The major regional phone companies yesterday promised a court fight to overturn rules governing competition for local telephone service that were approved last week by the Federal Communications Commission.
Two of the four former Bell companies, SBC Communications Inc. and BellSouth Corp. also renewed promises made after the vote that they would not invest in new, high-speed Internet networks unless the local telephone rules are scuttled.
The companies' posture angered several government and industry executives, who accused the phone companies of the political equivalent of holding their breath to get more candy after getting what they originally asked for.
Although the FCC preserved the system that forces the Bells to lease their voice networks to rivals at discounted rates, the agency swept away similar requirements on "broadband," the high-speed lines considered key to the nation's telecommunications future.
At one time, the Bells sought that outcome.
"Old wires, old rules . . . new wires, new rules," was the way Tom Tauke, senior vice president of Verizon Communications Inc., described his company's position in a speech in August 2001.
The Bells spent tens of millions of dollars lobbying Congress and the FCC to drop the broadband rules, arguing that they could not be expected to invest in upgrading their networks with ultra-fast lines if they had to rent them to rivals at regulated rates.
The campaign attracted crucial support from major technology companies, which bet that if the Bells prevailed they would begin spending on new equipment, infrastructure and software that would revive the ailing technology economy.
With more legal battles certain to extend what already is one of the most expensive and punishing lobbying battles in memory, the Bells are unlikely to undertake such spending in the short run.
"Considering the Bells got almost precisely the broadband relief they requested, relief they argued would lead to increased investment, their change of heart makes you wonder whether they really want to increase spending at this time," said one Bush administration official who insisted on anonymity.
The Bells acknowledge that originally they were focused on gaining relief from broadband rules.
"There was a long time when we thought freedom in the broadband arena would be a panacea," said Herschel Abbott, vice president for government affairs at BellSouth.
But in the past year, he said, the Bells have been hurt as long-distance companies such as AT&T Corp. and WorldCom Inc. began offering competing local phone service, aggressively pricing local and long-distance packages that have forced the Bells to lower their rates.
That has been a boon to consumers, but the Bells claim that the regulated rates they charge their rivals to get onto their networks don't cover their costs. That, in turn, means the Bells cannot spend on new networks, Abbott said.
State regulators, who set the lease rates, disagree that the fees are below the Bells' costs. The system was put in place by Congress in 1996 and was designed to spur telephone competition.
The FCC allowed the states to retain authority but tweaked the system in response to a recent federal court ruling that found it to be unfair.
"I'd say the chances are around 100 percent" that the Bells will be back in court as soon as details of the FCC's rules are put in place in the next few months, said Steve Davis, senior vice president for public policy at Qwest Communications International Inc.
Davis said his company will not link broadband spending to the local phone service rules. "But it's not as if one can divorce the economics of the company," he said.
Yet some of the Bells improved their bottom lines recently. Verizon, for example, swung to a third-quarter profit of $4.4 billion, from the second quarter of last year, while SBC held steady at roughly $1.7 billion, compared with the prior quarter.
Verizon's Tauke said yesterday that the Bells are also concerned about the details of the broadband rules the FCC will ultimately write.
A summary put out by the FCC staff said that if the Bells run new fiber-optic lines to homes and want to pull copper lines out of service, they will still need state approval to do so. That might force the Bells to operate two networks, Tauke said.
An FCC spokesman said that the language will be refined and that the intent is not to make it hard for the Bells to upgrade their networks.
One technology lobbyist who helped lead the battle for broadband deregulation said that he is disappointed with the Bells' position but that he hopes they will see the benefits to investing in new networks.
"Now there's no excuse on the regulatory side" for the Bells not to invest, said Rhett Dawson, president of the Information Technology Industry Council, a lobbying group. "If they choose not to make the investment, that's a different matter."