Sprint Nextel Plans to Take Lead in Special Access Fight

Foosaner cited the high rates of return reported by the 3 biggest Bells for special access -- 42% for Verizon, 92% for AT&T and 98% for BellSouth, based on investment and cost data. In addition, sources said, Qwest’s rate of return recently climbed to 109.4%. When AT&T and BellSouth merge, Verizon and BellSouth will together receive some of 82% of special access payments.

An AT&T spokesman questioned how groups like the Ad Hoc coalition use data filed at the FCC by carriers to show a high rate of return (ROR) for special access. “The special access ROR is based on FCC ARMIS data, which is inherently flawed and misleading,” the spokesman said. “The Commission itself has acknowledged as much, and concluded that ARMIS data did not accurately reflect our current investments in our networks. The flawed ARMIS data inflates our rate of return figures since they are based upon a calculation using current period revenues and prior period costs -- the ARMIS data collection process was established during the rate of return regime, and were intended to be used to calculate an enterprise-wide rate of return, not a rate of return for specific services” The spokesman added: “Just as importantly, ARMIS data assumes a siloed business operations that is no longer the reality of today’s competitive marketplace. So besides the accounting problems I just mentioned, another reason for these misleading numbers is that special access has seen phenomenal growth in the past several years, growth driven by a booming data market.”

“It’s worse than it was,” Foosaner told us. “The leaders fighting this uphill battle previously were AT&T and MCI. Now who owns them? Not only has [the fight] been typically won by the Bells, but the leaders of the opposition have disappeared. They've bought them.” AT&T was absorbed by SBC to form the new AT&T, and MCI was taken over by Verizon.

Sprint Nextel wishes big end users would take the lead, Foosaner said. “They're just being ripped off there, and they have problems,” he said. But most are reluctant to do so because they also sell goods and services to the Bells. “Insurance companies have a huge amount of systems hooking together their adjustment claims people, their salesmen and everything else,” Foosaner said by way of example. “They also want to sell to AT&T and Verizon. To fight AT&T and Verizon while they're walking in trying to get the healthcare package from AT&T and Verizon is a complicating factor. If you're selling soda, where would you want your vending machines to be? It’s harder to get these companies out front.”

Jonathan Lee, senior vp at CompTel, agreed that CLECs have lost significant lobbying power on special access and other issues now that AT&T and MCI are no longer part of their coalition. “It’s good that Sprint is getting more involved,” Lee said: “It’s always been an important issue for us, but we have never had the bandwidth or the firepower of any of the big companies… I'm glad the Sprint is trying to step up and fill in for AT&T and MCI. We certainly need all the help we can get from anybody.”

Colleen Boothby, the lead representative for the Ad Hoc group, said cable companies, ISPs and T-Mobile, the other non-Bell affiliated national wireless carrier, have similar concerns about special access. Boothby conceded that with the loss of AT&T and MCI, her side lost its 2 most important advocates. “You don’t have the bodies at the FCC,” she said. “You don’t have the long gray line of number crunchers who can spit out the data as fast as you need it and slog through the filings, and you don’t have the Hill muscle. That’s what AT&T and MCI brought.”

“The 2 biggest players were AT&T and MCI,” agreed another lawyer who has been active on special access. “They were the ones who could send people to meetings. They were the ones who could help underwrite the major studies. There was a huge drop off when you went from AT&T and MCI to the next level. They were basically the only 2 with a global footprint.” The source agreed with Foosaner that without AT&T and MCI, other large companies have had to step into the fight. The lawyer noted that in addition to providing D.C. muscle, the 2 companies were the largest providers of special access as an alternative to the Bells. “All of a sudden things are far different for the people who are still out there slogging away,” the source said. “Things went from bad to a lot worse and that’s the situation Sprint is in.”

Boothby said her group’s main priority is getting the FCC to finish its special access rulemaking. “That rulemaking has now been sitting for over a year,” she said. The Ad Hoc group, Sprint and others last week sent a letter to the leaders of the Senate Commerce Committee asking them to address “market failures” tied to special access in any larger telecom reform bill.

Boothby and Lee agreed that one of the biggest impediments they face is that a deregulation-oriented FCC is reluctant to take the steps necessary to get special access prices under control. “Nobody wants to do the difficult work of doing price regulation, but if you don’t do it you're not going to fix the problem,” Lee said. “It is, first, hard and then secondly there is sort of the stigma of being a regulating regulator.”

“There’s true ideological commitment from policymakers to deregulation and they just won’t face the marketplace facts,” Boothby said. “If you think that regulation is a bad idea then you don’t want to hear that the market is not competitive anymore.”

Officials with Sprint Nextel, Time Warner Telecom, PAETEC Communications and CompTel reported this week a recent meeting with Michelle Carey, senior legal adviser to Chmn. Martin, to discuss special access.