STATES TELL FCC THEIR UNE POLICIES AREN'T CAUSING BELLS’ MALAISE

Commissioners from Alaska, Cal. Ga., Ind., Mich., N.J., N.D., Ohio, Ore., Tex. and Wis. attended either in person or by teleconference. Martin and Abernathy attended in person, along with Chris Libertelli, FCC Chmn. Powell’s legal adviser. State commissioners were unanimous in saying Bell companies’ claims that current UNE rates didn’t cover costs weren’t accurate. They said FCC’s total element long run incremental cost (TELRIC) methodology accounted for direct costs, indirect overhead costs and fair profit margin of UNE services, and that state implementations of FCC’s TELRIC costing repeatedly had withstood legal challenges. “We are not allowed to set UNE prices based on overall rate of return or embedded network costs,” Ore. PUC Comr. Joan Smith said: “We must consider only forward-looking costs and, on that basis, the rates are compensatory.”

States cited statistics that mushrooming residential local competition over last 2 years was due mostly to reduced UNE-P pricing and increased availability. Wis. PSC Comr. Joseph Mettner said UNE-P lines jumped to 150,000 from 11,000 in last 18 months, with most of growth in competitive residential service. Other states cited similar explosive growth rates, with residential CLEC lines jumping by several hundred percent in recent months, and said none of that residential competitive market growth would have happened without cost-based UNE-P. States said if FCC were to drop local switching as mandatory UNE, that would knock out UNE-P as competitive pathway.

States said financial reports they received from Bell companies didn’t show that competitor inroads were threatening service quality by cutting incumbents’ profitability. Tex. PUC Comr. Rebecca Klein said data from SBC/Southwestern Bell “shows their service quality has been improving even as UNE-P has spread, and that they still are overearning, although by less than in the past.” Southwestern Bell is under price cap regulation in Tex., but still must report rates of return. Klein said it appeared Southwestern Bell’s local revenue actually might be hurt, not helped, by financial failures of local competitors that were buying its wholesale services.

Martin asked states whether FCC should adopt policy of requiring that when CLECs installed their own switches and other facilities to serve their business customers, they be required to phase out UNE-P and migrate their residential customers to their own facilities. States said that would be bad idea because it might deter CLECs from building any facilities or offering residential service if they couldn’t control customer migration.

State commissioners cited variety of statistics showing there was wide variation among CLECs and among states in how heavily competitive carriers relied on UNE-P. Cal. PUC Comr. Carl Wood said UNE regulation must be flexible. “This [UNE policy] can’t be a one-size-fits-all plan. We have spent years developing policies on which UNEs should be offered at what rates out of our intimate familiarity with the competitive conditions in our states. It would be unwise to preempt or restrict states’ ability to make policy in this area that’s critical to competition.” States stressed that today’s recession-plagued times were bad ones for making any major UNE policy changes.

Ohio PUC Comr. Ronda Fergus suggested a solution that could satisfy industry, consumers and the courts. She said FCC should set a list of default UNEs that were presumed necessary and indispensable for competitive access to local networks. For other UNEs, she said FCC should delegate to states the authority to decide whether particular other UNE was necessary and indispensable in that state’s local markets, and to determine criteria for when those other UNEs no longer would be necessary.