Bill Seeks SBCVerizon Breakup

March 21, 2003
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As if they didn’t have anything else to fight about.

Now competitors that offer local telephone service in Michigan are having it out with SBC Communications and Verizon over a bill that would force the telecommunications giants to either spin off or divest themselves of their infrastructure.

The legislation, introduced in Lansing in late January by state Rep. Ken Bradstreet, R-Gaylord, is in theory an attempt to provide and assure the further emergence of competition for telephone service in Michigan.

Supporters contend that by giving a third party control of telecom infrastructure, all service providers would have equal access to that infrastructure, resulting in more competition and lower prices.

“The only fair way to create competition is to put these key parts of the basic infrastructure into the hands of a closely regulated third-party company that will then give fair access at fair rates to all who need access to the infrastructure,” said Richard McLellan, chairman of the Michigan Alliance for Competitive Telecommunications.

The alliance is a group of telecom providers organized in 1995 to push for competition in Michigan.

The bill would impose what’s known as “structural separation,” by forcing large phone companies to separate their wholesale and retail operations.

It would require any local telephone service provider with more than 250,000 customers  — i.e. SBC and Verizon, which dominate local telephone service and also own most telecom infrastructure in Michigan — to divest itself of its infrastructure and either operate as an independent but affiliated business, or an entirely separate entity.

That means Verizon and SBC would either have to sell their networks or form a new business unit that would operate them separately from the retail divisions that sell telecom services.

SBC and Verizon are vehemently opposed to the idea and vow to vigorously fight the bill in the legislature. Currently the proposal has been referred to the House Energy and Technology Committee.

Structural separation via a new business unit would merely create new regulations and operating costs for large telecommunications providers, argues John Van Wyck, Verizon’s public affairs director in Michigan. Consumers would ultimately feel those higher costs, he said.

Separation would also drain away a key source of revenues and profits that Verizon needs to make future investments, Van Wyck said.

“That’s our bread and butter and our infrastructure is really the future of our telecommunications network,” said Van Wyck, who believes the bill is an attempt by local competitors to distract the Baby Bells from other regulatory issues in Lansing.

“It’s an exercise to try to tie our hands up so we can’t move forward on other things,” he said.

The notion of structural separation has been examined and rejected in other states and by the Federal Communications Commission, according to SBC and Verizon.

In an era of deep volatility in the telecommunications industry that has already stymied new investment, SBC spokeswoman Denis Koenig claims structural separation would cause even more problems because of the added burden of increased cost and regulations.

SBC and Verizon also reject the notion that structural separation is needed to ensure competition.

Both say they have opened their networks up to competitors to lease at fair prices to provide alternative phone service — and thus competition — on the local level.

“Why introduce something that is so risky and that has no known customer benefits to an industry that’s having so many problems?” Koenig said.

But local competitors see the issue quite differently.

They have been brawling with SBC over its efforts to raise wholesale line rates that local telecom providers must pay to access the company’s network and re-sell phone service.

They also vehemently oppose the telecom giant’s bid to enter the long-distance market in Michigan, arguing that true competition does not yet exist in the state.

In fact, backers of the bill say that structural separation is critical to break the SBC and Verizon monopoly hold on telecom infrastructure built during the last century using proceeds from ratepayers.

“It’s fair access to the infrastructure Michigan has paid for. It belongs to Michigan, not some guys in Texas,” said David Waymire of the Competitive Local Exchange Carriers of Michigan, referring to SBC, which is based in San Antonio.

Waymire said the bill would remove impediments to competition. He also said it would end the monopoly power given to the infrastructure companies more than 100 years ago.s

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