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FCC: Phone Companies Have Limited Protection
When companies like AT&T, MCI, WorldCom and Sprint provide long-distance services, they almost always use the telephone networks of local exchange carriers, or 'LECs' (eg, Verizon, BellSouth, Qwest, and SBC) to originate and terminate those calls. This use of local networks is a service generally referred to as exchange access, which is subject to regulation by the Federal Communications Commission (FCC). Exchange access is a major component of the cost of providing long-distance service, and is a major source of revenue to the LECs. Moreover, as result of FCC policy, exchange access has long subsidized other LEC services, such as residential phone service.
Therefore, when WorldCom filed its bankruptcy petition in July 2002, LECs faced potential default on huge amounts owed to them ' amounts they claim would impede their ability to maintain their networks and provide services to their end-user customers. While the WorldCom bankruptcy is by far the largest telecom bankruptcy, it is not alone. During the past year, numerous competitive telecom companies have filed for bankruptcy; some have ceased operations. Each of those companies purchased facilities and services from LECs.
In July, one of the LECs ' Verizon ' asked the FCC to allow it and the other LECs to protect themselves from the risk of substantial uncollectible debts incurred by bankrupt and other financially precarious carriers. Verizon wanted permission to demand hefty security deposits based on any perceived decline in its access customers' creditworthiness; to demand advance payment for services; and to reduce the notice period before terminating service to customers in default. It also wanted the FCC (which often appears in bankruptcy proceedings involving communications companies) to support its efforts to obtain adequate assurance of payment for services rendered to bankrupt companies, and to ensure that purchasers of bankrupt carriers assets 'cure' any amounts owed to the LECs before asking them to transfer existing service arrangements to the purchasers of the bankrupt companies' assets.
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