Feb. 12 (Bloomberg) -- AT&T Inc. and Verizon Communications Inc. would be forced to lease fast Internet lines to rivals providing Web services to small businesses under a proposal being weighed by U.S. regulators.
The biggest U.S. phone companies have told the Federal Communications Commission that opening access to lines they laid would curb their incentive to continue spending billions of dollars expanding high-speed service. The FCC’s decision “will significantly affect investment in fiber-based networks,” line- maker Corning Inc. said in a filing with the agency.
The idea, proposed to the FCC by computer-services company Cbeyond Inc., has support from the Small Business Administration, which said it could spur job creation. The plan would add to competition for business clients, who are also being courted by cable providers led by Comcast Corp. and Time Warner Cable Inc.
Requiring phone companies to lease their lines would “erode their market position,” said Donna Jaegers, a Denver- based analyst for D.A. Davidson & Co., in an interview.
Atlanta-based Cbeyond sells packages of Internet-based services, such as e-mail, voicemail and data backup, to businesses with fewer than 250 workers. It now uses slower lines than those it wants to lease from AT&T and Verizon.
Cbeyond could benefit “longer term” as the market for advanced services develops, Jaegers said. She recommends buying Cbeyond shares and doesn’t own any.
Atlanta, Chicago
The company, with about 1,100 employees, serves markets including Atlanta, Chicago, Los Angeles, Miami and Seattle. It reported $350 million in revenue in 2008, a 25 percent increase from the previous year. The company is scheduled to report fourth-quarter earnings on March 3.
Cbeyond dropped 2 cents to $12.48 at 4 p.m. in Nasdaq Stock Market trading. The shares have declined 22 percent the past 12 months.
Verizon, AT&T and Qwest Communications International Inc. refuse to offer rivals long-term contracts on connections to businesses, said Cbeyond Chief Executive Officer Jim Geiger.
“We expand the market” for business services “because we’re educating these small companies” about online resources, Geiger said in an interview.
Letting competitors lease lines into businesses may boost Internet adoption, help small businesses grow and aid job creation, said Colin Crowell, an aide to Democratic FCC Chairman Julius Genachowski, in an interview.
‘Lot of Appeal’
“That is certainly something that we’ll look very closely at, and has a lot of appeal as part of a national strategy,” said Crowell. The change may be proposed as part of the FCC’s national plan for increasing the use of high-speed Internet, or broadband, that is to be delivered to Congress in March, Crowell said.
Cbeyond’s proposal could help deliver services such as video conferencing and cloud computing to small businesses, which would “increase their efficiency, and ultimately, spur job creation,” the Small Business Administration’s Susan Walthall, acting chief counsel for advocacy, told the FCC in a filing.
The FCC decided in 2003, under Republican leadership, that phone companies don’t need to sell competitors access to the fiber lines they added. The decision didn’t affect cable companies, which are subject to different regulations and don’t have to lease lines.
The 2003 decision encouraged broadband deployment by assuring phone companies they could invest without having to share lines at regulated rates, said Paul Gallant, a Washington- based analyst with Concept Capital’s Washington Research Group, in an interview.
‘Robust’ Investment
The result was “robust private investment in broadband networks,” Verizon said in a filing. Companies “are less likely to invest” in networks “if they must share the fruits of that investment with their rivals.”
Verizon committed $23 billion to its all-fiber FiOS network, which carries video, telephone and Internet services, as part of the investment “boom” that followed the FCC’s earlier decision, the company said in its filing.
Cbeyond “ignores the reality of the marketplace” where there is “tremendous competition” for business-services contracts, said Glenn Reynolds, a vice president at US Telecom, a Washington-based trade association with members including New York-based Verizon and Denver-based Qwest, in an interview. Both companies referred requests for comment to the trade association.
Cbeyond’s proposal “will undermine” FCC efforts to promote investment in broadband, said Michael Balmoris, a Washington spokesman for Dallas-based AT&T, in an e-mailed statement.
Genachowski Meeting
Cbeyond proposed the rule change in November. Geiger, the company’s founder, met with Genachowski Oct. 5, and appeared as a panelist at the agency’s Dec. 21 public hearing on how broadband can help small businesses.
Cbeyond’s typical customer is a business with 12 employees that buys seven Internet-based products, and spends $748 monthly on its services, according to a company document presented to the FCC.
“All we need to do is tweak certain regulations and we know we can unleash innovation and job creation,” Geiger said in the interview.
Cbeyond wants to pay retail rates for its access, Geiger said. AT&T said in its comments that there is no relevant retail rate, and Cbeyond’s idea “appears to involve the creation of a new regulated rate, derived from the retail prices of lower- priced services, such as AT&T’s U-Verse.”
