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Baby Bells Plan $40M K St. Blitz

In a move that signals the start of the next big telecommunications fight in Washington, the nation’s local telephone industry is planning an aggressive $30 million to $40 million lobbying blitz to rid the 100-year-old industry of the last vestiges of government regulation.

Confidential documents show that BellSouth Corp., SBC Communications and Verizon Communications hope to partner with Intel, Motorola and more than a dozen other high-tech equipment makers to fund a three-year campaign to press lawmakers and regulators to replace the current system of government-managed regulation with a fully deregulated marketplace.

The new campaign is the latest step in a decade-long effort by the local phone companies to transform themselves from government-sanctioned monopolies into fully deregulated firms, free to confront new threats posed by the cable, wireless and satellite industries unburdened by regulations placed on them during their time as monopolies.

The Baby Bell phone companies will press for Congressional legislation and a slew of regulatory changes to “substitute market-based competition for government-managed competition,” according to internal Bell company documents.

The $30 million to $40 million campaign is a 50 percent boost from the amount of money the industry spent in Washington in the past three years — and nearly twice the annual budget of its trade group, the U.S. Telecom Association.

Executives of the Bells companies quietly approved the plan last month before proposing the alliance to high-tech executives at a dinner last week at Washington’s St. Regis Hotel hosted by Walter McCormick, the president of the telecom association.

The twin goals of the campaign are to require wireless, cable and satellite companies to help fund a billion-dollar federal program to help lower phone rates in rural areas and to “end government management of competition where the consumer has a choice of telecommunications service,” according to a memo McCormick drafted.

McCormick hatched the new campaign along with former Rep. Tom Tauke (R-Iowa), now a lobbyist with Verizon Communications. Others involved include former Commerce Secretary William Daley of SBC, Karen Puckett of CentryTel, Margaret Greene of BellSouth and Skip Franz of Alltell.

Together, the group reached out to the high-tech equipment makers, whom they saw as a natural ally in their fight to reduce regulations.

The Bell companies believe that current federal and state regulations discourage them from investing in billions of dollars worth of cutting-edge network equipment and ultra-fast lines, which they would purchase from the tech companies.

“Carriers and manufactures are interdependent,” McCormick said in a memo distributed to the high-tech executives. “If we grow, we buy and then they grow as well.”

During the session, McCormick asked chief executives at a dozen high-tech firms to commit as much as $1.5 million apiece — a total of $19.5 million — for the campaign.

The tech firms invited to the dinner include Alcatel USA, Cisco Systems, Corning, Fujitsu, Intel, Lucent Technologies, Motorola, Nortel Networks and Siemens.

In addition, the three Bell companies have pledged millions more, with additional funding coming from dozens of smaller local phone companies.

USTA officials would not confirm the overall price tag of the plan. But the memo says that more than 30 companies have agreed to help fund “a major advertising and grassroots campaign.”

The group will seek a number of regulatory changes, large and small, from the Bush administration, Capitol Hill and the Federal Communications Commission.

The changes fall into several broad categories: ensuring that regulations faced by the Bells for regular phone service do not apply to high-speed, or broadband, Internet service; leveling the playing field so that the Bells face the same regulations in the broadband marketplace as the cable and satellite industries; changing the FCC’s pricing model so the Bells can charge an adequate price for renting their lines to competitors; and revamping the universal service system so that cable, satellite and wireless companies pay into the fund.

“It is time to recognize this new reality, end government management of competition and allow market-based competition to flourish,” McCormick told the Bell company and high-tech executives, according to talking points.

The campaign represents the latest step in a decade-long effort by the local phone industry to shed monopoly-era regulations.

The 1996 Telecommunications Act moved the Bells a step closer by replacing traditional rate-of-return regulation with a form of government-managed competition.

Seven years later, the Bell companies want Congress to deregulate the industry.

For the past few months, the Bell companies have quietly laid the groundwork for the campaign — by polling policy makers and voters, developing and testing advertising and beginning to structure a “strategic grassroots initiative that is aimed at taking advantage of our size and market strength.”

Elements of the Bells’ new pitch was made clear last week during McCormick’s 10-minute presentation to the high-tech industry in which he compared the regulation of the local phone industry to that of the railroad industry in the 1800s.

When Washington deregulated the industry in the 1900s, “Congress unleashed investment, innovation and economic growth in transportation,” he said. “We believe that Congress should adopt this 20th century railroad model for telecommunications in the 21st century.”

He continued: “Federal and state regulation of telecommunications should be pre-empted wherever the consumer has a telecommunications choice — from either another wireline carrier, or from a fixed wireless, mobile wireless, cable, Internet or satellite carrier.”

McCormick added that Congress should also require that all of these telecom providers pay into the universal service system to guarantee that consumers in remote areas continue to have access to affordable service.

To accomplish regulatory parity, McCormick urged the two sectors to come together “as a forceful, forward-looking telecommunications industry — carriers, manufactures, labor — looking to grow, to invest, and to compete in a vibrant marketplace free of micro-management by government bureaucrats.”

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