Are the Baby Bells Playing Dirty?

Rival ISPs say yes

Doug Walford can't afford to lose even one of his 300 small-business customers. That's why the CEO of tiny BritSys Inc., an Internet-service provider in Durham, N.C., is screaming mad. Walford says the local arm of Verizon Communications (VZ ) has exploited its control of high-speed Internet lines, randomly cutting off service for his customers. Once the line goes dead, he claims, their representatives tell customers that BritSys "seems to have screwed up," adding: "Why don't you come with us?" While a spokesperson for Verizon denies such allegations, Walford is not mollified. "It's dirty tricks, big time," he says.

Now, he is out to do more than complain. BritSys and a growing number of other ISPs are accusing Baby Bells such as Verizon and SBC Communications (SBC ) of bully tactics meant to strong-arm customers into their camps. On July 26, the California ISP Assn., which includes such national players as No. 3-ranked EarthLink Inc. (ELNK ), filed a complaint with the state's Public Utilities Commission accusing SBC of abusing its control over the local telephone infrastructure to kill competition in the high-speed Internet, or DSL, market.

The Californians aren't alone. From the West Coast to New York and places in between, such as Kentucky and Illinois, the din of complaints about misbehaving Bells is growing louder. While no courts have yet looked closely at the allegations to determine if they are true, state regulators are reviewing complaints. Meanwhile, independent ISPs clearly feel they are increasingly threatened by the Bell's behavior. Scores have gone out of business this year, margins are razor-thin, and DSL revenues might be the key to staying in business.

Many of the ISPs' complaints focus on the core of their business. Southern Internet providers say BellSouth Corp. (BLS ) overcharges smaller ISPs for the DSL lines they lease. In the West, others claim that SBC deliberately delays installation of DSL lines for the smaller players and is slow to do even simple repairs on lines used by rivals.

Getting and keeping billable customers would seem to be the object of this hardscrabble fight. According to ISPs such as OmSoft Technologies in Davis, Calif., if a consumer wants to replace a local Bell as its service provider in favor of another ISP, certain Bells shut down the line for as long as 30 days before turning it over. The California ISP Assn. complaint goes so far as to allege that SBC's service agreement would force members to allow SBC to market add-on services without giving the ISPs a cut of any fee earned. "They are using marketing tactics that are at best unfair and at worst illegal," says Lisa Bickford, general manager of the ISP InReach Internet LLC in Stockton, Calif.

The phone companies insist they are playing fair. SBC officials deny they have discriminated against or taken advantage of ISPs in California or anywhere else. The company says it delivers DSL lines to ISPs in the same way and with the same speed as it does to its own internal Internet branches. All of the Bells--Verizon, BellSouth, Qwest Communications (Q ), and SBC--say that if they charge smaller ISPs a higher rate for DSL, it's because they aren't ordering enough to be eligible for bulk discounts.

PIGGYBACKING. SBC and others are also furious that regulators are forcing them to open their networks to rivals. Bell operators have spent billions upgrading old voice systems to offer DSL. They argue that competitors should have to make similar investments--not piggyback on the Bell networks as regulations require. "We've got state and fed regulators trying to screw [DSL] up," says James D. Ellis, SBC's general counsel.

Moreover, some Bells still aren't giving up. In April, the Kentucky Public Service Commission ruled that BellSouth favors its own ISP,, at the expense of competitors. BellSouth had charged other ISPs that order less than 10,000 lines $49.95 per month for each line, but billed its own only $29.95 per month. Now Bell South is trying to set the price at $33. "They want to control the entire pipe," says Dannie Gregoire, co-founder of IgLou Internet Service in Louisville, Ky. If they succeed, the Bells' "tricks" will have paid off--big time.

By Darnell Little and Roger O. Crockett in Chicago

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