have authority to regulate the rates utilities can charge for 
facilities that Internet or wireless service providers attach to their poles 
(TR, April 17, 2000).  The pole attachment provisions apply only to cable TV 
and wireline telephone services, the appeals court ruled.  The Supreme Court 
has consolidated the various appeals of the 11th Circuit decision under 
National Cable TV Association, Inc., v. Gulf Power Co. et al.(case no. 
00-832). 

Supreme Court Again Refuses To Hear State Immunity Cases

The U.S. Supreme Court has refused to review an appeals court ruling that 
denied state regulators' claims of immunity from federal lawsuits regarding 
carrier interconnection.  The interconnection provisions are included in the 
Telecommunications Act of 1996.

The 11th Amendment to the U.S. Constitution grants states immunity from 
federal lawsuits, but a 1908 Supreme Court decision, Ex parte Young,created 
an exception for lawsuits seeking to prevent an ongoing violation of federal 
law by state officials.

The high court's action last week left in place a ruling by the U.S. Court of 
Appeals for the Seventh Circuit (Chicago) that the Ex parte Young exception 
applies to lawsuits involving carrier interconnection proceedings.

This isn't the first time the Supreme Court has refused to take on such a 
case.  But it is the first time it's been confronted by state immunity claims 
extending not just to arbitration and approval of carrier interconnection 
agreements but also to (1)enforcement of such pacts and (2)review of "
statements of generally available terms" (SGATs), according to a Wisconsin 
Public Service Commission official.

In the case the Supreme Court rejected last week, the Wisconsin PSC and the 
Illinois Commerce Commission separately had sought review of a decision by 
the Seventh Circuit (TR, July 31, 2000).  The circuit court had ruled that 
the commissions' actions regarding interconnection agreements, SGATs, and 
enforcement of agreements weren't immune from federal court review.

Last fall the Supreme Court refused to hear a case that arose in the Sixth 
Circuit and involved the Michigan Public Service Commission (TR, Oct. 9, 
2000).  The Michigan case didn't cover an SGAT review or enforcement of an 
interconnection agreement.

In addition to the Sixth and Seventh circuits, the 10th and-most recently-the 
Fifth circuits have ruled against state immunity claims in interconnection 
cases (TR, June 26, 2000; and Jan. 22).  The Supreme Court is less likely to 
review cases when there is agreement among the various circuit courts that 
have dealt with the issues involved.

The FCC recently stepped in to preempt the Virginia Corporation Commission's 
authority to arbitrate and approve interconnection agreements because the 
state regulators had "failed to act" (TR, Jan. 22).

The Virginia commission had cited fears that its actions would be deemed 
subject to federal court review.  In the aftermath of the Supreme Court's 
refusal last week to consider state claims of immunity for their 
interconnection enforcement actions, one state commission source suggested 
that other states might decide to follow Virginia's path.

As she has done in other telecom-related cases, Supreme Court Justice Sandra 
Day O'Connor recused herself from deliberations in last week's decision not 
to review the Seventh Circuit's ruling.

'Net-Based Directory Publishers Can Access LEC Data, FCC Says

The FCC has expanded the category of competitors entitled to access local 
exchange carriers' (LECs') subscriber listing information.  LECs now must 
provide Internet-based directory publishers with nondiscriminatory access to 
those databases.  The Commission said the new rules would promote competition 
in the directory service market.

The FCC declined to restrict the manner in which Internet directory 
publishers may display and provide access to the subscriber information they 
receive from LECs.  Under section 222(e) of the Telecommunications Act of 
1996, carriers that maintain subscriber list information must provide that 
information on a nondiscriminatory basis to publishers of directories "in any 
format."  

In an order released last week in Common Carrier docket 99-273, the FCC said 
Congress didn't intend to restrict the kinds of directories that could be 
published using subscriber list information obtained under section 222.  
Internet databases "clearly fall within the broad category of `directories in 
any format,'" the FCC added.

The FCC also clarified some of its rules regarding competitive local exchange 
carriers and other competing directory assistance (DA) service providers that 
have nondiscriminatory access to incumbent LECs' databases under section 
251(b)(3) of the Act.  

It said competing DA providers must offer a telecom service-which could 
include termination of directory assistance calls-in order to qualify for 
database access under section 251.

The FCC refused to limit the manner in which a DA provider may use the 
incumbent LECs' subscriber information.  It said that neither competitive nor 
incumbent LECs are subject to such limits on their use of subscriber 
information. 

LECs aren't required to provide nondiscriminatory access to their nonlocal 
directory listings, "since third parties have the same opportunity [as the 
LECs] to secure the information directly," the FCC noted.  However, if a LEC 
is providing its national DA information to any other DA provider, it must 
make the same information available to competing DA providers without 
discrimination.

The FCC declined to set a pricing structure for DA information but said state 
regulators weren't precluded from doing so. "

Analysts See Lucent Plan Leading To Profitability, But Not Growth

Lucent Technologies, Inc.'s "seven-point restructuring" plan eventually 
should bring the company back to profitability, but some analysts doubt that 
its approach will increase growth in the remaining core businesses.  

In the short term, however, Lucent-which has posted a $1 billion operating 
loss for its 2001 first fiscal quarter that ended Dec. 31, 2000-will continue 
to see additional losses, financial analysts predict.

Lucent last week announced that it would cut costs by more than $2 billion 
and increase its working capital by about $2 billion.  Additionally, J.P. 
Morgan Chase & Co. and Solomon Smith Barney, Inc., have arranged new $4.5 
billion, 365-day term credit facilities "in order to ensure that Lucent's 
cash-flow needs are adequately met," Lucent said.

The bankers requested that Lucent use its assets to secure the credit 
facilities, Moody's Investors Service noted.  "The fact that the banks sought 
security sends a signal that the bank group is concerned about credit 
quality," Moody's said in a statement.

Consequently, Moody's lowered Lucent's long-term debt rating from "A3" to "
Baa1."  It will continue to review of Lucent's long-term rating as well as 
Lucent's Prime-2 short-term rating, Moody's said.

"The downgrade of the long-term debt reflects concerns that Lucent's 
operating problems and restructuring may go deeper than we originally 
expected," Moody's said.

"The review will continue to focus on the company's ability to address gaps 
in its product offering, enhance its internal controls, improve its cost 
structure and manufacturing efficiency, and accelerate revenue growth without 
resorting to excessively aggressive vendor financing," Moody's added (TR, 
Dec. 25, 2000).

Focus Turns To Global Incumbents

Henry B. Schacht, Lucent's chairman and chief executive officer, told 
investors last week that the company's seven-point "transition" plan includes 
the redeployment of resources toward incumbent and international service 
providers and the adoption of a more "targeted approach" to the troubled 
competitive local exchange carrier (CLEC) market (TR, Oct. 16, 2000).

This new approach exposes Lucent to less risk, "at least from a credit point 
of view," according to one Wall Street analyst.  The analyst, who requested 
anonymity to avoid conflict with clients, said Mr. Schacht's targeted 
approach to CLECs will decrease Lucent's chances of getting stuck with unpaid 
bills from CLECs.

By focusing on incumbent and international carriers, Lucent will lessen its 
reliance on "aggressive vendor financing," the analyst said.  Incumbents 
typically don't need vendor financing, he said.

On the other hand, Lucent's decreased activity in the manufacturing sector-
through its spin-off of Avaya, Inc., and planned spin-off of Agere Systems, 
Inc.-might decrease the company's ability to pay back loans if the market for 
its products continues to slow, the analyst said.

"To the degree that a company is diversified, the revenue stream of 
profitable units helps balance the losses of less successful units," he 
said.  Lucent will have most of its "eggs in one basket," the analyst added.

Lucent immediately began laying off workers following its Jan. 24 
restructuring announcement.  It unveiled a workforce reduction of 16,000 
employees, which includes what it described as a "transfer" of 6,000 jobs to 
outside contractors upon the sale of its Columbus, Ohio, and Oklahoma City 
facilities.

A Lucent source has told TR, however, that the company is targeting as many 
as 20,000 positions for elimination this year.  The 6,000 employees in 
Oklahoma and Ohio should be included in the workforce reduction estimate, the 
source said, because there's no guarantee those workers will be rehired by 
contractors.  

Lucent will lose another 16,500 workers when the microelectronics group is 
spun off into Agere, the source noted.

Although the company likely will terminate more workers than it's willing to 
acknowledge publicly at this point, the layoffs are needed for Lucent to 
regain its position as a top contender in global communications equipment 
markets, said TR's source, who is familiar with Lucent personnel management 
operations.

Lucent's human resources department is searching for "dead weight" in its 
workforce-long-time employees who may not be suitable for Lucent's new focus 
on high-growth markets, the source said.

At the same time, Lucent "will continue to hire people with appropriate job 
skills" to enhance the company's capabilities "in profitable, high-growth 
markets," Mr. Schacht said.

"The planned reductions will cover a range of business groups and geographic 
regions," Mr. Schacht said.  "But the majority of them will come from 
eliminating duplication in marketing, sales, and corporate functions, pruning 
of the product portfolio, and reduced volume in certain manufacturing 
locations." 

Merrill Lynch & Co. analyst Michael E. Ching said Lucent's workforce 
reduction and restructuring charges were larger than he expected.  

"These changes should help the company return to profitability, but we 
believe it likely will be several quarters before we see a meaningful 
improvement in gross margin," Mr. Ching said in a research note.  

"Also, the changes do not address the issue of weak revenue growth in [Lucent'
s] core businesses," he added.

"With a slower improvement in gross margin, and weak revenue growth over the 
next several quarters, we are lowering our fiscal 2001 revenue forecast from 
$32.0 billion to $30.8 billion and increasing our loss per share estimate," 
Mr. Ching reported.

Bear, Stearns & Co., forecast that Lucent would lose 9 cents per share in the 
second quarter and 22 cents in fiscal 2001, and earn 33 cents per share in 
fiscal 2002.

Court Says WorldCom Tariff Trumps Service Pact with ICOM

The U.S. Court of Appeals for the Second Circuit (New York) has affirmed a 
lower court's decision to dismiss a breach-of-contract lawsuit filed by ICOM, 
Inc., against WorldCom, Inc.  In a Jan. 22 decision, the appeals court upheld 
the U.S. District Court for the Eastern District of New York's ruling that 
the claim was barred by the "filed-rate" doctrine and preempted by the 
federal Communications Act of 1934.

Under the filed-rate doctrine, a carrier's tariffed rates take precedence 
over other agreements with customers.  Section 203 of the Act states that 
when carriers file a tariff for a given service, they can't extend any "
privileges," charges, or "practices affecting such charges" other than those 
stated in the filed tariff. 

ICOM filed a lawsuit in 1999 alleging that WorldCom had missed a contractual 
deadline for installing six high-speed DS3 circuits.  ICOM asserted that 
WorldCom's inaction caused ICOM to be unable to perform its obligations under 
contracts it had signed with third parties.   ICOM said its contract with 
WorldCom specified damages WorldCom must pay in the event of a breach of 
contract.

In an opinion written by Judge Robert D. Sack and joined by Judges Sonia 
Sotomayor and Robert A. Katzmann, the appeals court panel found that the 
contract was unenforceable.  

Enforcing the contract would "impermissibly modify" the terms of WorldCom's 
tariff for such services.  The opinion was filed in ICOM Holding, Inc., v. 
MCI WorldCom, Inc. (case no. 00-7660).

Judge Sack noted that the Supreme Court's 1998 decision in American Telephone 
& Telegraph Co. v. Central Office Telephone, Inc.,made it clear that the 
filed-rate doctrine extends to tariff terms beyond the rates for the 
services.  

The doctrine bars not only state law claims "that pertain to the price of 
telecommunications services subject to an FCC filing, but also state law 
claims that concern various nonprice aspects," Judge Sack said.

Long Distance Revenues Head North, FCC Reports

Revenues in the long distance industry climbed to $108 billion in 1999, up 
from 1998's $105 billion, according to a report from the FCC last week.  The 
report, Statistics of the Long Distance Telecommunications Industry, 
highlights financial and market statistics in the long distance services 
industry and provides data on residential customers' long distance calling 
patterns.  

It shows that long distance carriers accounted for more than $99 billion of 
the 1999 revenue total, and local telephone companies accounted for the 
remaining $9 billion.  The report is available by calling 202/857-3800 or by 
visiting http://www.fcc.gov/ccb/stats.

Telefonica, Portugal Telecom Foresee Brazilian Consolidation

Telefonica SA and Portugal Telecom SGPS SA are determined to lead what they 
say is the "inevitable consolidation" of the Brazilian wireless industry.  
The former rivals have decided to combine their Brazilian mobile telephony 
assets into a $10 billion joint venture that would be the country's largest 
wireless service provider.

The companies called their joint venture "the natural consolidator" in the 
Brazilian wireless market, suggesting that it would use its deep pockets and 
strong market position to buy smaller operators.  The joint venture would 
have 9.3 million subscribers and 94 million "pops" (potential customers).  
The companies didn't say when they expected to complete the transaction, 
which requires the approval of Brazil's telecom regulator, Anatel.

The Portuguese and Spanish carriers would get equal ownership and control of 
the unnamed venture, which would be managed by the carriers' wireless 
subsidiaries, Telefonica Moviles SA and PT Moveis.  The venture would include 
Telefonica's stakes in Tele Sudeste Celular Participacoes SA, Celular CRT 
Participacoes SA, and Tele Leste Celular Participacoes SA.

Portugal Telecom would contribute its shares of Celular CRT Participacoes and 
Telesp Celular Participacoes SA.  Once Portual Telecom completed its 
acquisition of Global Telecom SA, it would contribute those assets to the 
venture (TR, Jan. 22).  Portugal Telecom's Brazilian assets are worth $3.8 
billion and Telefonica's are valued at $4.8 billion, Credit Suisse First 
Boston Corp. estimates.  Because its assets are worth less, Portugal Telecom 
is expected to contribute cash to the venture.

As part of the arrangement, Telefonica has agreed to increase its ownership 
of Portugal Telecom to 10% from 5%.  The companies didn't say how much 
Telefonica would pay for the additional 5%.

Brazil's wireless industry is considered ripe for consolidation.  Telebras, 
the government-owned monopoly, was dismantled in 1998, and 16 operators 
received wireless licenses.  The government was scheduled to sell nine new 
licenses in three auctions starting Tuesday, Jan. 30, although a court 
challenge may delay the bidding (see separate story).

Some analysts think the Brazilian government's goal is to allow enough 
consolidation to produce about three large telecom service providers.  "This 
should assure an economically sound environment for the survivors while at 
the same time making sure that consumers do not overpay for telecom 
services," Credit Suisse First Boston said.

Losses in Handset Operations Spur Ericsson To Exit Business

Telefon AB L.M. Ericsson decided to exit the mobile phone manufacturing 
business after that part of its operations reported yet another disappointing 
quarter.  "The results in our mobile phones business, while in line with 
expectations, remain unsatisfactory," said Kurt Hellstrom, president and 
chief executive officer of the Swedish company.

Last year, Ericsson increased its handset sales 38%, to 43.3 million units, 
but the business unit reported a $1.7 billion loss.  "The losses are caused 
by delivery failure from key suppliers and an inadequate product mix in the 
entry-level market," Mr. Hellstrom said in a statement.

Ericsson's solution is to transfer the business to Singapore-based 
Flextronics International Ltd.  On April 1, Flextronics will take over 
Ericsson handset factories in Brazil, Malaysia, Sweden, the United Kingdom, 
and Virginia.  Ericsson's China operations will be unaffected.

Flextronics will manufacture Ericsson-designed handsets under a "strategic 
alliance" between the two companies.  The workforce in Ericsson's handset 
division will decline from 16,800 to 7,000.  Ericsson will transfer 4,200 
workers to Flextronics; the remainder will be laid off or transferred to 
other units.

Merrill Lynch & Co. analyst Adnaan Ahmad said he expected the outsourcing 
arrangement to result in a "difficult transition."  The arrangement is "good 
news from a supply-chain management perspective," Mr. Ahmad said in a report.

"However, in our view, it does not solve the underlying issues with regard to 
[Ericsson's] reading the end-market segments," he said.  Merrill Lynch 
downgraded its long-term rating on Ericsson shares from "buy" to "accumulate."

CRTC Nixes Vancouver Bid For Fiber-Deployment Fees

The Canadian Radio-television and Telecom-munications Commission has resolved 
a dispute between the city of Vancouver, British Columbia, and Ledcor 
Industries Ltd.  Vancouver claimed the company had begun deploying a fiber 
optic network without its permission.  The commission emphasized that its 
decision addressed this particular dispute and didn't set a precedent for 
resolving similar disputes in the future.

In decision no. 2001-23, the CRTC granted Ledcor permission to "construct, 
maintain, and operate" fiber optic transmission lines in 18 street crossings 
and said that most of the compensation Vancouver had sought in connection 
with the project was "not required or appropriate." 

Vancouver had sought a "variety of onetime and ongoing causal costs" stemming 
from the "presence or placement of telecommunications plant on its streets," 
the commission said.  "Vancouver proposed that it recover all costs causally 
incurred. . .as a result of the use and occupation of its public property by 
carriers."  

Ledcor in March 1999 asked the agency for relief from Vancouver's "
unacceptable" terms and conditions.  It claimed that the city wouldn't 
approve the project, despite the Canadian Telecommunications Act's 
requirement that a municipality grant "access to the street crossings and 
other municipal property" on terms acceptable to carriers.  

In its 1999 filing, Ledcor asked the commission to issue an interim order so 
that it, its subsidiary Worldwide Fiber Ltd., and its carrier customers could 
continue the project pending a final decision.  In October 1999, the 
commission issued an interim order, under which Ledcor, Bell Canada, Inc., 
and Call-Net Enterprises, Inc., were each to pay $1 to the city "as a 
condition of access."  

In last week's decision, the CRTC agreed with the city that Ledcor should pay 
fees relating to "plan approval and inspection" and ordered the company to 
pay $7,613 in these and related costs.  However, it said that most of the 
other fees levied on Ledcor by Vancouver-such as annual "land" charges based 
on the value of land adjacent to the facilities-were unacceptable.

It emphasized that the decision applied only to this dispute and not to 
future cases involving similar circumstances.  "The Commission is not, in 
this decision, prescribing terms and conditions related to the future 
construction by Ledcor, or any other carrier, of transmission lines in 
Vancouver or elsewhere," it said.  "The Commission is not persuaded that it 
is appropriate for it to adopt any particular model or standard agreement to 
serve as a starting point for discussions between municipalities and 
carriers."

Brazil, France Face Setback In Awarding Wireless Licenses

Telecom regulators in Brazil and France are facing setbacks in their attempts 
to award licenses for wireless services.  Brazilian officials are seeking to 
overturn a court challenge, while prospective licensees in France have 
dropped out of the running.

In Brazil, telecom regulator Anatel has postponed its scheduled Jan. 30 
auction of three wireless licenses in the wake of a court injunction blocking 
the sale.

Anatel said it would reschedule the auction for Feb. 5 or 6 if it could 
persuade a court on Jan. 29 to overturn the injunction, which a Sao Paulo 
court issued last week.  That court said the rules governing the bidding 
process were illegal.  Anatel has scheduled additional auction rounds to sell 
three licenses each for Feb. 20 and March 13.

In France, regulators' plans to award four licenses for third-generation (3G) 
services ran into trouble when at least two prospective bidders, French 
utility Suez Lyonnaise des Eaux and Telefonica SA of Spain, dropped out.  
There was growing speculation that French wireless carrier Bouygues Telecom 
also would withdraw.  Bids are due Jan. 31.

Also last week, Denmark awarded second-generation wireless licenses to 
Mobilix A/S and Telia A/S.  The National Telecom Agency had received 
applications from four bidders for the 900 megahertz (MHz) band licenses, 
which were issued in a comparative process known as a beauty contest.

Included in the binding terms of the licenses are the prices and products to 
be offered, and the terms for interconnection with other carriers.

Meanwhile, Dutch regulators have decided to allocate additional 3G licenses 
by auction, with the aim of awarding the licenses by October.  The licenses 
will cover 3G services in the 1900-1980 MHz, 2010-2025 MHz, and 2110-2170 MHz 
bands.

The Dutch government raised 5.9 million Dutch guilders ($2.5 billion) last 
year when it auctioned five 3G licenses (TR, July 31, 2000).

Wireless Industry Seeks Changes In Antenna-Collocation Agreement

Two wireless industry trade groups are seeking changes in a draft agreement 
designed to streamline the review of antenna collocations on historic sites.  
The industry groups say the changes are needed to ensure that the pact 
accomplishes its goal.  But a historic preservation group says the agreement 
would result in harm to historic properties.

The agreement was drafted, pursuant to the National Historic Preservation Act 
(NHPA), by the FCC, the Advisory Council on Historic Preservation (ACHP), and 
a telecommunications working group that includes state historic preservation 
officers, federal officials, and wireless industry representatives (TR, Nov. 
27, 2000).  The FCC said it expected to take action on a final agreement on 
or about Jan. 29.

The pact restricts the conditions under which state or tribal historic 
preservation officers would review antennas for their potential effect on 
historic properties or sites.  Wireless industry officials say they hope 75% 
to 85% of new antenna applications would be freed from the review process.

CTIA Attacks Agreement

As drafted, the agreement "does not streamline the regulatory process for 
collocations," the Cellular Telecommunications & Internet Associationsaid in 
comments filed at the FCC last week.  Instead, it "threatens to actually 
impede collocation."

CTIA noted that under current FCC rules, licensees are responsible for 
determining whether an antenna would affect a historic property.  "However, 
under the proposed [national programmatic agreement], any person, whether 
qualified or not, at any time can allege at the FCC that the proposed 
collocation has an adverse effect on historic properties," prompting a review 
before further construction can proceed, CTIA said.

"Such a provision undermines the FCC's efforts to streamline the collocation 
process.  It also fails to recognize that the effects of collocations on 
historic properties are categorically minimal, and unlikely to raise historic 
preservation issues not already addressed in the proposed" national 
programmatic agreement.

CTIA said that only in "well-defined and limited circumstances," such as a 
substantial increase in the size of an antenna, should a collocated facility 
be subject to review.  Otherwise, the burden should be on ACHP and historic 
preservation officers to prove that an antenna will harm a historic property, 
CTIA argued.

In addition, the trade group said the FCC should ensure that future 
environmental assessments are processed in accordance with the Commission's 
own rules.  CTIA said decisions by the Wireless Telecommunications Bureau "
could be interpreted to suggest that licensees take steps required by neither 
the Commission's rules nor the NHPA."

In its comments, the Personal Communications Industry Associationsaid that 
while it strongly supported the aim of the programmatic agreement, "some 
necessary amendments" would ensure that the pact would "truly benefit all 
parties and advance the common goals of achieving the rapid build-out of the 
nation's indispensable telecommunications network while at the same time 
protecting the nation's invaluable historic resources."

PCIA said the draft agreement on which the FCC sought comments "preserves 
much of the substance" of an earlier version of the pact that was approved by 
the telecom working group.  But provisions added in the latest draft differ 
from "the intent of the parties' previous agreements" and "require 
clarification, correction, or modification," it said.

Among the amendments PCIA suggested were changing the effective date of the 
agreement to the date it is published; it proposed March 1 unless an earlier 
date is possible.  It also suggested changes in language that it says would 
limit which entities could mount antennas on towers.  And it wants to clarify 
that compliance with the agreement constitutes compliance with the NHPA's and 
the ACHP's rules.

The Jefferson County, Colo., Historical Commissionalso opposed the 
programmatic agreement but for different reasons.  It said the pact would 
weaken the NHPA and the National Environmental Preservation Act.  It said the 
collocation of antennas should not be permitted without environmental 
assessments.

The draft agreement "places the wireless industry above the law that protects 
structures and American citizens that use them," the historical commission 
added.

The Telecommunications Industry Association has published...

The Telecommunications Industry Association has publishedan interim standard 
that defines the messaging required to support Phase II "enhanced 911" (E911) 
systems.  The standard is called TIA/EIA/IS-J-STD-036.

Carriers, Others See Problems In FCC's ID-Number Proposal 

Carriers and broadcasters gave a lukewarm reception to the FCC's plan to 
require each regulated entity to use a unique identifying number on certain 
filings.  Many carriers and others said the planned system was duplicative of 
existing registration programs and suggested ways to simplify the FCC's 
process for tracking regulatory filings.

The FCC had proposed making mandatory a previously voluntary system under 
which anyone doing business with the agency would use a 10-digit FCC 
registration number (FRN) obtained from the Commission Registration System.  
In a notice of proposed rulemaking released in Managing Director docket 
00-205 last December, the FCC suggested that the FRN be required on all 
regulatory fee payments, waiver petitions, auction payments, and other 
filings and submissions (TR, Dec. 4, 2000).  Parties would be responsible for 
maintaining the accuracy of the information in the Commission Registration 
System database.

In comments filed on the proposal last week, many carriers said they 
supported the FCC's goal of efficiently tracking filings and fees but 
disagreed with just how the plan should be implemented.

Parties already use a taxpayer identification number (TIN) on many of their 
FCC filings, including those on which the Commission has suggested using the 
FRN, Verizon Wireless said.  "The need for another `unique identifying 
number' is unclear," it said.

The confidentiality of TINs is important, Verizon said, "but this factor does 
not appear crucial since, as the Commission says, the information in [the 
Commission Registration System] is for Commission use only and will not be 
published or distributed."

Cingular Wireless LLC suggested instead that the FCC do away with its use of 
TINs when it institutes the mandatory FRN system.  It said that financial and 
personal information can be revealed and "a person's `identity' can be `
stolen' if his or her TIN" is obtained.  It also criticized the FCC for the 
lax security it gave parties' TINs.  "Inadvertently filed copies containing 
TIN information have been discovered in the Commission's public reference 
room on more than one occasion," Cingular said.  

It recommended that the FCC assign FRNs only to parties that request one, 
rather than having the Commission assign FRNs as it issues bills or other 
notifications.  The latter approach could "result in duplicative FRNs by 
large business entities who control numerous applicants and licensees," it 
added.

The Walt Disney Co. had similar reservations about how the FRNs would be 
assigned.  It said that under the voluntary FRN system, when a parent company 
made a joint filing that included regulatory fees for more than one 
subsidiary, only the FRN of the parent company was associated with the 
payments and the FRNs of the subsidiaries appeared to be unused by the system.

This can lead to the misperception that the subsidiaries still owe the fees, 
Disney said.  "The Commission's filing systems should be able to properly 
credit payments made on behalf of a licensee that is a subsidiary of another 
entity, regardless of the source of payment," it added.

Qwest Communications International, Inc., criticized the "unforgiving manner 
in which the Commission proposes to implement its FRN proposal."  The FCC had 
suggested that it would reject filings that fail to include an FRN where one 
is required, which could result in the filing's dismissal or the FCC's 
refusal to accept an application.

Qwest said such an approach was "overly harsh" and suggested that the FCC "
modify its proposed rules to allow filing parties a minimal period of time 
(e.g., five calendar days) to correct a filing or application that lacks an 
FRN." 

The National Exchange Carrier Association, Inc., said that it submits filings 
on behalf of more than 1,200 carriers and that it was concerned about the FCC 
suggesting that one entity could obtain multiple FRNs.  "The Commission 
should make clear that, as authorized filing agent for its various 
tariff-participating members, NECA will submit its own FRN with each tariff 
filing requiring a fee payment, but that submission of FRNs for each 
participating carrier in NECA's tariff is not necessary," NECA said.

If the FCC allows single entities to obtain multiple FRNs "it should, at a 
minimum, establish a system to link related entities," NECA said.  

Broadcasters already are required to register separately for four different 
FCC systems, the National Association of Broadcasters said.  The FCC should "
step back and assess its electronic filing and database systems on a holistic 
level," NAB said.  "Although each bureau has developed software programs to 
accommodate their particular needs, there is no mechanism by which the 
systems are cross-referenced."  The FCC should explore ways to "centralize" 
its identification process, NAB concluded.

Building Owners, Carriers Spar over FCC Proposal To Block Service, Extend Ban 
on Exclusive Pacts

As the FCC considers another slate of proposals designed to help carriers 
obtain access to multitenant structures, building owners and competitive 
telecom service providers are escalating the battle they've been fighting for 
the last several years.

The issue this time around is whether the FCC should take steps specifically 
targeting multitenant residential buildings.  The agency previously has 
limited the scope of its actions to commercial buildings.

The FCC recently adopted rules in Wireless Telecommunications docket 99-217 
designed to help competitive local exchange carriers (CLECs) obtain access to 
multitenant structures.  Among other things, the Commission barred exclusive 
contracts between telecom service providers and owners of multitenant 
commercial buildings (TR, Oct. 16, 2000).

When it adopted those rules, the FCC suggested that it would need to take 
more steps.  It issued a further notice of proposed rulemaking (NPRM) asking 
whether it should (1) extend its ban on exclusive contracts to apply to 
multitenant residential buildings and (2) bar incumbent local exchange 
carriers (ILECs) from serving buildings where the owner prevents CLEC access.

In its comments filed last week, the Real Access Alliance, which represents 
building owners, said the FCC already had concluded that it lacked authority 
to "regulate the real estate industry."

But in the further NPRM, the FCC asks whether it can "achieve the same goal 
through the draconian measure of ordering telecommunications providers to cut 
off service in buildings whose owners do not comply with the Commission's 
wishes," it said.

"Whether the Commission regulates building owners directly-as proposed in the 
original notice of proposed rulemaking in this docket-or indirectly, as 
proposed in the [further notice], makes no difference because the FCC lacks 
jurisdiction over building-access agreements," the alliance said.

"Agreements for building access are agreements for the use of real estate 
and, therefore, outside the Commission's purview, even over carriers," it 
said.

Enforcement of `Best Practices' Questioned

The Smart Buildings Policy Project, which represents telecom carriers and 
equipment manufacturers that support building-access policies, said building 
owners continue to delay the entry of competitive telecom carriers.  It 
advised the FCC not to rely on the model agreements and "best practices" 
promoted by building owners.

"Reasonable access terms and conditions are meaningless if access can be 
denied entirely, or if access can be delayed for months or years," the 
project said.  "These model terms and conditions are entirely unenforceable 
without a Commission requirement for granting access."

The group said it was particularly concerned about the "increasing 
phenomenon" of building owners making direct investments in building-focused 
CLECs (BLECs).  "The resulting symbiotic financial relationship motivates the 
[multitenant building] owner to promote its affiliated BLEC within the 
building," it said.  The FCC should "directly prohibit" building owners from "
unreasonably discriminating among facilities-based carriers," it said.

AT&T Corp. called for a nondiscriminatory access rule allowing a CLEC to "
institute proceedings that, if successful, could result in an order 
prohibiting a LEC from providing telecommunications services" to any building 
that refuses to allow "reasonable, nondiscriminatory access to competing 
carriers."

The FCC has the authority under sections 201 and 205 of the Communications 
Act of 1934 to stop LECs from serving buildings whose owners engage in 
discriminatory practices, AT&T said.  "The fact that such regulations have an 
indirect effect on [building] owners-namely, in encouraging them to provide 
their tenants with the telephony choices they deserve-does not divest the 
Commission of jurisdiction," it said.

In joint comments, Carolina BroadBand, Inc., RCN Telecom Services, Inc., and 
Utilicom Networks LLC complained that the "entrenched incumbent local 
exchange carriers and incumbent cable [TV] providers frequently misuse their 
established positions to block competition through such means as exclusive 
contracts with [building] owners and managers."

They noted that the FCC's further rulemaking notice had said the record didn'
t provide a sufficient basis upon which to decide whether barring exclusive 
contracts in the residential market would be beneficial or detrimental to 
growth.  "There are many competitive obstacles raised by such exclusive 
arrangements, not the least of which is that the ultimate captive tenant must 
wait until the expiration of the contract before obtaining the superior 
services of another provider," they said.

Cox Communications, Inc., cited barriers it encounters when trying to gain 
access to buildings, including "monetary demands" from building owners and "
onerous nonfinancial terms and conditions."  It urged the FCC to adopt a "
simple rule that prevents any incumbent from obtaining access to a 
[multitenant building] on terms more favorable than those available to any 
other carrier."

BLEC Sees Residential, Commercial Differences

BLEC CoServ LLC said the FCC's "reservation about extending the ban on 
exclusive arrangements from the commercial to the residential market is 
warranted."  Residential leases are much shorter than business leases, and 
relocation costs are lower for residences, it said.  Residential customers, 
therefore, have a "greater degree of flexibility in mitigating (or simply 
avoiding) any limits" a building owner may put in place with exclusive 
telecom service agreements, it concluded.

Cypress Communications, Inc., an Atlanta-based BLEC, said the FCC should bar 
ILECs from signing discriminatory access arrangements with building owners.  "
Such a rule is necessary because ILECs have market power and, therefore, 
possess an advantage over CLECs," it said.

A nondiscrimination requirement applied to CLECs is "unnecessary," Cypress 
said, because they "lack market power, and building owners do not have an 
incentive to discriminate on the CLECs' behalf."

The FCC shouldn't keep LECs from serving multi-tenant buildings whose owners 
refuse to deal with other LECs on a nondiscriminatory basis, said BellSouth 
Corp.  Such a rule would be "constitutionally suspect," "unnecessary," and "
ill-considered," it said.  The rule would be "too severe in consequence in 
that it affects the very health, safety, and livelihood of innocent LEC 
customers," BellSouth said.

Verizon Communications, Inc.'s telephone companies asked the FCC to bar all 
exclusive access arrangements between carriers and multitenant building 
owners.  But it should not constrain "exclusive or preferential marketing 
arrangements, which are pro-competitive," they say.  Such arrangements "
afford customers an additional source of information on the availability of 
services and products and an additional sales outlet, without any reduction 
in the many outlets they already have," the Verizon telcos said.

SBC Communications, Inc.'s telcos also backed extending the ban on exclusive 
access arrangements to cover residential buildings but opposed any effort to 
limit marketing agreements.  They also opposed broadening the definition of 
right-of-way, which would be "unworkable" and "inconsistent" with state law 
and the Communications Act of 1934, they said.

The Independent Cable & Telecommunications Association said "limited-term 
exclusive" contracts between multichannel video programming distributors and 
owners of residential buildings "can and do function as a pro-competitive 
force in that marketplace."

ICTA also opposed extending the FCC's rules governing the disposition of 
cable TV "home-run" wiring to include providers of telecom services.  Those 
rules currently cover providers of video services.

In joint comments, the Edison Electric Institute and the United Telecom 
Council disagreed with the FCC's premise that utility rights-of-way could be 
construed to include "in-building facilities, such as riser conduits, that 
are owned or controlled by a utility."

"Any access right conferred upon cable and telecommunications providers by 
section 224 must remain subordinate to the rights held by utilities, such 
that a utility's ability voluntarily to provide access to an area and obtain 
compensation for doing so is a prerequisite to utility ownership or control" 
under section 224, they said.

The General Services Administration, commenting on behalf of the consumer 
interests of federal executive agencies, didn't weigh in with specific 
recommendations.  But it described problems its agencies have experienced in 
trying to order service from  CLECs, including problems caused by building 
owners and ILECs that delayed service provisioning.

The Telecommunications Research and Action Center asked the FCC to prohibit 
telecom service providers from signing exclusive contracts with owners of 
multitenant residential buildings.  It also asked the FCC to revise its cable 
TV inside-wiring rules to give tenants a broader choice of advanced service 
providers.

TRAC said building owners shouldn't be permitted to determine which telecom 
carrier may acquire "home-run" wiring.  "Should the owner fail to allow 
alternative providers to compete for subscribers, dwellers are stuck with the 
incumbent," it said.

Missouri Lawmakers Seek To Oust Three PSC Members

Missouri state Rep. Dennis Bonner (D.) and Sen. Ronnie DePasco (D.) are 
trying to oust three Public Service Commissioners who voted to allow Missouri 
Gas Energy to raise its rates by 44% before the PSC held a hearing on the 
matter.

The rate change is an interim increase, subject to refunds if a PSC staff 
audit determines that the company made "imprudent decisions" in its purchases 
of natural gas, the commission said in a press release announcing its Jan. 23 
action allowing the rate hike.

The three commissioners who voted in favor of the rate increase are Connie 
Murray (R.), M. Dianne Drainer (R.), and Chairwoman Sheila Lumpe (D.).  Rep. 
Bonner and Sen. DePasco aren't trying to remove Commissioners Kelvin Simmons 
(D.) and Robert G. Schemenauer (D.), who voted against the rate hike.

Mr. Bonner filed a resolution (HCR 9) in the House of Representatives last 
week that would declare the commissioners' seats vacant as a result of their "
violation of state law."  The resolution was introduced Jan. 24; it had its 
second reading in the House Jan. 25 but wasn't at that time scheduled for a 
hearing or a vote.  Rep. Bonner told TR that Sen. DePasco was planning to 
file an identical resolution in the Senate late last week.

The 44% rate hike was "ridiculous," Rep. Bonner said.  "People in my district 
can't afford to pay that."  He added, however, that he "would have been happy 
if [the commissioners] would have held a hearing."  He said he and Sen. 
DePasco had warned the commissioners that they would try to expel anyone who 
approved the rate hike without holding a public hearing first.

FCC Says ATU Must Refund $2.7M For Misallocating Costs

The FCC has ordered an Alaskan local exchange carrier to refund GCI 
Communications, Inc., $2.7 million in damages plus interest, to make up for 
having improperly allocated certain costs to the interstate jurisdiction for 
separations purposes.  Local exchange carriers must jurisdictionally separate 
costs related to facilities that are used for both interstate and intrastate 
services, so that federal and state regulators can associate the costs with 
revenues from the appropriate jurisdiction.

The FCC said Alaska Communications Systems, Inc. (d/b/a ATU 
Telecommunications) had wrongly allocated to the interstate jurisdiction the 
traffic-sensitive costs of carrying Internet-bound calls.  The FCC also said 
ATU unlawfully exceeded its allowed rate of return on its investment to 
provide interstate access services during the 1997-1998 monitoring period.  
The FCC ordered ATU to revise its tariffs and monitoring reports to reflect 
the fact that the FCC considers ISP-bound traffic to be intrastate in nature 
for separations purposes.

The FCC also found that ATU improperly calculated "dial-equipment minutes" 
(DEM) for interoffice calls during that same monitoring period.  "By 
allocating ISP traffic costs to the interstate jurisdiction for separations 
purposes, and by counting one DEM rather than two DEMs for each minute of 
interoffice calls, ATU erroneously inflated its interstate cost base," the 
FCC said in an order released last week in Enforcement file MD-016.

GCI also had complained that (1) ATU's tariffs were unjust and unreasonable, 
in violation of section 201(b) of the Communications Act of 1934, because 
they permitted ATU to exceed its prescribed rate of return; and that (2) by 
assigning Internet-bound traffic costs to the interstate jurisdiction, ATU 
unjustly and unreasonably imposed charges on GCI for a service to which it 
did not subscribe.  The FCC dismissed those two complaints, saying they were "
moot" and based on the same facts as the complaints on which it ruled in GCI'
s favor.

The FCC said that assigning the costs of Internet-bound traffic to the 
intrastate jurisdiction for separations purposes was "a legal requirement" 
under rules it established in a 1983 order regarding MTS (message telephone 
service) and WATS market structure.  It noted that it had affirmed that legal 
requirement in a series of orders, most recently in its "first access charge 
reform" order in Common Carrier docket 99-249 (TR, June 5, 2000).  ATU had 
argued that the FCC had only "expressed a preference" for assigning ISP costs 
that way.

`C,' `F,' Block Reauction Nets Record $16.8B; Large Carrier Participation May 
Be Contested

The record $16.8 billion that the FCC netted in its reauction of 422 "C" and "
F" block PCS (personal communications service) licenses fell within the range 
most financial and industry analysts expected.  But some analysts said the 
prices for licenses in the largest market-New York City-were higher than 
expected.

Meanwhile, with the sale now over, at least one unsuccessful participant 
plans to challenge the results before the FCC-and possibly in court.  At 
issue are set-aside rules for small businesses that allow them to form 
alliances with bigger carriers.  

Another legal uncertainty involves the last remaining court challenge of 
bankrupt NextWave Telecom, Inc., whose reclaimed licenses were among those 
sold at the auction.  The FCC reclaimed the licenses when NextWave failed to 
meet its payment obligations for them.  Some analysts say they don't expect 
the legal challenges to succeed.

When the reauction concluded after the 101st round on Friday, Jan. 26, 
Verizon Wireless, bidding as Cellco Partnership, finished on top, offering 
$8.7 billion for 113 licenses, including two in New York City and Boston and 
one each in Los Angeles, Chicago, San Francisco, Philadelphia, and 
Washington.  The 113 licenses cover 150 million "pops" (potential customers).

Finishing second was Alaska Native Wireless LLC, which is 39.9%-owned by AT&T 
Wireless Services, Inc.  It submitted bids of $2.8 billion for 44 licenses, 
including one each in New York City and Los Angeles.

Salmon PCS LLC-in which Cingular Wireless LLC holds an 85% equity stake-
finished with $2.3 billion in bids for 79 licenses, including one each in Los 
Angeles, Dallas, Atlanta, and Boston.

DCC PCS, Inc., a subsidiary of Dobson Communications Corp., finished fourth 
with $545 million in bids for 14 licenses.  Cook Inlet/VS GSM V P, an 
affiliate of VoiceStream Wireless Corp., was fifth with $506 million in bids 
for 22 licenses.  A VoiceStream subsidiary, VoiceStream PCS BTA, finished 
next with $482 million in bids for 19 licenses.

Among the major carriers that dropped out of the auction before it ended were 
ALLTEL Communications, Inc., and subsidiaries of Nextel Communications, Inc., 
and Sprint PCS.  SVC BidCo L.P., however,  which is 80%-owned by Sprint PCS, 
won five licenses for $281 million.

Thirty-five of the 87 bidders that originally qualified for the reauction 
were still eligible to bid in the final round.  Of those 35 bidders, 32 
qualified as entrepreneurs in the sale, which began Dec. 12, 2000.  The $16.8 
billion raised was a record for the FCC in a single auction.  The amount 
reflects bidding credits allotted to small businesses.  The previous record 
was the $9.2 billion netted in a C block auction (TR, May 13, 1996).

DE Rules under Fire

The FCC's set-aside rules for small businesses, also known as "designated 
entities" (DEs), have drawn controversy since before the reauction began and 
are expected to remain a contentious issue.

The day before the sale began, one DE, Allegheny Communications, Inc., asked 
the U.S. Court of Appeals in Washington to block the reauction, saying the 
FCC had failed to review the ownership of bidders classified as DEs to ensure 
they were qualified entrepreneurs (TR, Dec. 18, 2000).

Allegheny, which qualified as a very small business, cited AT&T Wireless' 
interest in Alaska Native Wireless and Cingular Wireless' stake in Salmon 
PCS.  It said that the rules allowed large corporations to bid through "shell 
entities" for licenses reserved for entrepreneurs.  Of the 422 licenses on 
the block in the reauction, 170 were reserved for qualified DEs, while 252 
were open to all bidders.  The 422 licenses covered 195 markets. 

The appeals court denied Allegheny's request.  Allegheny ended up dropping 
out of the reauction during the bidding.

The FCC defended its DE rules, saying they enable small businesses to raise 
enough capital to participate in spectrum auctions while ensuring they are 
controlled by entrepreneurs.  It conducts ownership analyses of winning 
auction bidders before granting licenses it said.

Last week an attorney for Allegheny said it planned to challenge the 
reauction results, at least at the FCC.  "We don't think there's any question 
sham bidders have hurt true entrepreneurs," attorney Dana Frix told TR.  He 
said Allegheny was working with an economist to "assess the damage and what 
the available remedies are."

DEs and the big players they partnered with defended their auction alliances, 
telling TR they were simply following the FCC's rules.

"From our perspective, we have complied in every respect with these rules," 
said George D. Crowley Jr., chairman and chief executive officer of Salmon 
PCS.  While Cingular has an 85% equity stake in Salmon, Mr. Crowley stressed 
that Crowley Digital Wireless LLC, which he also heads, controls Salmon's 
management and operations.

"The 79 licenses will be used by Salmon," Mr. Crowley, a cellular industry 
veteran, said.  He added, however, that Salmon would have the right to use 
Cingular's name and might establish roaming and operations agreements with 
the large carrier.

Ritch Blasi, a spokesman for AT&T Wireless, said his company believed it was 
in a strong position in the event of any legal action.  "We think we followed 
the rules according to the FCC," he said.  AT&T Wireless plans to contribute 
$2.6 billion toward the $2.8 billion purchase price of the licenses, 
according to a news release.

In the release, Rosemarie Maher, president and CEO of Doyon Ltd., another 
Alaska Native Wireless partner, said the licenses won in the reauction would 
help the company provide phone service to American Indian and rural 
communities.

Officials at Leap Wireless International, Inc., another DE that had 
criticized the alliances with large carriers, said they wanted to focus now 
on building out networks to use the licenses they won.  Leap won 22 licenses 
for $350 million, including those in Columbus, Ohio; Providence, R.I.; and 
Houston and San Antonio.

"Our goal now is to look at what we have and see how we can move forward," 
Harvey P. White, Leap's chairman and chief executive officer, told TR.

Some industry observers expect regulatory or legal challenges to the auction 
results to fail.  "They're highly likely to be challenged in court and [the 
challenges are] highly unlikely to be successful," said Rudy Baca, an analyst 
at The Precursor Group in Washington.

The other legal cloud hanging over the licenses involves NextWave's challenge 
of the cancellation of its licenses.  Oral arguments on its appeal in the 
D.C. Circuit are scheduled for March 15.  The FCC has conditioned the award 
of those licenses in the reauction on the outcome of NextWave's court case.

The other licenses sold in the reauction were reclaimed from other bankrupt 
carriers, returned, or unsold at previous auctions.

Analysts, Industry Assess Results

Meanwhile, industry analysts and officials were assessing the reauction 
results.  Mr. Baca said the proceed totals were about what he expected, 
adding that the winning bids "are not out of line."  Most financial analysts 
had forecast that the sale would bring in from $11 billion to $20 billion.

The bids were closely watched-not only to see how much would be deposited in 
the U.S. Treasury but to see how the bids compared with the $4.7 billion 
NextWave had pledged for its C block licenses in 1996.

Knox Bricken, an analyst with the Yankee Group in Boston, said she was 
surprised at the bids for the New York City licenses.  "We didn't expect 
prices to be that high for those licenses," she said, adding Verizon Wireless 
would be hard-pressed to realize a positive return on its investment in that 
market.

Jeffrey Nelson, a Verizon Wireless spokesman, declined to comment on the 
auction results, citing the Commission's anticollusion rules.  But David 
Frail, a spokesman for Verizon Wireless' parent, Verizon Communications, 
Inc., said the parent would lend the wireless unit $8.8 billion to pay for 
the licenses.

Verizon Wireless bid $2.0 billion for each New York City license.  Alaska 
Native Wireless won its license there with a bid of $1.4 billion.

Ms. Bricken said the New York City bids rivaled the huge bids seen in last 
year's third-generation (3G) spectrum auctions in the United Kingdom and 
Germany, which raised more than $80 billion (TR, May 1, 2000; and Aug. 21 and 
28, 2000).

Before the reauction began, analysts had predicted that bidding would be more 
controlled as a result of the common belief that bidders overpaid in those 
foreign auctions.

Thomas E. Wheeler, president and CEO of the Cellular Telecommunications & 
Internet Association, praised congressional leaders and former FCC Chairman 
William E. Kennard for "standing up" to NextWave's attempts to win back its 
licenses through legislative channels.  "This is a $16 billion victory for 
taxpayers," Mr. Wheeler said.

Pa. ALJ Slams Verizon Plan To Avoid Full Structural Split

An administrative law judge has recommended that the Pennsylvania Public 
Utility Commission develop its own plan for Verizon Pennsylvania, Inc., to 
split up its wholesale and retail operations.  In his recommendation to the 
PUC, the ALJ criticized Verizon's "alternative" plan for not going far enough 
to separate the company's business functions and for being too full of holes 
to implement.

In 1999 the PUC ordered the retail-wholesale split as part of a "global 
order" settling a number of proceedings on issues ranging from reciprocal 
compensation to universal service (TR, Aug. 30, 1999).  Also last year, 
Verizon proposed a plan that would allow it to avoid a complete split of its 
company by separating the business functions but keeping the company 
structurally intact (TR, July 3, 2000).

Administrative Law Judge Wayne L. Weismandel last week recommended giving 
Verizon a year to create separately operating retail and wholesale 
affiliates.  Under his recommendation, the two affiliates would be required 
to maintain separate books, records, staffs, and officers.  The retail 
affiliate would not be permitted to obtain financing "that would permit a 
creditor, upon default, to have recourse to the assets of the Verizon 
Pennsylvania, Inc., wholesale affiliate."  Under the plan, the two affiliates 
would be required to conduct transactions "on an arm's-length basis."

The ALJ said that Verizon's alternative plan didn't propose a true 
wholesale-retail separation, but rather a "line-of-business split. . .that 
does not mitigate the anti competitive dominant market power Verizon 
currently exercises as a result of its base of legacy monopoly customers."  
He also blasted the telco for not supplying cost analysis or data to support 
many of its conclusions.

"Due to Verizon's failure to comply with the commission's orders in this 
proceeding, the commission is left with no choice but to direct structural 
separation of specific elements as the commission deems appropriate,"  ALJ 
Weismandel said.

Competitors' Plans Criticized, Too

Competitors, including AT&T Corp. and WorldCom Corp., had submitted their own 
proposals on how the PUC should structure the split.  Although the ALJ said 
he found aspects of the competitors' proposals "intriguing," he didn't have 
kind words for them.  He said the competitors' proposals weren't bolstered by 
cost studies or analyses either.

The judge identified several "policy issues" that the PUC must "investigate" 
as it considers how to implement the Verizon split:  (1) how Verizon could 
continue to serve as customers' "carrier of last resort"; (2) whether the 
Verizon retail affiliate should be required to have "significant" independent 
minority stakeholders, as competitors had proposed; and (3) how to conduct 
the "migration" of Verizon's customers to its retail affiliate or to 
competitors.

Carriers Back Simplified Transfers Of International Authorizations

Several carriers say they generally support the FCC's proposals to streamline 
procedures governing pro forma assignments and transfers of international 
service authorizations, although they also suggest further modifications of 
the rules.

But one major provider is asking the FCC to continue requiring foreign 
affiliates of carriers receiving such authorizations to settle traffic with 
U.S. carriers at or below settlement rate "benchmarks."

Parties offered their views in comments filed at the FCC last week in 
response to an International docket 00-231 notice of proposed rulemaking (TR, 
Dec. 4, 2000).

To ease the regulatory burden on international carriers, the FCC had proposed 
to make its procedures for international service authorizations granted under 
section 214 of the Communications Act more like those it uses for assignment 
and transfer of control of commercial mobile radio service (CMRS) licenses.

The FCC also tentatively had concluded that it no longer needed to require 
carriers to comply with its international settlement rate benchmarks as a 
condition of granting them section 214 authorizations to provide 
facilities-based international private line services.

It had proposed to stop requiring dominant international carriers to seek 
prior agency approval before discontinuing service on a route, "except where 
a carrier possesses market power for international service in the U.S."

In its comments on the FCC's rulemaking proposal, WorldCom, Inc., said it 
supported streamlining and harmonizing the Commission's rules.  But it asked 
the agency to retain the benchmark condition for facilities-based service to 
affiliated markets until Jan. 1, 2003.  

That's the last of several deadlines for U.S. carriers to settle traffic with 
foreign carriers at or below the applicable benchmark rate; the FCC's 
benchmark order had set different deadlines for various groups of countries.

"The incentive for unlawful one-way bypass remains a serious issue," WorldCom 
said.  "By removing this condition, the Commission would make it easier than 
ever for a dominant foreign carrier to circumvent unlawfully the settlement 
rate benchmarks."  It added that it would be difficult for the Commission to 
detect evasion by carriers without the mandate.

Verizon Communications, Inc.'s international carrier affiliates backed the 
streamlining proposals.  "In an increasingly competitive environment, 
simplification and streamlining of outdated rules are essential to assure 
that U.S. carriers are able to compete in the world market," Verizon said.

It suggested the FCC go further and streamline other rules affecting 
international service authorizations as well.  It urged elimination of the 
following requirements: 

(1) Prior notification for affiliation with non-dominant foreign carriers, 

(2) Identification of interlocking directorates with foreign carriers, 

(3) Quarterly international traffic reports required under section 43.61 of 
the Commission's rules, and 

(4) Amendments of international authorizations when a Bell company receives 
FCC authorization to provide in-region interLATA (local access and transport 
area) service in a particular state.

Verizon Wireless supported changing the rules concerning pro forma 
assignments and also asked the FCC to eliminate the quarterly reporting 
requirements mandated by section 43.61(c).

Cingular Wireless LLC also backed making section 214 application procedures 
more like those used for CMRS licenses.  It also said the Commission should 
(1) authorize certain non-wholly owned subsidiaries and partnerships to 
provide service using their parent's authorization and (2) eliminate section 
43.61 reporting requirements for CMRS providers.

Personnel

Newly named FCC Chairman Michael K. Powell has named Marsha J. MacBride chief 
of staff.  Ms. MacBride was a legal adviser to Commissioner Powell and 
director of the FCC's task force on the year 2000 conversion before becoming 
a vice president at The Walt Disney Co.  Mr. Powell also named an interim 
transition team within the agency.  Jane E. Mago, deputy chief of the 
Enforcement Bureau, will manage the agency's legal functions, overseeing the 
Office of General Counsel.  David H. Fiske, deputy director of the FCC's 
Office of Media Relations, will oversee that office.  Paul A. Jackson, 
special assistant to the chairman, will be responsible for overseeing the FCC'
s Office of Legislative and Intergovernmental affairs.  

Mimi Simoneaux has rejoined House Energy and Commerce Committee Chairman W.J. 
(Billy) Tauzin (R., La.) as the top administrative aide in his personal 
office.  She previously worked in VeriSign, Inc.'s government affairs 
office.  Ms. Simoneaux was legislative director to Rep. Tauzin when he was 
chairman of the telecommunications, trade, and consumer protection 
subcommittee.

The Louisiana Public Service Commission has elected Commissioner James M. 
Field (R.) its new chairman.  Commissioner Jack A. (Jay) Blossman Jr. (R.) 
was elected vice chairman.  Mr. Field joined the PSC in 1996, and his current 
term ends Dec. 31, 2006.  Mr. Blossman became a commissioner in 1997, and his 
term expires Dec. 31, 2002.

Gov. Michael F. Easley (D.) has appointed Lorenz Joiner to the North Carolina 
Utilities Commission.  He will serve the remaining six months of William 
Pittman's term; Mr. Pittman has resigned to join a law firm in Raleigh.  Mr. 
Joyner was a special deputy attorney general at the state Department of 
Justice.

Bruce Simpson was named chief executive officer at AppGenesys, Inc., a San 
Jose, Calif., manufacturer of Internet infrastructure-management platforms.  
He was president at the Netcare Managed Services Division of Lucent 
Technologies, Inc.

Sonera Corp. of Finland reported that Bjorn Gustavsson, president and CEO of 
Sonera SmartTrust Ltd., died Jan. 21 under "tragic circumstances."  Antti 
Vasara, deputy CEO, was named acting CEO.

Sonera has named Aimo Olkkonen president and chief executive officer of 
Sonera Holding B.V. of the Netherlands.  He was Sonera's senior VP-corporate 
development.

Etienne Fouques is the new president of Alcatel SA's carrier networking 
group.  He also was elected to the French telecom equipment manufacturer's 
executive committee.  Mr. Fouques was president of the company's switching 
and routing division.  He succeeds Pearse Flynn, who has left "to pursue 
other opportunities," Alcatel said.

QUALCOMM, Inc., has named James A. Clifford senior vice president of QUALCOMM 
CDMA (code-division multiple-access) Technologies, the company's integrated 
circuits and system software unit.  He was VP.     

The National Telephone Cooperative Association has promoted Marlee Norton 
from director-international and domestic program development to vice 
president-international programs.  Barbara Ritter has been promoted from 
director-human resources to vice president-human resources.  Ron Precourt, 
who had been manager-education, is now director-training and development.  
Eleanor Baird, who had been manager-meetings, is now director-meetings.  And 
at NTCA's Foundation for Rural Service, Sara Gilligan has been promoted from 
project assistant to program coordinator.

The Cellular Telecommunications & Internet Association has hired Bruce Cox as 
vice president-regulatory policy and law and promoted Robert Roche to the 
post of VP-policy and research.  Mr. Cox was VP-congressional and regulatory 
affairs at AT&T Corp.  Mr. Roche was CTIA's assistant vice president-policy 
and research and has headed the trade group's research department since 1993.

BellSouth Corp. has named Barry Boniface vice president-corporate 
development.  He was executive VP-network and product management at Cypress 
Communications, Inc.  He succeeds Keith Cowan, who last year was named chief 
planning and development officer. 

Cortlandt L. Freeman has been named vice president-corporate communications 
at Touch America, the Montana Power Co.'s broadband telecom subsidiary.  He 
was director of that unit. 

LG InfoComm U.S.A., Inc., a provider of communications networks, has hired 
Chris Yi as vice president-marketing and product management.  He was general 
manager of LGIC Korea.

Jonas Neihardt, vice president-federal government affairs for QUALCOMM, Inc., 
is heading the wireless technology company's Washington office.  Mr. Neihardt 
succeeds Kevin Kelley, who is a senior advisor-commercial relationships to 
QUALCOMM CEO Irwin Mark Jacobs. 

Jerome de Vitry has been named chief operating officer at Completel Europe 
N.V., a provider of local phone and Internet access services to businesses in 
western Europe.  He's president at Completel France.

SPEEDCOM Wireless Corp., a Sarasota, Fla.-based fixed wireless products 
maker, has named Larry Watkins chief technology officer.  Mr. Watkins 
previously was senior director-engineering at LCC International, Inc.

Phil Bond is leaving the Information Technology Industry Council to be 
director-federal public policy in Hewlett Packard Co.'s Washington office.  
Mr. Bond has been ITI's senior vice president-government affairs for the past 
three years. 

Verizon Communications, Inc., has named Wajeeha H. Aziz director-operations 
in the western New York region.  She was senior manager-centralized 
installation and maintenance operations.  Verizon named Tarita Y. Miller 
director-operations in the midstate New York region.  She was manager-area 
operations in Queens, N.Y.

Daniel Mattoon is joining the government affairs and public relations firm 
co-founded by Democratic strategists John and Anthony J. Podesta in 1988.  
With Mr. Mattoon's arrival, the lobbying firm now headed by Tony Podesta and 
known as Podesta.com will become Podesta/Mattoon.  Mr. Mattoon, who has been 
on a sabbatical from his post as vice president-congressional affairs at 
BellSouth Corp., was deputy chairman of the National Republican Congressional 
Committee for the 2000 election cycle.  More recently he was a member of the 
FCC "transition advisory team" for the Bush administration (TR, Jan. 15). 

Regulatory & Government Affairs

The FCC has changed the deadlines for comments on its most recent order aimed 
at conserving telephone numbers (TR, Dec. 11, 2000).  The new deadlines for 
comments and replies are Feb. 14 and March 7, respectively.  They should 
refer to Common Carrier dockets 99-200 and 96-98.  In the order, the FCC 
established the administrative procedures it would use in conducting 
nationwide 1,000-number block pooling.  It also issued a rulemaking notice 
proposing, among other things, to charge carriers for the numbers they use.

Comments on the FCC's notice of proposed rulemaking concerning the allocation 
of third-generation (3G) wireless frequencies are due Feb. 22, and replies 
are due March 9 in Engineering and Technology docket 00-258 (TR, Jan. 8).

Comment deadlines have been set on an FCC proposal to reallocate 27 megahertz 
of spectrum transferred from federal government to private use.  The FCC's 
notice of proposed rulemaking was adopted last November in Engineering and 
Technology docket 00-221 (TR, Nov. 27, 2000).  Comments are due Feb. 22 and 
replies March 26.  The Land Mobile Telecommunications Council has asked for 
an additional 60 days for comments and 30 days to file replies.  The FCC also 
is encouraging interested parties to file comments in response to a notice of 
proposed rulemaking issued by the National Telecommunications and Information 
Administration, on reimbursement rules governing federal users that are 
relocated to other bands (TR, Jan. 22).

The FCC has set the deadlines for commenting on the MAG (multiassociation 
group) proposal for overhauling the interstate access and universal service 
support mechanisms for local exchange carriers subject to rate-of-return 
regulation.  It released a notice of proposed rulemaking on the matter 
earlier this month in Common Carrier dockets 00-256 (MAG plan), 96-45 
(universal service), 98-77 (access charge reform), and 98-166 (rate-of-return 
prescription) (TR, Jan. 8, p. 25).  But the comment due dates weren't set 
until the rulemaking notice appeared in the Federal Register last week.  
Comments and replies are due Feb. 26 and March 12, respectively.  Comments on 
those aspects of the proposal that would increase or modify data reporting 
requirements are due to the Office of Management and Budget by March 26.

The FCC has set the schedule for parties wishing to comment on the 
recommendations of a federal-state joint board regarding the Rural Task 
Force's plan for reforming the universal service support mechanism (TR, Jan. 
15).  Comments are due Feb. 26, and replies are due March 12.  They should 
refer to Common Carrier docket 96-45.  The FCC had asked for input on whether 
and how it should implement the RTF plan, which includes continuing to use "
book costs" to calculate "high cost" support for rural telcos.

The FCC has set comment deadlines for a further notice of proposed rulemaking 
related to its decision to allow terrestrial wireless systems to operate in 
the Ku-band (TR, Dec. 4, 2000).  Comments are due March 12 and replies March 
26 in Engineering and Technology docket 98-206.

Qwest Corp. has asked the FCC for a modification of its LATA (local access 
and transport area) boundary definitions to enable it to provide expanded 
local calling services between certain exchanges in Colorado.  The 
modifications would allow it to comply with a Colorado Public Utilities 
Commission order directing it to provide two-way, nonoptional extended area 
services between the Fairplay and Bailey exchanges, the Fairplay and Deckers 
exchanges, and the Bailey and Woodland Park exchanges.  The Colorado PUC said 
that those exchanges shared government, civic, education, and health 
resources.  

The FCC's Wireless Telecommunications Bureau says it won't initiate a 
proceeding to amend its rules to allocate channel 200 (87.9 megahertz) for 
the operation of an Emergency Radio Data System (ERDS).  Federal Signal Corp. 
requested such action in a petition for rulemaking filed in 1999.  The bureau 
said ERDS needs could be addressed by existing radio services.  It said it 
would incorporate the record that had developed since Federal Signal's 
request into a separate proceeding on Intelligent Transportation Services 
(ITS)/Dedicated Short Range Communications (DSRC).  The Commission has 
allocated 75 MHz of spectrum for DSRC-based ITS operations (TR, Oct. 25, 
1999).

USA Media Group LLC has withdrawn its petition asking the FCC to preempt the 
Truckee Donner Public Utility District in California.  The cable TV system 
operator had objected to the utility district's refusal to let it overlash 
fiber optic cable on the district's utility poles (TR, Dec. 25, 2000, p. 
38).  The company cited "changed circumstances unanticipated at the time of 
filing."  The FCC terminated the Cable Services docket 00-252 proceeding and 
closed the comment period, which would have ended Jan. 29 for comments and 
Feb. 13 for replies.

The FCC has agreed to preempt the Virginia State Corporation Commission in 
disputes over interconnection agreements between (1) Verizon Virginia, Inc., 
and Cox Virginia Telecom, Inc., and (2) Verizon and AT&T Communications of 
Virginia, Inc.  The FCC recently granted a similar request by WorldCom, Inc. 
(TR, Jan. 22, p. 39).  Cox and AT&T had asked the FCC to act on the matter 
after the Virginia commission refused to arbitrate the terms of the parties' 
interconnection agreements.  The Virginia commission had said it was 
concerned that arbitrating the dispute would be deemed a waiver of its 
immunity under the 11th Amendment to the U.S. Constitution.  The FCC agreed 
to arbitrate the disputes in orders released last week in Common Carrier 
dockets 00-249 and 00-251.

The FCC has agreed to allocate the 33-36 gigahertz band on a "primary basis" 
to the federal government for the use of fixed-satellite services for 
military purposes.  The Commission said it was acting on a request from the 
National Telecommunications and Information Administration.  The reallocation 
is "essential to fulfill requirements for federal government space systems to 
perform satisfactorily," the Commission said.  The order was approved Friday, 
Jan. 19, and released Friday, Jan. 26.  Commissioner Harold W. 
Furchtgott-Roth dissented because the FCC did not first seek comments on NTIA'
s request.  The FCC had cited "national security" concerns.   Then-Chairman 
William E. Kennard didn't participate in the final consideration of the item.

South Slope Cooperative Telephone Co., Amana Colonies Telephone Co., and 
Heartland Telecommunications Co. have asked the FCC's Common Carrier Bureau 
for a waiver of its definition of "average schedule company."  The companies 
asked for the waiver as it relates to the Commission's "all-or-nothing" rules 
in section 69.605(c).  A waiver would enable South Slope to purchase 1,500 
access lines now operated by Amana and Heartland under a price-cap 
mechanism.   South Slope plans to operate the acquired access lines under an 
average-schedule formula, as it does its other exchanges.  In a petition 
submitted in CC docket 96-45, South Slope said granting the waiver would 
enable it to complete the acquisition of the exchanges and would result in 
larger local calling areas for ratepayers.  

The Federal Trade Commission says it will change several premerger filing 
requirements of the Hart-Scott-Rodino (HSR) antitrust law, including 
increasing from $15 million to $50 million the transaction value threshold 
for merging companies to notify the FTC.  The changes, which go into effect 
Feb. 1, include a new tiered fee structure, which requires merging companies 
to pay $45,000 for transactions valued at less than $100 million, $125,000 
for transactions valued between $100 million and $500 million, and $280,000 
for transactions valued at $500 million or more.  Former President Bill 
Clinton signed off on the changes Dec. 21, 2000.  A complete listing of the 
new rules is available on the FTC's Web site at http://www.ftc.gov. 

The naming of Michael K. Powell to be FCC chairman drew praise from key U.S. 
lawmakers last week.  Senate Commerce, Science, and Transportation Committee 
Chairman John McCain (R., Ariz.) believes Mr. Powell will make "an 
exceptional chairman," his spokeswoman said.  House Energy and Commerce 
Committee Chairman W.J. (Billy) Tauzin (R., La.) called the move one of 
President Bush's "best and most exciting selections for his new 
administration."  And new House telecommunications subcommittee Chairman Fred 
Upton (R., Mich.) said Mr. Powell was his "first and only choice" to be FCC 
chairman.

The Minnesota House Commerce Committee has scheduled a Jan. 29 hearing on 
Gov. Jesse Ventura's (Ind.) telecom legislative proposals, which include 
imposing a telecom excise tax to subsidize service in "high-cost" and 
unserved areas of the state.  Among the efforts the excise tax would fund are 
the deployment of high-speed services and creation of a $100 million 
revolving loan fund to help competitive carriers roll out services.  The 
Minnesota Association for Rural Telecommunications says Gov. Ventura's 
proposals would lead to "drastically higher rates and stalled technological 
advancements."  The group of independent telcos objects to the governor's 
proposals for reducing intrastate access charges.  They plan to work for 
alternative legislation that they say would benefit "the entire state" 
without causing "economic havoc in rural communities" or "rate shock."

Canada and Mexico have agreed to open their satellite service markets to 
competitors from each others' countries, the Canadian Embassy in Mexico has 
announced.  The two nations recently signed protocols for mobile and fixed 
satellite services, which would establish technical standards and conditions 
for domestic satellite communications providers that want to provide service 
in the other country.  Further details are not yet available.

Industry News

Correction:  The phone number listed in the Jan. 8 edition of TR for the Feb. 
4-6 Emerging Issues Policy Forum in Florida was incorrect.  For information 
about the forum, call 252/394-3145 or visit http://netcommworks/events.html.  

The Center for Public Utilities at New Mexico State University is planning a 
conference covering current issues challenging the utility industry.  The 
March 25-28 event will be held in Santa Fe.  Call 505/646-4876.

The "IntelligentCities 2001:  Metropolitan Networks" conference will be held 
April 30-May 2 in Chantilly, Va.  Call 781/762-6279 or visit 
http://www.hhevents.com.

The International Telecommunications Society will hold its Asia-Pacific 
Regional Conference July 5-7 in Hong Kong.  Visit http://www.its2001.ust.hk 
for more information.

Proxim, Inc., a Sunnyvale, Calif.-based developer of wireless networks, has 
agreed to acquire Alameda, Calif.-based Netopia, Inc., a developer of 
broadband Internet equipment, for $223 million in stock.  The transaction is 
expected to close late in the first quarter or early in the second quarter.  
Under the deal, each share of Netopia common stock will be converted into 0.3 
shares of Proxim common stock.

The Hartcourt Companies, Inc., plans to acquire a 51% stake in Elephant Talk 
Network Services Ltd., a Hong Kong-based long distance telecom service 
provider.  ETNS, which also owns a 15-city fiber optic network in Eastern 
China through a joint venture with China Handao Group, said it will roll out 
collocation and broadband network connectivity services next month.  
Hartcourt, a Los  Angeles holding and development group, didn't disclose 
financial terms. 

World Wide Wireless Communications, Inc., of Oakland, Calif., says that it 
intends to negotiate a joint venture agreement with UBC Global Net, which 
holds MMDS (multipoint multichannel distribution service) licenses in the 
Philippines.  The joint venture would use the MMDS frequencies to offer 
wireless Internet service.

360networks, Inc., a Vancouver, Canada, "carriers' carrier," has filed a 
shelf registration statement with the U.S. Securities and Exchange Commission 
for a potential offering of up to $3 billion in "debt securities, preferred 
shares, subordinate voting shares, warrants, stock purchase contracts, and 
stock purchase units."  It said it soon would file a prospectus with 
respective commissions in Canada.  It intends to use the proceeds for general 
corporate purposes and possible acquisitions. 

Nextel Communications, Inc., has completed the sale of $1.25 billion in 
senior notes to private investors.  Nextel, of Reston, Va., intends to use 
the funds for network expansion, acquisition of spectrum, strategic 
investments, and other corporate needs.

Time Warner Telecom, Inc., tested the troubled stock market by selling 6.5 
million new shares in a public offering.  The Littleton, Colo.-based 
competitive local exchange carrier sold the shares for $74.44 each to raise 
$483.8 million.  Time Warner Telecom also raised $400 million through the 
private placement of senior notes.  Funds from both transactions will help 
repay a $700 million bridge loan that Time Warner Telecom used to buy the 
assets of GST Telecommunications, Inc., out of bankruptcy (TR, Sept. 18, 
2000).

QUALCOMM, Inc., is having second thoughts about plans for an initial public 
offering (IPO) of shares in its semiconductor business.  In announcing its 
quarterly financial results, the San Diego-based company said it was "
evaluating the need for and the timing of an IPO" because of "uncertainties 
in the financial markets."  QUALCOMM has been planning to spin off its 
semiconductor division and sell 10% of the unit in an IPO (TR, July 31, 
2000).  Even if it doesn't proceed with the IPO, QUALCOMM still intends to 
complete the spin-off, which is designed to eliminate conflicts of interest 
between the semiconductor business and other QUALCOMM operations.

London-based Europe*Star, a joint venture of Alcatel Space and Loral Space & 
Communications, has launched satellite communications service in southern 
Africa.  The company said it expects that "ongoing deregulation of the 
telecommunications sector" will increase demand for communications systems in 
this region.  Europe*Star now provides service in Botswana, Lesotho, Namibia, 
Mozambique, South Africa, and Zimbabwe.  Its regional office is in Cape Town, 
South Africa.

Verizon-Vodafone Assets

The FCC's Wireless Telecommunications Bureau is seeking comments on whether 
to extend the deadline for a trust that holds certain wireless assets of 
Verizon Communications, Inc., and Vodafone AirTouch plc to divest the Chicago 
and Cincinnati assets.  The trust was formed to dispose of overlapping assets 
when Bell Atlantic Corp. and GTE Corp. (which merged to form Verizon) and 
Vodafone AirTouch combined to form Verizon Wireless place the wireless assets 
"in trust for the purposes of divestiture" (TR, April 3, 2000; and July 3, 
2000, notes).

Joseph J. Simons, the trustee, on Jan. 12 asked the FCC to extend the 
divestiture deadline, which was Feb. 26, for an additional 180 days.  
Comments are due Feb. 2, and replies are due Feb. 7.

DT Acquisitions

The European Union has warned the U.S. against blocking Deutsche Telekom AG's 
planned acquisition of VoiceStream Wireless Corp. and Powertel, Inc.

The EU filed documents with the FCC promising to challenge any FCC action to 
block the acquisitions.  An EU spokesman told TR that opponents to the 
proposed transactions-such as Sen. Ernest F. Hollings (D., S.C.) and other 
congressional leaders-are leading the U.S. toward violations of the General 
Agreement on Tariffs and Trade and World Trade Organization obligations.

What's Ahead. . .

JANUARY

29-Feb. 1-The annual COMNET conference and expo is held in Washington.  For 
more information, go to http://www.comnetexpo.com.

30-Comments are due to the FCC on Verizon New England's revised application 
to provide in-region interLATA (local access and transport area) services in 
Massachusetts (TR, 1/22/01 p.12).  Replies are due Feb. 28.  The 
Massachusetts Department of Telecommunications and Energy has until Feb. 6 to 
submit its recommendation to the FCC.  The Department of Justice must file 
its recommendation by Feb. 21.  Staff at the Common Carrier Bureau will be 
available for ex parte discussions about the proceeding between Jan. 30 and 
Feb. 23.

30-AeA, the former American Electronics Association, holds a press briefing 
in Washington to present its top technology priorities for 2001.  For more 
information, go to http://www.aeanet.org.

30-The initial meeting of the FCC's advisory committee on the 2003 World 
Radiocommunication Conference is held in the Commis-sion's meeting room.

31-The National Telecommunications and Information Administration holds a 
public meeting to discuss the results of ultrawideband system testing.  For 
more information, call Paul Roosa in NTIA's Office of Spectrum Management at 
202/482-1559.

FEBRUARY

1-Comments are due to the FCC's Wireless Telecommunications Bureau on two 
requests for waivers of the FCC's construction rules governing 900 megahertz 
band licensees (TR, 1/22/01 p.36).  Replies are due Feb. 8.  Comments on FCI 
900, Inc.'s request should reference DA 01-121, and comments on Neo-world 
License Holdings, Inc.'s request should reference DA 01-122.

2-The National Telecommunications and Information Administration holds a 
workshop in Washington to discuss the 2001 Technology Opportunities Program.  
It will hold similar workshops in Denver on Feb. 6 and in St. Louis on Feb. 
8.  Registration information can be found on NTIA's Web site:  
http://www.ntia. doc.gov.

5-The U.S. Court of Appeals in Washington will hear oral arguments in 
National Exchange Carrier Association, Inc., v. FCC (case no. 00-1055).  NECA 
is challenging the FCC's December 1999 decision rejecting NECA's proposed 
modifications to the 1999 "average-schedule" Universal Service Fund formula 
(TR, 10/9/00 p.36).

7-UNITED KINGDOM:  Comments are due to the United Kingdom's Office of 
Telecommunications on whether to impose additional conditions on Cable & 
Wireless plc's operator license for certain international routes (TR, 1/15/01 
p.32).

8-The FCC holds a meeting.

8-Section 275 of the Telecommunications Act prohibits Bell operating 
companies from providing alarm monitoring services until this date (TR, 
11/17/97 p.7). The Act grandfa-thered alarm monitoring operations existing as 
of Nov. 30, 1995.

13-The FCC's Wireless Telecommunications Bureau holds an auction of eight 
700-megahertz band licenses that weren't bought at the "guard-band" auction 
(TR, 10/16/00 p.38).

15-NEW JERSEY:  Deadline for Verizon New Jersey, Inc., to file a new 
alternative rate regulation plan with state regulators (TR, 1/8/01 p.23).

16-Comments are due to the FCC's Wireless Telecommunications Bureau on 
applications to transfer wireless licenses from Price Communications Corp. to 
Cellco Partnership (d/b/a Verizon Wireless).  Replies are due Feb. 26 in 
Wireless Telecommunications docket 01-8.  Comments should reference DA 01-120.

19-CALIFORNIA:  Comments are due to the Public Utilities Commission on Cap 
Gemini Ernst & Young's reports on Pacific Bell's operation support systems 
(OSSs).  The commission plans to issue a draft decision on the reports April 
6 and a final decision May 24 (TR, 12/25/00 p.4)

20-Comments are due to the FCC's Wireless Telecommunications Bureau on 
applications to swap licenses filed by Cingular Wireless LLC and VoiceStream 
Wireless Corp. (TR, 1/22/01 p.36).  Replies are due March 2.  They should 
reference Wireless Telecommunications docket 01-10 and DA 01-135.

20-22-The Consortium for School Networking holds a tele-com and Internet 
conference in Washington.  For more information, call 202/624-1740 or go to 
http://www.k12schoolnetworking.org.

25-28-The National Association of Regulatory Utility Commissioners holds its 
winter committee meetings in Washington, D.C.  For more information, call 
202/898-2214.

Falling Credit Ratings Create Costly Obstacle for Carriers

Many telecom companies these days are groaning under the weight of excessive 
debt they accumulated while building networks, acquiring other companies, and 
trying to enter new markets.  Determining whether they can pay those and 
future debts is the job of credit-rating agencies like Moody's Investors 
Service.

Robert Ray, a senior vice president in the telecom, technology, and media 
group at Moody's, tells TR that some of the biggest names in telecom, like 
AT&T Corp., are in danger of losing top credit ratings and having to pay more 
interest in their next round of funding.  An edited transcript of our 
interview with Mr. Ray follows.

TR:  What does Moody's do?  What's your role?

Ray:  I'm lead analyst for a number of high-visibility companies in media, 
technology, and telecommunications.  I'm responsible not only for assigning 
ratings to companies but also for monitoring those ratings as companies' 
business prospects ebb and flow to make sure that our ratings, once assigned, 
continue to be accurate.

In case we're no longer comfortable with the rating, it's my responsibility 
to make a recommendation to change the rating of a company.

TR:  The news about telecom debt levels has been gloomy [see separate 
story].  What's your perspective on the financial health of the telecom 
sector?

Ray:  There have been a number of defaults and bankruptcies, particularly 
among the CLECs [competitive local exchange carriers].  There are a number of 
companies that have tried to enter the market.  Not all the business plans 
were fully funded.

As both the equity and the debt markets have become more restricted, 
companies that didn't have a fully funded business plan-that didn't have 
enough money on hand or committed money from their bank group to cover their 
cash needs over the next 12 to 18 months-have found themselves in liquidity 
crunches relatively quickly.

TR:  On the equity side, a lot of analysts were surprised by what happened in 
the telecom sector.  Is there a similar sense on the credit and debt side 
that investors and their advisers were caught by surprise?

Ray:  In the high-yield area many of the companies had relatively low ratings-
single-B or Caa.  Those ratings don't necessarily anticipate a certainty of 
default, but they do reflect a high degree of risk.

Even on the investment-grade side, however, we've seen some surprising 
developments-not so much in terms of direction, but in terms of speed-
primarily in the pricing environment for long distance services from 
companies such as AT&T and WorldCom [Inc.]  

We were aware that those prices were going to come under pressure as the Baby 
Bells began to get permission to offer long distance service in their home 
markets, as usage moved from wireline to wireless [service], and as usage 
began moving from traditional circuit-switched networks to Internet-delivered 
voice.

While we knew there were a lot of pressures that were going to bring pricing 
down in that market, the degree of the falloff was a bit of a surprise even 
to us.  As a result, the large long distance carriers have had to scale back 
their expectations for profitability in the voice business.

TR:  And as a consequence, their credit ratings have come under downward 
pressure.

Ray:  Yes, AT&T has had its long-term rating lowered from A1 to A2, and that 
rating remains on review.  Certainly the pressures from the voice business 
were part of that.  But AT&T is also in the process of breaking itself up 
into three separate businesses.  The review is not only focusing on some of 
the risks that we've talked about, but also the financial structure that each 
of these businesses will have going forward.

We've changed the outlook on Sprint [Corp.] from stable to negative.  
WorldCom retains an A3 rating and a stable outlook.  While they've had some 
pressure like the other players, they had a little more flexibility, under 
the current rating, to absorb some of those pressures.

TR:  How big a deal is it to these companies to have their credit rating go 
down a step?  What effect does that have on their day-to-day business?

Ray:  On the day-to-day business it has relatively limited impact.  To the 
extent that they would be issuing new debt, a lower credit rating normally 
would result in a higher interest rate.

The most critical rating for AT&T is its short-term rating of Prime-1.  If 
they didn't have a Prime-1 rating, they'd be severely limited in their 
ability to sell commercial paper to the money market funds.  [Securities and 
Exchange Commission rules limit the amount money market funds can invest in 
companies that don't have top-tier commercial paper ratings, like Prime-1, 
from at least two rating agencies.  -Ed.]

For a company whose commercial paper outstanding has been between $15 billion 
and $20 billion, that could result in a significant increase in AT&T's 
funding costs.  They would have to seek out, for the most part, a different 
group of investors.

TR:  Is AT&T's Prime-1 rating under review?

Ray:  Yes, it is.  Both the A2 long-term rating and our Prime-1 short-term 
rating are on review for possible downgrade.

TR:  Can you give me an example of what the cost of money might be to AT&T 
through a money market fund v. the next-best alternative?

Ray:  The money market funds would just be one of a number of investors who 
would be buying AT&T's commercial paper.  So don't get too caught up in their 
being the only source.

TR:  Percentagewise, though, how much better is commercial paper than the 
next-best alternative?

Ray:  They would certainly have to pay higher rates.  To the extent that they 
were reliant on the money market funds for a substantial part of their 
commercial paper issuance, those funds would have to be replaced by investors 
who are less constrained by the rating.  You can find those investors, but 
they are obviously looking at a lower rating for a higher pricing.  So it's 
hard to speculate on specifically what any one company might have to pay.

TR:  It depends on the day of the week, I'm sure.

Ray:  And it also depends on the size of the program, the market's view of 
how safe the investment is, how comfortable investors are with the company's 
prospects, and how much similar paper there is.

A telecom issuer is not only competing against a full range of issuers going 
into the market; it's also competing against other telecom companies for 
access to the market.  Most investors set limits on how much they're willing 
to expose themselves to any particular industry.  Once they feel they have 
enough exposure to the telecom industry, they're going to be less interested 
in putting that next dollar into telecoms rather than some other opportunity.

The other thing we've seen in the last couple of years is there's been 
tremendous need in the telecom industry for financing as companies have built 
out their networks.  CLECs have been building networks.  A number of long 
distance networks have been built here in the United States.  Wireless 
networks are being built.  There are also international networks, not only 
connecting countries but also within Europe and within Asia-both wireline and 
wireless.

In the U.S. market alone, there was over $70 billion worth of media and 
telecom debt in the first 11 months of 2000, compared to about $55 billion in 
1999.  That's just the straight debt market, not including equities or 
convertible debts.

TR:  How do you determine a company's rating?

Ray:  We look at the business risks of a company.  We try to understand 
exactly what business they're in, their competitive position, and their 
strengths and weaknesses.  We also try to get a good understanding of 
management and what their appetites may be for business and financial risk.

We rate virtually all major companies in virtually every industry.  We also 
have a solid understanding of the industry broadly and where any particular 
company fits in terms of its cost structure, market share, management 
direction, and strategic focus.

We also, obviously, do some statistical analysis.  Since we're fixed-income 
analysts, we're focused more on ensuring that debt obligations get paid and 
trying to assess the probability that all obligations will be paid in full in 
a timely manner.

A fixed-income investor doesn't necessarily have the upside that an equity 
holder does.  A fixed-income holder has one of two results if he buys a 
security at issuance and holds it to maturity:  He either gets paid or he 
doesn't.

Even if the company's been fabulously successful, he just gets his interest 
on a regular basis and the principal at maturity.  If the company just 
struggles through and barely makes it, he's in the same situation.  So there'
s not much upside on straight debt if you're a buy-and-hold investor.

As fixed-income analysts, our key measures are the company's ability to 
generate free cash.  That's cash after meeting all fixed obligations, like 
interest and dividends.  We also look at their ability to finance their 
capital spending requirements and their cash-generating capability relative 
to their debt load.

If you look at two companies that are basically in the same industry and that 
have similar sizes and market positions-with neither one possessing any 
particular competitive advantage in terms of new products-the one that has 
the stronger cash generation relative to its debt obligations would have a 
higher rating.

Probably the most difficult part of our business is making sure that we are 
consistent in applying our ratings.  I want to make sure my strongest company 
has the highest rating and my weakest company has the lowest rating.

It's also important to make sure that what I call an A1, an A2, or a Baa3 is 
equivalent to the ratings of anyone else in the corporate finance area, 
whether they're covering auto companies or coal mines.

TR:  How much of your time is spent talking to management and trying to 
figure out their plans?  What happens during these talks?

Ray:  A large part of our analytical meetings with companies is spent trying 
to understand their strategy, their philosophy, and their appetite for 
business and financial risk, and looking at what the company has done in the 
past and how successful they've been in meeting goals that they've set for 
themselves.

We look at their plans relative to others in the industry and try to make 
sure the strategy and the objectives they've set are reasonable and 
achievable.  The discussion, quite frankly, in the average meeting tends to 
be more about the companies' products and business mix.

It's often beneficial having a long-standing relationship with a company's 
management.  You develop a sense of comfort regarding management's ability to 
forecast the risks they face, to come up with plans to address those risks, 
and to develop financial models that are achievable.

TR:  It must be an expensive prospect for a company to get its rating 
lowered, and it also may be a bit of an embarrassment.  How do they react to 
the possibility of a downgrade?

Ray:  We try to have a pretty good ongoing dialogue with a company so that it'
s not a matter of calling them up one day and saying, "Oh, by the way, we're 
putting you on review for a downgrade."  To the extent that we develop areas 
of concern, we like to bring them to the company's attention-both in our 
direct face-to-face meetings and in regular ongoing dialogue over the phone.

Obviously no company is ever pleased to be put on review for a downgrade.  
Our objective, quite frankly, is to make sure that they understand and 
appreciate the position we've taken and that they know why we're doing what 
we're doing.

Even though they ultimately may disagree with the action, at least we want to 
make sure that they understand the logic behind the steps we take.  And we 
give them a chance to share with us their view as to why some of our concerns 
may be less severe from their perspective.

TR:  Do you have any advice for telecom executives, investors, or 
regulators?  What needs to happen for the sector to climb out of its slump?

Ray:  For the long distance companies, it's a matter of continuing to get 
their costs in line as best they can, knowing that their revenue is going to 
continue to be under a lot of pressure for the foreseeable future.

In the wireless segment, the key things are the ability of the wireless 
players to build out their networks at a reasonable cost and to attract 
high-value customers-not only for voice but also for the emerging wireless 
data markets-while maintaining cost structures that will allow them to 
continue to be profitable.

There are more national wireless carriers now, and we expect that development 
will put pressure on pricing.  We don't anticipate that it's going to be as 
dramatic as the pressure we've seen recently in the voice wireline sector.  
But the more competitors you have and the broader their coverage, the greater 
the risk of continued pricing declines.

TR:  We haven't talked much about the Bell companies-the ILECs [incumbent 
local exchange carriers].  What's your outlook for that sector?

Ray:  One argument that Moody's has been making in support of them for a long 
time is that they have direct contact with their customers, and they're also 
the ones with the line into the house.  Our ratings on the ILECs are 
certainly the highest we have in the telecom area.  They are, by and large, a 
strong group of competitors who've demonstrated better stability in their 
customer base and revenue mix than the long distance carriers have.

TR:  Does the prospect of greater regulatory oversight figure into your 
calculations regarding the Bells?

Ray:  There's a lot of regulatory oversight.  As they seek to get approval 
[to provide in-region interLATA (local access and transport area) service], 
that process has taken a bit longer than we would've expected.  We 
anticipated that once the first state and the second state fell, other states 
would follow relatively rapidly.

Telecom Sector's Dubious Debts Create Drag on Financial Markets

The rumblings began in Europe.  The Bank of England issued warnings, followed 
by the Bank of France.  The major credit-rating agencies-Standard & Poor's, 
Moody's Investors Service, and Fitch ICBA-issued ominous reports.  On the one 
hand they sounded alarm bells, while on the other they said, "Don't panic."

The reason for the caution flags is the level of questionable debt among 
telecom companies.  Pessimists fear that so many obligations will go unpaid 
that the telecom industry single-handedly will tip the economies of several 
countries into recession-as the U.S. real estate industry did in the 1980s 
when it built too much on borrowed funds before toppling like a rotten tree.

Even optimists admit that telecom debt is already a drag on the economy.  It'
s dampening the profits of banks and rippling through related sectors leaving 
experts to wonder how much more bad debt will ooze from the telecom industry, 
and how many defaults the economy can absorb.

`Fears Are Overdone'

By some estimates, telecom service providers have borrowed $322 billion over 
the past three years, including bonds and bank loans.  Analysts generally 
divide that debt into two sectors.  The bigger group has been generated by 
large carriers like AT&T Corp., British Telecommunications plc, and France 
Telecom SA.  If one of those companies went under, it would be a 
catastrophe.  But analysts don't think that's likely.

They're more concerned about smaller service providers, like competitive 
local exchange carriers (CLECs).  Fortunately, those carriers aren't thought 
to carry enough debt to bring down a major bank, let alone an entire industry 
or an economy.

"At this stage, Moody's is not forecasting defaults by major telecoms," Moody'
s Investors service says in a recent report.  "On the other hand, defaults by 
more marginal operators cannot be excluded.  However, if a bank is not 
massively exposed to such borrowers, its credit strength should not be 
structurally hurt, let alone the fundamentals of the banking system."

Fitch ICBA issued a similar statement.  "Large, profitable, and creditworthy" 
telecom operators are responsible for the bulk of the debt load, Fitch says.  
"Exposure to the riskier, alternative operator sector is, in relative terms, 
modest."

"Fears of a banking crisis are overdone, in our view," says Morgan Stanley 
Dean Witter analysts Richard Crehan and Graham Secker in a report on European 
telecom debt.  "The vast majority-about 90%-of the debt raised in the last 18 
months is investment grade and unlikely to default. . .While the amount of 
loans made to the telecom sector in Europe is unprecedented, we do not think 
the telecom debt issue will sink financial markets."

Those assessments don't mean there won't be pain for the telecom companies 
and their lenders on both sides of the Atlantic.  The danger for banks is 
that their books will look uglier, their profits will sink, and their stock 
prices will tank.

Bank of America Corp. and First Union Corp., for example, recently missed 
their profit goals, partly because of larger-than-expected loan-loss 
provisions.  Disappointed Wall Street analysts downgraded both companies, and 
their stocks slid.  While those developments don't constitute a bank "
crisis," banks aren't benefiting from their association with languishing 
telecom companies.

Telecom isn't the only industry causing banks to spew red ink, says Credit 
Suisse First Boston Corp. analyst Rosalind Looby.  Movie theater companies, "
dotcoms," and California electric utilities are doing their part, too.  

"We are in the midst of a broader deterioration in commercial credit quality 
driven by loose lending standards adopted in the mid-1990s," Ms. Looby 
comments in a recent report.

Banks traditionally were reluctant to fund money-losing companies.  They 
changed tacks during the dotcom frenzy on Wall Street.  If they lent money to 
a young company, some bankers reasoned, that company might hire them for 
other financial services.  The risks were greater, but the prospects for 
future revenue were tempting.

That was before those young companies fell on hard times.  CLECs-one of the 
harder-hit sectors in the current economic slowdown-have $8.2 billion in loan 
commitments from U.S. banks, Credit Suisse First Boston estimates.  Skittish 
banks have ways of dumping risky clients, but the process can be expensive, 
Ms. Looby says.

"Bankers attempting to sell any marginal CLEC credit into the distressed loan 
market today are likely to leave 20% to 25% of the loan's face value on the 
table," she continues.  "CLEC-related losses could be material for banks 
attempting to downsize their exposure in this area."

For now, however, many bankers are choosing to sit tight.  "I'm not seeing a 
lot of sales into the distressed loan market," says Robert H. Johnson, 
managing director-loan syndications for First Union Securities, Inc.  Bankers 
"are not excited" about holding onto some of the riskier telecom loans, but 
they're also not ready to take the financial hit that results from a "
distressed" sale, he says.

Furthermore, bankers remain confident that they'll collect the entire amount 
on telecom loans, even in the worst cases, Mr. Johnson says.  First Union, 
for example, still expects full repayment of its loans to two bankrupt CLECs-
ICG Communications, Inc., and NorthPoint Communications Group, Inc.  
Bankruptcy courts often find ways of restructuring debt that enables banks to 
emerge unscathed, Mr. Johnson says.

Meanwhile, the telecom industry appears to be recovering, Mr. Johnson notes.  
"While there still may be more bankruptcies, the perspective in the banking 
industry is that things have bottomed out," he says.  "I believe we're at the 
bottom."

Recovery Could Be Stymied

Debt-market analysts at Bear, Stearns & Co. are less sanguine.  The debt 
market appears to have regained its footing, Bear Stearns analysts say, but 
the recovery could be stymied by fear, uncertainty, and market failures.  "
The telecom sector remains prone to headline risk," they say, suggesting that 
the struggling market won't be able to absorb bad news.

Debt markets are especially vulnerable in Europe, where large carriers are 
selling "noncore" assets and holding initial public offerings (IPOs) of stock 
to raise badly needed funds, Bear Stearns notes.  Those funds will help 
carriers reduce their debts and pay for expensive new wireless networks.  But 
what if nobody is willing to buy the assets or invest in the IPOs?

Many analysts view France Telecom's IPO of its wireless subsidiary, Orange 
plc, as a crucial test of Europe's capital markets.  If stock-market 
investors don't support that IPO, analysts fear that the budding recovery 
will wilt.

"IPOs and noncore disposals must succeed," Messrs. Crehan and Secker of 
Morgan Stanley declare.  "The situation has reached an impasse.  Telecom 
companies need to spend more-on network build-out and upgrades-to realize a 
return on their original investment.  But financial markets are reluctant to 
risk even more money."

"If the European equity markets do not support [IPOs], necessary 
capital-raising steps could be delayed, refocusing investors and the rating 
agencies on credit ratings," Bear Stearns says.  "Delayed plans might force 
the international telecom giants to turn to the banks at a time when the 
banks are more closely scrutinizing their loan portfolios."

Vendors Become Lenders

The type of lending that seems to worry analysts most is vendor financing, in 
which equipment vendors give carriers loans in exchange for guaranteed 
equipment orders.  Vendor financing was much less common before last April, 
when the stock market still was the best source of funding for telecom 
companies.

When stock market investors closed their doors, many telecom companies went 
to the bond market.  When bonds dried up, they visited banks.  Rejected by 
banks, many carriers turned to vendors.

Analysts are nervous because vendors sometimes aren't qualified to judge 
creditworthiness and administer loan programs.  But the vendors are eager to 
snag customers.  "Offering financing has quickly developed into a competitive 
weapon by equipment manufacturers keen to take market share," Messrs. Crehan 
and Secker explain.

"The aggressive expansion of vendor financing has raised fears that equipment 
manufacturers could suffer like the banks should there be widespread 
default," Messrs. Crehan and Secker said.  "Arguably, the equipment 
manufacturers are more exposed to this risk since, by definition, vendor 
financing is lending to companies that the banks and financial markets have 
refused."

Vendor financing worries already have stung some manufacturers.  Lucent 
Technologies, Inc., for example, recently increased its provision for bad 
debts to $500 million from $250 million, damaging its financial standing in 
the process (TR, Dec. 25, 2000).

Vendor financing defaults won't hurt only vendors, analysts say, but also 
could cause equipment manufacturers to turn around and default on their 
lenders-not a positive development in a year when Standard & Poor's already 
expects an increase in defaults by debt-laden telecom companies.

-Tom Leithauser

Conn. Draft Decision Would Let SNET Drop Cable TV Business

The Connecticut Department of Public Utility Control has proposed letting 
Southern New England Telephone Co. (SNET) and its video service subsidiary, 
SNET Personal Vision, Inc., stop providing cable TV services in the state.

SNET, a subsidiary of SBC Communications, Inc., had told the department that 
its hybrid fiber/coaxial cable (HFC) cable TV network was unsuitable for 
ubiquitous, full-service telephony and that the video-only deployment of the 
HFC network was commercially impracticable (TR, Aug. 14, 2000).

A draft department decision says the agency lacks the statutory authority to 
require that SNET continue providing service.  It says the department also 
lacks the authority to force the transfer of SNET's cable TV franchise or 
video assets to another company, as Connecticut Telephone & Communications 
Systems, Inc., had requested last fall (TR, Sept. 25, 2000).

Written exceptions to the draft decision are due Jan. 26 in docket 00-08-14.  
The department will hold a Feb. 5 hearing, if one is requested, and plans to 
issue a final decision Feb. 14.

In 1999 the department modified the terms of SNET's franchise, which 
originally required the company to serve the entire state by September 2007.  
The recent draft decision says that transferring SNET's modified franchise 
agreement to Connecticut Tel would violate the state's "level playing field 
requirements."

But the draft does encourage SNET to cooperate with Connecticut Tel and any 
other party interested in using its network, or parts of its network, to 
provide competitive cable TV or other services.

Executive Briefings

Advanced Services - The FCC gives data CLECs a major win by clarifying 
ILECs' "line-splitting" duties and finding that ILECs must offer line-sharing 
over fiber loops.  (Page 3)

Bush's `E-rate' Plan - President Bush's package of education legislative 
proposals draws criticism from policymakers who helped draft and implement 
the "E-rate" telecom discount program.  It's also sparking concern among 
schools and libraries that have participated and benefited from the program.  
(Page 4)

700 MHz Band Auction - Large wireless carriers once again ask the FCC to 
postpone the scheduled auction of spectrum in the 700 MHz band, citing a host 
of familiar concerns that they say could dampen enthusiasm for bidding on the 
frequencies.  But rural carriers and TV broadcasters urge the Commission to 
begin the auction March 6, as scheduled.  (Page 5)

700 MHz Band Relocation - The FCC takes additional steps to help spur the 
relocation of incumbent TV broadcasters from the 700 MHz band in order to 
make way for wireless carriers.  But it won't force incumbents to clear the 
frequencies-at least not yet.  (Page 6)

Scarce Spectrum - Spectrum issues will top the wireless industry's Washington 
agenda this year, says CTIA President and CEO Tom Wheeler.  He wants the FCC 
to lift the spectrum cap while a high-level effort to identify and allocate "
3G" frequencies proceeds.  (Page 8)

Spectrum Cap - The FCC reexamines whether to lift the cap on how much 
spectrum wireless carriers may hold in any one market.  It also explores if 
it should eliminate its cellular cross-interest rule.  (Page 9)

Internet Privacy - Reps. Chris Cannon and Anna G. Eshoo introduce a bill to 
require operators of commercial Web sites that collect personally 
identifiable information to explain to site visitors what type of information 
is collected, how it will be used, and who is collecting it.  (Page 11)

Infrastructure Tax-Credit Bill - Key lawmakers who control the congressional 
purse strings revive a push to extend tax credits to carriers that deploy 
high-speed Internet facilities.  They've also asked President Bush to include 
the measure in his initial budget submission to Congress.  (Page 11)

New Approach to Broadband Regs? - The "time is ripe" for legislation creating 
a new regulatory regime for broadband services and networks, similar to the 
regime that governs the wireless industry, according to executives at 
Verizon.  (Page 12)

`Dominant' Regulation - A federal appeals court agrees with the former U S 
WEST that the FCC erred in focusing on the company's market share when 
considering its request to be freed from "dominant"-carrier regulation of 
certain services.  (Page 14)

InterLATA Bid Approval - The FCC's authorization of SWBT to offer interLATA 
services in Kansas and Oklahoma may offer insights to other Bell companies 
planning their own interLATA bids.  (Page 15)

Limits on EELs - As it promised to do last year, the FCC begins reexamining 
its policy barring carriers from using enhanced extended links exclusively to 
provide access services.  (Page 16)

Directory Assistance Rules - The FCC expands the category of competitors 
entitled to access local exchange carriers' subscriber listing information.  
LECs now must provide Internet-based directory publishers with 
nondiscriminatory access to those databases.  (Page 17)

TELRIC Rates and Pole Attachments - The Supreme Court agrees to hear two 
cases involving disputes over FCC rules.  One challenges the FCC's 
methodology for setting rates for interconnection and UNEs.  In a separate 
case, the court will consider whether the agency has authority to regulate 
the pole attachment rates for wireless and cable TV service providers.  (Page 
17)

State Immunity - The Supreme Court again refuses to review an appeals court 
finding that state regulators are subject to federal lawsuits regarding 
carrier interconnection.  (Page 18)

'Net `Filtering' - The FCC wants advice on how to implement the Children's 
Internet Protection Act of 2000, which requires schools and libraries that 
receive "E-rate" discounts to use "filtering" technology preventing minors 
from accessing "harmful" material over the 'Net.  (Page 20)  

Lucent Restructuring - Wall Street analysts see Lucent's restructuring as a 
way to restore profitability but doubt that the plan will increase growth.  
Lucent's bankers extend a new loan but ask for security, suggesting they are 
less certain than before of Lucent's creditworthiness.  (Page 21)

Brazilian Wireless Consolidation - Telefonica and Portugal Telecom are 
determined to lead what they say is the "inevitable consolidation" of the 
Brazilian wireless industry.  The former rivals will combine their Brazilian 
mobile telephony assets into a $10 billion joint venture that will be the 
country's largest wireless service provider.  (Page 23)

Handset Outsourcing - Ericsson decides to exit the mobile phone manufacturing 
business after that part of its operations turns in yet another disappointing 
quarter.  "The results in our mobile phones business, while in line with 
expectations, remain unsatisfactory," says Kurt Hellstrom, president and CEO 
of the Swedish company.  (Page 23)

Vancouver Rights-of-way - Canadian regulator CRTC settles a dispute between 
the city of Vancouver and Ledcor Industries.  The commission says a number of 
city-imposed project fees as unreasonable and paves the way for completion of 
the network deployment.  (Page 24)

Wireless Licenses - Telecom regulators in Brazil and France face setbacks in 
their attempts to award licenses for wireless services.  (Page 24)

Antenna Collocations - Two wireless industry trade groups seek revisions of a 
draft agreement designed to streamline the review of antenna collocations 
under the National Historic Preservation Act.  The groups say the changes are 
needed to ensure that the pact accomplishes its goal.  (Page 25)

Building Access - Building owners and competitive telecom service providers, 
escalating the battle they've been waging for the last few years, shift their 
focus to multitenant residential buildings.  (Page 27)

Jurisdictional Cost Allocation - The FCC orders Alaskan telco ATU to pay an 
interexchange carrier $2.7 million in damages to make up for improperly 
assigning to the interstate jurisdiction the traffic-sensitive costs of 
carrying Internet-bound traffic.  (Page 29)

`C,' `F' Block Reauction - The FCC nets a record $16.8 billion in its 
reauction of 422 "C" and "F" block PCS licenses-an amount within the range 
expected by most financial and industry analysts.  Meanwhile, at least one 
participant is planning on challenging the results before the FCC-and 
possibly in court.  (Page 30)

Verizon Wholesale-Retail Split - An administrative law judge recommends that 
the Pennsylvania PUC develop its own plan for Verizon to split its wholesale 
and retail operations within one year.  The ALJ also criticizes Verizon's "
alternative" plan for not going far enough.  (Page 32)

International Service Authorizations - The FCC generally wins support for its 
proposals to streamline procedures governing pro forma assignments and 
transfers of international service authorizations.  (Page 32)

Falling Credit Ratings - Many telecom companies these days are groaning under 
the weight of excessive debt that they accumulated while building networks, 
acquiring other companies, and trying to enter new markets.  Determining 
whether they can pay those and future debts is the job of telecom analysts 
like Robert Ray of Moody's Investors Service.  (Page 39)

Telecom's Iffy Debts - On the one hand analysts are sounding alarm bells, 
while on the other they're saying, "Don't panic."  The reason for the caution 
flags is the level of questionable debt at telecom companies.  (Page 40)
Copyright 2001, Telecommunications Reports International, Inc. All rights 
reserved.