TELETRUTH NEWS: September 24th, 2003

Dear President Bush,

Does your Administration really care if small businesses have a chance to succeed? Just last year, (August, 2002), you signed Executive Order 13272,backing small businesses, "...requiring federal agencies to implement policesprotecting small business when writing new rules and regulations" and"...ensure that we work closely together to address small business issues,particularly as they relate to disproportionate regulatory burden."

Instead, the Federal Communications Commission (FCC) under Michael Powell
has created a new series of re-regulatory rules, the Triennial Review, that
will wipe out an entire class of small businesses -- the thousands of
entrepreneurial Internet Service Providers (ISPs). Talk about a "regulatory
burden". Being put out of business certainly falls into that category of a
law that harms these companies "disproportionately".

As a group, the thousands of Internet Service Providers that servecommunities throughout the US have been the driving force in gettingAmerica online. They have helped to lead the innovation of America's Internetand Web services.--- They are America's "Innovation Engine". It was this group of small companies that brought us to the Digital Age, not the large local phone monopolies, such as Verizon, SBC, Qwest or BellSouth. And today, these companies still work with more than half of America's Internet users and millions of broadband users.

And yet, the FCC has decided to block these companies from using the
customer-funded local phone networks for broadband by getting rid of "line-sharing", the ability of the customer to use their own phoneline for voice calls and DSL
service. According to one report, line-sharing accounts for 40% of all broadband today. However, this law also allows immediate price increases in increments of 25%, 50% and 75% over the course of the three-year period that "re-regulates", not "deregulates" these companies.

To make it worse, this new law gives exclusive use of all new fiber-based broadband services to the local phone monopolies, and so all small competitors will be closed out of using these networks.

In a statement of pure market blindness, the FCC states that their actions will only "indirectly" harm these thousands of companies.

"775. Internet Service Providers. While internet service providers (ISPs)
are only indirectly affected by our present actions, and ISPs are therefore
not formally included within this present analysis (FRFA), we have
addressed them informally to create a fuller record and to recognize their
participation in this proceeding."

Further proposed rulings are also underway that block the ISPs' use of the cable networks and will also block the ISPs 'resale' of the current Bell DSL services. There are currently various legal battles about the Bells' predatory pricing of the current service, which has forced some ISPs to stop offering DSL completely. If these avenues are closed to the Internet Providers, how are they going to grow and thrive when more and more customers are going to be want DSL and broadband?

And worse, what happens to the millions of small business customers who have chosen these small companies because of the unique services they offer? From web hosting to working directly with customers, not some unresponsive monopoly, these small firms have been the real fabric of our Digital age.

Since the FCC regulates all DSL and broadband because they redefined it as
an "interstate" service and therefore under the FCC's control, the real message is -- Internet Providers and Small Businesses Need Not Apply.

These actions directly contradict the Telecommunications Act of 1996's mandate
to open these networks to competition.

"SEC. 257. [47 U.S.C. 257] MARKET ENTRY BARRIERS PROCEEDING. (a) Elimination of Barriers.--Within 15 months after the date of enactment of the Telecommunications Act of 1996, the Commission shall complete a proceeding for the purpose of identifying and eliminating, by regulations pursuant to its authority under this Act (other than this section), market entry barriers for entrepreneurs and other small businesses in the provision and ownership of telecommunications services and information services, or in the provision of parts or services to providers of telecommunications services and information services."

Re-regulation in the Eye of the Beholder --- FCC Playing Regulatory
Favoritism and Showing a 'Big-Boy-Bias". Where is the Public Interest?

The FCC will argue that their actions are "deregulatory" but nothing is further from the truth. Four large monopolies now can block access to thousands of smaller concerns, thus forcing them out of business --- The Telecom Act giveth and the FCC taketh away.

But the most troubling aspect of the entire FCC decision is that is it is playing
regulatory favoritism and showing a 'Big-Boy-Bias". ---- It is helping to pick
regulatory winners and losers through selective regulation.

Is it better to have 4 large monopolies controlling the America's Digital Future or
thousands of smaller companies, each dreaming up a new vision for America's broadband service? The phone networks are essential facilities, and closing them ignores the Public Interest. Is it "market forces" when you regulate companies out of business and protect large corporate needs? Its pure regulatory-favoritism. It allows the Bell companies to exclusively control the Internet service provision on its own networks -- and funny how the exclusive is given to an Internet provider that is also owned by the Bell company, such as Verizon.net. It will be the only ISP allowed to still use "line-sharing".

Also, the FCC has also confused a broadband "pipe" that can supply the service, with the application, the Internet/web/email services that go over this pipe. When a customer buys a business grade phone service, such as something called a "T1" which handles 24 lines as a bundle, the customer can do what they want with it, from voice calling to data/broadband.

When the FCC makes the decision to allow exclusive rights to one or a few Internet providers to give them both the right to control the entire pipe and be the only provider, it blocks the customer's choices, and it destroys "market forces" that would
have brought innovative products at cheaper prices.

Is your Administration for or against small businesses succeeding?

Betting on the Bells for Fiber is Waiting for Godot: Broken Promises, Broken Records

What should scare the bejesus out of everyone is the fact that
the FCC is placing bets that the 4 remaining Bell monopolies--- Verizon, SBC, Qwest and BellSouth will deliver on their stated goals of rewiring the country with fiber-optics. History says that this is like waiting for Godot or putting a human on the planet Jupiter --- We'll get there sooner or later, but not now.

The Bells' documented track record of fiber optic-based broadband no-shows has been a black mark on the history of telecommunications and broadband. Take the case in state of Pennsylvania where Verizon is supposed to have rewired 50% of the state with a fiber-optic wire, including rural, urban and suburban areas by 2004, and at speeds of 45mps in two directions --- about 50 times faster than DSL today, which goes over the 100 year old copper wiring. Because of changes in state law known as "Alternate Regulations" or "Price Caps", the Bell companies were able to get extra money in the form of higher phonebills. We estimate that by 2002, Pennsylvania customers paid an additional $785 per household for a service they will never get.

Verizon and ALL of the other Bells made promises in the majority of states
to have the territory rewired and in most states, such as California, Ohio,
New Jersey or District of Columbia, the companies got more money from
phone customers who got nothing for it. By 2000, based on the Bells' own annual reports, half of America should have been rewired with fiber. --- Truth in advertising? In some states, such as Oregon or Louisiana, customers are now helping to fund Bell-owned-DSL through higher phone rates.

Who Will Invest in the Networks if the Bell Don't? --- We Did.

Customers already funded the network upgrades and therefore shouldn't these networks stay open? Customers have already become the defacto investors. Therefore, customers, not the Bells, should have the right to select their own broadband provider. Instead, the FCC has given a private monopoly exclusive rights to customer-funded networks.

Remember, these networks are still controlled by monopolies. These companies are still Utilities, not 'free market companies". The profits for local service are essentially guaranteed because even the competitors must still rent the networks. When the monopolies need more money they simply file for increases. No Bell monopoly has ever had a losing financial quarter from local phone service profits. No one is going to start building new wiring for new essential facilities, and so customers who have funded these networks have rights, while the monopolies have obligations to have open networks. Allowing a federal law to usurp the entire state's role and the funding contribution of customers is nothing less than a "Customer Takings", giving a private company services that were directly paid for by phone subscribers.

And will the Bell monopolies really build anything? Need I remind the President that Texas based SBC stated publicly on September 3, 2003 that they will no longer be pursuing a fiber-optic future. At a recent Morgan Stanley Conference, SBC's Edward Whitacre stated: (according to Converge Network digest , 9/3/03)

"...Whitacre said fiber-to-the-home is not in its plans, except in certain
new deployments. Whitacre said he just "doesn't see the incentive for (fiber to the home) FTTP" and that even a drop of several hundred dollars in equipment prices would be unlikely to change his mind."

Because of the questionable Bell mergers, SBC now owns Southwestern Bell,
(including Texas) and both Pac Bell (California and Nevada) and the five-state-Midwest
Bell, Ameritech, and SNET. This ONE decision effects 13 states, approximately 1/3 of the country's local phone customers.

And even the condition of the current networks are in question with
construction cuts of over 50% in the last three years, and over 50% drop in
employees since the Bell was created in 1984.

The Small Business Administration's Office of Advocacy Was Also Slighted.

Another one of this Administration's government agencies that is mandated to help small business backed your Executive Order. The Small Business Administration's
Office of Advocacy has taken a firm position on the actions of the FCC. In its
Ex Parte letter (dated February 5, 2003) SBA points out that the FCC has ignored the
"Regulatory Flexibility Act:" (RFA) which is a law designed to make
sure that small businesses of ALL types have rights in front of a regulatory agency, including the FCC.

"... the effect that the ruling will have on small businesses is significant. If the Commission is proposing to change the competitive rules governing the industry, the RFA requires the FCC to analyze the impact of its actions on small business and identify alternatives. A policy decision to redefine the Competitive (UNE) obligations of the incumbent carriers would have a significant economic impact on small CLECs, (competitors) and we believe that the IRFA did not analyze this impact. Thousands of small businesses providers and millions of small businesses end users stand to be affected by this rulemaking."

And in a related FCC proposed rulemaking, SBA clearly states that the FCC's
proposed broadband rulings will harm small telecom providers, including ISPs. (Ex Parte Letter, dated August, 27th, 2002)

"After reviewing the Commission's proposed rule...,Advocacy is concerned the
Commission has understated the impact on small ISPs of its tentative
conclusion classifying broadband access service as an information
service....Such an action will severely hamper the ability of small ISPs to
provide broadband service, stifling competition and slowing down deployment.
Although Advocacy shares the Commission's commitment to deregulation to
bolster competition and spur economic growth, in this instance, complete
deregulation will create impenetrable barriers to entry, eliminating
competition from small businesses and removing consumer choice."

The Administration's Executive Order was supposed to strengthen the role of the
Small Business Administration's Office of Advocacy. However, besides blowing-off the SBA the FCC responded by questioning their responsibilities to listen to an Executive Order. "Setting aside the question of whether a multi-member independent agency such as the FCC must comply with that Executive Order..."

Dirt and Gunk in The Innovation Engine? ---Technologically Retrograde?

Michael Powell stated at a recent conference that he wanted to help the "entrepreneurs working in garages", and yet, he is creating market forces to block these same
companies from using any of these new networks. Again we ask --- Is it better to have 4 large monopolies controlling America's Future or thousands of smaller companies, each dreaming up a new vision for America's Digital Future?

Who Are the Innovators of Tomorrow? -- Why its the Internet Providers and entrepreneurs that are now offering the experimental next generation services such as "Voice Over Internet Protocol" (VOIP), which uses an Internet-broadband connection to make phonecalls and new Wireless networks (WIFI) --- The Bell companies have applied in numerous states to stop Voice Over IP because it can offer services cheaper. And with the FCC on a jihad to destroy ISPs through new regulations the FCC is getting rid of companies that will help bring these new services to the customer. We're all doomed to a twentieth century model of telecom in this new millennium.

The bottom line President Bush ---Are you out to protect small businesses
and make the FCC address the concerns of the Office of Advocacy?

Do you want to protect choice, innovation and economic growth for the American Public? The future of broadband, America's leading technology edge, and the revival of
the economy all hang in the balance of your decision.

Bruce Kushnick, Chairman, Teletruth

brucekushnick@teletruth.org

To read more about the "Triennial Review", Comments of Office Of Advocacy or more about these issues see: http://www.teletruth.org/FCCtoISPs.html

For deja vu about the various flawed broadband promises by the Bell companies see: http://www.newnetworks.com/Failedfiberopticplans.html