SBC slapped with penalty in Texas DSL competition case

Rivals say case demonstrates the lengths that some RBOCs will go to to impede competition.

By Tim Greene
Network World, 09/27/99

AUSTIN, TEXAS - SBC Communications last week got slapped with an $845,000 penalty in Texas for not playing fair with two DSL service providers. The case documents the kind of foot-dragging that upstart carriers say they still face regularly from regional Bell operating companies.

SBC's behavior in this instance was so egregious that the chairman of the U.S. House Commerce Committee is investigating the situation to determine whether SBC is stifling the deployment of digital subscriber line (DSL) services.

Most of the Bells have been slow to deploy DSL offerings. But competitive local exchange carriers (CLEC) have been aggressive in trying to roll out DSL services as inexpensive alternatives to T-1 services, which are cash cows for the Bells.

In the just-completed case before the Texas Public Utility Commission (PUC), SBC got caught withholding documents and presenting witnesses who didn't have full knowledge of what they were supposed to testify about. DSL providers Covad Communications and Rhythms NetConnections were the injured parties.

While the SBC case is an extreme example of the tactics RBOCs will employ to impede competitors, it is in some ways typical, according to Royce Holland, chairman of the Association for Local Telecommunications Services, a group that represents competitive local carriers.

"We've seen this and will continue to see this until the regulatory commissions start slapping them with big material fines," says Holland, who is CEO of CLEC Allegiance Telecom. Holland says that to an RBOC, an $845,000 fine is barely a tap on the wrist.

Stifling competition keeps telecom prices higher than they would be otherwise, according to U.S. Rep. Tom Bliley (R-Va.), chairman of the House Commerce Committee. Bliley is seeking more information about the SBC case. Competition "will ensure that consumers have access to better, more innovative services, at lower prices," he said in a letter to Edward Whitacre, SBC Chairman and CEO.

The reluctance of RBOCs to lease their facilities to competitors is understandable, says Claudia Bacco, a DSL analyst for TeleChoice, a telecom consultancy in Boston. "The RBOCs' intrinsic nature is to not want anyone else in their [switching offices]," Bacco says.

But withholding evidence and providing uninformed witnesses is over the top. "This is the first time I've seen anything so blatant," she says.

RBOCs vary in how cooperative they are, according to Ken Chao, vice president of legal strategy for Covad. And sometimes they soften after initially digging in their heels.

For example, Covad struggled to forge its interconnection agreements with US West in Washington and Oregon. But after that, Covad was able to negotiate with US West for a blanket agreement in the other 12 states in which the Bell operates, Chao says.

Covad has filed for arbitrations in states other than Texas, but this is the first time an RBOC failed to settle with Covad before arbitration started.

RBOC delays can cripple start-up competitors that lack the financial resources of the Bells, Holland says. "They've frustrated competition for a period of time and bled competitors with legal fees," he says.

In the Texas case, the sanctions are meant to reimburse Covad and Rhythms for the extra legal fees they had to pay because SBC's actions dragged out a hearing on interconnecting SBC's network with those of the DSL providers.

In addition, a mysterious e-mail presented by SBC as evidence during the arbitration - one that is now being kept secret - apparently indicates that an SBC attorney directed 81 other employees to commit fraud in relation to the case, according to the commission ruling.

SBC will not comment on the content of the e-mail, claiming it is privileged, client-attorney information. The company told the PUC that withholding other documents was an oversight, and the company did not address why it sent unqualified witnesses.

The e-mail has Rep. Bliley worried that SBC might not be complying with the Telecommunications Act of 1996, which requires that RBOCs negotiate in good faith with any carriers seeking to interconnect. Bliley demanded that SBC's Whitacre turn over the e-mail by last Monday, but Whitacre declined.