FCC Eases Bell UNE Sharing Requirements

Comrs. Copps and Adelstein cast the dissenting votes. They warned the order would substantially harm telecom competition. At the same time, Bell representatives complained the decision didn’t go far enough, especially for high-capacity loops and transport. “This item does not attempt to make all sides happy,” Chmn. Powell said during the Wed. meeting: “One will undoubtedly hear the tortured hand-wringing by incumbents that they are wrongly being forced to subsidize their competitors. They have a legal duty to provide access under limited conditions and they do protest too much in arguing for the end of vast portions of their unbundling requirements. Conversely, one can expect to hear dire predictions of competition’s demise from those who wanted more from this item. Time will show this will not be so.”

FCC commissioners and their staffs met until 1 a.m. Wed. trying in vain to hammer out an agreement that would win a 5-0 vote, several commissioners said. Copps -- who participated in the meeting remotely by speakerphone because he was recovering from back surgery -- said he was “deeply troubled” because he thought the order would “dismantle wireline competition.” Comr. Martin, although he voted for the order, said he had “reservations” about the legalities of some portions.

The UNE-P elimination actually came through a decision to drop mass market switching from the required list of UNEs. Switching is an integral part of the UNE platform. The UNE-P decision mainly affects CLEC provision of mass market service. Limits on access to high capacity loops and transport will affect business markets. In both cases, the issue involves CLEC wholesale access to parts of the Bells’ networks at lower-priced TELRIC rates. However, Wireline Bureau Chief Jeffrey Carlisle said cutbacks in CLEC access to those elements would occur only in a small number of wire centers. For example, he said, DS-1 loop access would be curtailed only in 0.5% of the nation’s 11,000 wire centers -- about 47 wire centers in dense urban areas with a lot of competition. Wire centers generally are comparable to Bell central office boundaries.

The order also revealed that the FCC revised earlier plans to determine building by building whether CLECs would be “impaired” without DS-1 loops. Impairment is the Telecom Act’s standard for whether CLECs need access to parts of the Bells’ network. Instead, the FCC will base its impairment test on wire centers. Carlisle told the press the FCC “discussed and rejected” using a building- by-building approach because the agency didn’t want to set up an army of “federal basement inspectors” to determine if buildings throughout the country were competitive.

Running throughout the meeting was concern about whether this order would survive judicial scrutiny. Three sets of FCC UNE rules have been turned down by the courts in 8 years. The latest set is in response to a remand in March by the U.S. Appeals Court, D.C. The only “responsible decision is to adopt rules that faithfully adhere to the decisions” of the D.C. Circuit and the Supreme Court, Comr. Abernathy said: “We must put an end to the debilitating cycle of court reversals.” The order will become final once it’s issued by the FCC -- only a news release is available now -- and is published in the Federal Register, which Carlisle said probably will be next month.

Analysts See Order as Pro-Bell

Legg Mason said the order appeared “more pro-Bell” but added that “the magnitude and the speed of the UNE relief was still not as great or as fast as the Bells thought was due.” Precursor CEO Scott Cleland viewed the order as “ending the original FCC’s vision of UNE-P but not the Telecom Act’s vision of UNEs.” Cleland said it was well known that “switching is going away” and 90% of high-capacity loops and transport remain TELRIC UNEs so the order “means the Bells’ wireline business will be regulated as far as the eye can see.”

The Consumer Federation of America called the order “the final nail in the coffin of local competition for residential consumers.” CFA Research Dir. Mark Cooper said the order continued the FCC’s “practice of chipping away at telecommunications competition while strengthening the Bell monopoly.”

SBC issued a statement saying the new rules continue UNE sharing “beyond what is legally justified.” The Bells had urged the FCC to cut back further on CLEC access to high capacity elements. SBC said it was pleased the FCC “took positive steps to eliminate the harmful and unlawful UNE-P subsidy program” but felt the FCC “ignored clear direction from the D.C. Circuit” in its treatment of UNEs aimed at business service. “For example, the impairment test for high-capacity loops… is not really a test at all, but a sham of a test that ensures DS-1 high-capacity loops will continue to be made available at below cost rates to our rivals in more than 99.5% of our central offices.”

Randolph May, Progress & Freedom Foundation senior fellow, said “any decision that results in a finding that impairment continues to exist for DS1 and DS3 loops in more than 99% of the wire centers in the country still tilts too far in an overly regulatory direction.” May said what the order says about implementation will be important: “It should say specifically that existing interconnection agreements with ‘change of law’ provision must be promptly modified to account for any UNEs eliminated.”

ALTS Gen. Counsel Jason Oxman said it’s ironic that “in the name of meeting the demands of the D.C. Circuit, the Commission has adopted an order that only partially embraces the statute’s clear mandate to promote facilities-based competition.” MCI said the Commission’s action could leave many business customers “without a choice of service provider by making it increasingly uneconomic to compete for certain customers against the incumbent carriers.” MCI also questioned whether the order followed the D.C. Circuit’s requirement that the FCC analyze market by market whether competitors are impaired.

Verizon said the FCC’s decision “gets it right on mass market unbundling… meeting the court’s requirement to end unbundling of switching.” But Verizon said the order doesn’t follow court directives on the business side and instead “seems determined to prolong a few corporations’ addiction to subsidy, a decision that will harm consumers by undermining facilities-based competition.”

Covad said it was pleased the FCC moved so quickly to adopt permanent rules and “while some aspects of the order… could be improved upon, we hope this order ushers in an new era of stability.” The company said it was pleased the new rules “maintain access to high cap loops… in the vast majority of cases, supporting Covad’s provision of cutting edge services” such as VoIP.

NTIA Administrator Michael Gallagher said the agency “appreciated” the FCC’s adoption of new rules and noted that in June the NTIA called for an end to litigation over the rules and “adoption of legally sustainable rules.” “The FCC has now acted,” said Gallagher.

FCC Sets New Rules for High-Capacity Elements

On high-capacity transport: The FCC said carriers would be impaired without access to DS-1 transport unless wire centers on both ends of the transport route had at least 4 fiber-based colocating competitors or at least 38,000 business access lines. The number of business lines used in the DS-1 transport test is much higher than the 20,000 once under consideration. For DS-3 or dark fiber transport there would have to be 3 collocators or at least 24,000 business lines before the Bells would free of unbundling requirements. In what’s sometimes referred to as “short transport,” the FCC said CLECs wouldn’t be impaired without UNE access to entrance facilities that connect ILEC central offices with CLECs collocated in nearby buildings. The FCC gave CLECs 12 months to migrate from using DS-1 and DS-3 transport in places where they aren’t impaired and an 18-month transition from dark fiber transport.

For high-capacity loops, the FCC said the Bells don’t have to unbundle DS-3 loops in a wire center that contains at least 38,000 business lines and 4 or more fiber-based collocators. Unbundling of DS-1 loops isn’t required in wire centers containing 60,000 or more business lines, the FCC said. These business line thresholds also are higher than originally contemplated by the agency. Carlisle also acknowledged during a news conference that the loop test is different than the one for transport. The loop test takes into account both business lines and collocators, while the transport test requires one or the other. He said the agency wanted to be sure the lessened loop regulation applied only to the most-competitive wire centers. The order eliminates unbundling for dark fiber loops. The FCC gave CLECs a 12-month transition from DS-1 and DS-3 loops where impairment no longer exists and 18 months to totally move from dark fiber.

During the transition periods for transport and loops, CLECs can’t add customers and will pay the Bells lease rates set under the interim UNE rules that still are in effect, the FCC said. The agency also gave CLECs 12 months to change from local circuit switching and thus UNE-P.

On other issues, the FCC: (1) Clarified that in determining impairment it judges the capabilities of “a reasonably efficient” competitor. (2) Prohibited the use of UNEs for providing telecom service in mobile wireless or long distance markets. (3) Said in applying impairment tests it “drew reasonable inferences regarding the prospects for competition in one geographic market based on the state of competition in other, similar markets.” (4) Said it would be “inappropriate” to prohibit CLEC access to UNEs just because a tariffed ILEC offering was available. (5) Didn’t impose use restrictions on high capacity loops, which had been a concern of CLECs. CLECs feared they would be forced into using Bell special access service for provision of data.

Meanwhile, Wireless Bureau Chief John Muleta said the bureau is in discussions with the Wireline Bureau about wireless carrier arguments that backhaul and other network elements provided to CMRS carriers be offered under UNE rates. Muleta wouldn’t lay out a timetable. The issue has been the wireless industry’s major area of interest in the UNE order. Carrier sources said Wed. they remain hopeful that the FCC ultimately will agree with their arguments. CTIA, like T-Mobile, Nextel and Sprint, has made a case for the rule change. Comr. Copps, meanwhile, pressed the FCC to address wireless UNE among a series of issues his office raised with Chmn. Powell during negotiations on the UNE remand order. A source said that, as with the other items on the list, Copps made little progress.