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Large Telcos Clash on Hill Over Special Access Market

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WASHINGTON (Dow Jones) Sprint Nextel Corp. Chief Executive Gary D. Forsee on Tuesday urged lawmakers to force the Federal Communications Commission to lower rates in the high volume, bulk business telecommunications market, saying it was clear the market had failed.

Forsee was testifying at a House Telecommunications Subcommittee hearing into the so-called special access market.

"The special access market failure is apparent in the overwhelming and increasing market share of the two dominant special access providers, AT&T and Verizon," said Forsee in his prepared opening remarks. "It is apparent in their vast and increasing special access revenues, in their inflated special access prices, and in their anti-competitive contract terms and conditions."

The special access market serves large business customers' voice and data needs, which are more sophisticated and require more bandwidth than other areas of the telecommmunications markets.

These include large banks and credit card companies as well as large travel firms that conduct a lot of business over the Internet.

Sprint Nextel is among the rival phone companies to AT&T and Verizon Communications pushing for change, since telecommunications companies are among the biggest customers of special access service.

For Sprint, the matter is especially key as it doesn't own the physical infrastructure to underpin its wireless voice and broadband network. This makes Sprint dependent on those who do own the infrastructure, such as AT&T and Verizon.

Forsee told the lawmakers there was overwhelming evidence that the market needed regulator mandated reform.

"I urge this subcommittee to let the FCC know that it must meet its obligation by reducing special access rates to reasonable levels and reinstating effective incentive regulation," he said.

Lawmakers on the panel including its chairman, Rep. Edward Markey, D-Mass.; and Rep. Chip Pickering, R-Miss., have been vocal about the fact they feel the special access market isn't working.

In his opening statement, Markey said the failure of the special access market could impede the deployment of broadband service to U.S. consumers and businesses.

"Because prices today are higher than what a truly competitive market would support, current and future wireless providers will expend funds on special access that would be better spent reducing prices to consumers or deploying more and better broadband facilities," said Markey.

Rep. Mike Doyle, D-Pa., said the debate over special access should instead be called "critical access" given its importance to the rollout of broadband.

Also appearing before the committee were representatives of AT&T and Verizon.

Tom Tauke, an executive vice president at Verizon, said in his opening remarks that companies like Sprint Nextel were "trying to use regulatory measures to undermine a successful market-based environment."

AT&T's assistant vice president, Parley Casto, echoed this sentiment in his opening testimony, saying the company faced "intense competition for special access and other wholesale and enterprise services from a very large number of competitors."

Casto said the real problem in the market wasn't a lack of competition but a reluctance on the part of smaller phone companies to provide detailed information to the FCC as to where in the country they offered service, making its job as a regulator difficult.

So far, FCC Chairman Kevin Martin has resisted the pressure from lawmakers to introduce any change in the market.

In a recent interview, he said the best way to encourage more competition in the market was to allow flexibility in what companies can charge, so that new entrants could be assured of recouping the considerable investment they would have to make in order to enter the market.

He is opposed not only by the likes of Sprint Nextel and lawmakers but also by the two Democratic commissioners on the FCC who have been vocal about the need for change.

Wireless companies require special access to help the traffic of customers' cellular phone calls. Those calls travel wirelessly until they connect with the nearest cellular tower, but from there, they need to travel over the wired telephone infrastructure.

Regional carriers active in the business market also are significant special access customers. They need to access the larger phone companies' systems in order to transport corporate customer's phone calls and emails around the country.

Lawmakers were also urged to put pressure on the FCC to deny several bids for the large telecommunications giants to be granted regulatory relief.

Using a right granted in the 1996 Telecommunications Act, Verizon and Qwest Communications International have asked the regulator to excuse them from having to offer discounted rates to competing phone companies seeking to access their infrastructures to offer service.

Qwest was granted such a request for the Omaha, Neb., market last year. It is now seeking similar relief in four other urban markets, while Verizon is doing so in six markets on the East Coast including New York and Boston.

Brad Evans, chairman of Cavalier Telephone & TV, another witness at the hearing, said that Verizon was attempting to use a "loophole" in the legislation to "eliminate competition and return to the monopoly status."

The FCC must decide on the Verizon applications by the end of the year.

-By Corey Boles, Dow Jones Newswires; 202-862-6637; corey.boles@dowjones.com

(END) Dow Jones Newswires

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