Incumbents, CLECs, Cable Companies See Increased Competition, Regulatory Uncertainty

“It’s been a challenging decade” for CLECs that don’t own last mile facilities to the home and instead “rely on Unbundled Network Elements (UNEs),” said Stephen Perkins, general counsel for Cavalier Telephone. Besides operational issues negotiating last mile facility sharing with Verizon, AT&T and other incumbents, “constant” regulatory battles increase uncertainty, drive up cost and “act as barriers to investment,” Perkins said. “If you see some of these regulatory issues like forbearance succeed… additional competitors will leave the market. You will end up with a duopoly. It will be a situation where the goals of the Telecommunications Act are almost completely abandoned. You'll have essentially the same people that were in the market before 1996: cable and the incumbent.” Given all the pressures, “you don’t see many startups going out to use” UNEs, he added.

Incumbent fiber installation is another concern to CLECs, Perkins said. Regulators must ensure copper lines are preserved for competitors to access, he said. Copper retirement “cuts the legs right out from under us -- literally.”

Cable companies faced “a number of significant regulatory obstacles” launching voice service, said Alexandra Wilson, Cox public policy and regulatory affairs vice president. However, over the last 10 years, federal and state policy makers have done a “maybe not perfect, but good job at identifying what the obstacles are and moving them out of the way,” she said. Cox is “very appreciative” that policy makers have promoted facilities- based competition, she added. The market is “increasingly competitive,” she said. “We're not quite at competition nirvana, but we're certainly heading there.”

Policy makers should apply a “uniform approach to regulating competitive voice services regardless of the underlying technology,” Wilson said. Differences between federal and state governments and other regulatory classification issues could make that difficult, but Cox “still thinks it would make sense to harmonize things” so the consumer and not the technology drives regulation, she said. In the meantime, policy makers should implement “meaningful interconnection protections” for circuit- switched and Internet Protocol-based services, she said. Also, price deregulation of VoIP is appropriate if regulators pay attention to “what’s going on in the market,” she said. “It’s fair enough to pursue retail deregulation of our VoIP services as long as it’s done with caution.”

Competitive forces for incumbents are no longer limited to CLECs, said Sean Lindsay, Qwest associate general counsel. Qwest faces “indisputable” competition from wireless carriers, he said. From 2000 to 2006, Qwest lost 5.5 million lines while CLECs in its region gained 2.7 million. Meanwhile, wireless subscribers in the Qwest region grew 15 million, he said. Wireless substitution is a real threat, he said. Though only about 16 or 17 percent of households have replaced wireline for voice, the number is growing, he said, citing carriers’ new femtocell and Wi-Fi hand-off services as drivers.

Wireless is becoming increasingly popular among young people in rural incumbent markets, said Jill Canfield, senior regulatory counsel for the National Telecommunications Cooperative Association (NTCA). More young people are choosing cellphones instead of getting wireline connections for their rooms, she said. Because of cellphones, ILECs are seeing wireline usage minutes decline, she said.

Wireless may be growing, but that doesn’t mean policy makers need to change the way they regulate, said Simon Wilkie, executive director for the Center for Communication Law and Policy. There is “no economic evidence of access substitution,” but rather minute substitution, he said. Consumers are using fewer minutes on wireline connections, but many are keeping the access line connection for video and Internet, he said. Canfield and Perkins agreed. In NTCA’s member areas, “it’s not complete substitution,” but wireless is “definitely taking minutes of use away.” Wireless is “not a substitute” from Cavalier’s point of view, Perkins said. “Most home owners… view the line to the house as something they need.”

Bundling is increasingly vital to competing in telecom, panelists agreed. About 59 percent of NTCA’s members bundle services, and that number should increase as more cable companies enter members’ markets, Canfield said. About 63 percent sell video service and 20 percent have plans to, she added. The 17 percent who don’t have plans tend to exist in “very rural areas” where they either already own the cable company or “there simply is no cable provider.” Cavalier is “in triple play because we have to be,” Perkins said. Market leaders are going to bundles, and “we have to beat their prices,” he said. “If we don’t price below… we're out of the market.”