Subject: [NEXTEL-1] FCC DECISION LEAVES FUTURE UP IN THE AIR

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Date: Tue, 25 Feb 2003 14:38:10 -0500

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FCC DECISION LEAVES FUTURE UP IN THE AIR

By Glenn Bischoff

Telephony, Feb 24, 2003

After a year of white-hot lobbying efforts by incumbent and competitive carriers, and a final week of negotiations marked by a rift between FCC Chairman Michael Powell and Commissioner Kevin Martin, the commission last week issued an unbundling order that gave a little something to everybody. Instead of coming down squarely on one side of the issue, it further muddled an already uncertain regulatory environment, sparked outrage in some and made just about everybody uneasy.

The order — which culminated the FCC's second triennial review of unbundled network elements (UNEs) — keeps in place, for the most part, the UNE platform (UNE-P) and delegates to state utility commissions the authority to determine whether switching and transport should come off the UNE list on a market-by-market basis (see
table for details).

RULING SUMMARY

The FCC included operational and economic barriers in its definition of impairment.

ILECs no longer will be forced to unbundle fiber-to-the-home or hybrid loops.

ILECs no longer will be forced to make line sharing available as a UNE.

CLECs will no longer have access to UNE switching for business customers served by high-capacity loops.

State commissions will determine whether CLECs can have access to UNE switching for mass-market customers on a market-by-market basis.

CLECs will have up to three years to transition from UNE-P in markets where UNE switching is removed by the states.

ILECs no longer will be forced to unbundle optical carrier-level transport circuits, but will have to unbundle dark fiber, DS-3 and DS-1 capacity transport.

Source: FCC

Should state commissions ultimately decide that competitors in a given market would not be impaired by the loss of UNE switching, those competitors would have up to three years to transition from the platform.

Competitive carriers were euphoric that UNE-P survived the review relatively unscathed. Not only will they be able to continue providing service to the 10 million customers who receive service via some combination of UNEs, competitors also will have a much better story to tell potential investors.

“The order stabilizes a whole lot that was unstable,” said John Ivanuska, vice president of carrier relations for Birch Telecom. “Our banks have been asking us what happens if UNE-P goes away, and we've been telling them that would be really bad. They won't be calling us with those crazy questions anymore.”

However, competitors lost considerable ground in the broadband arena with the ruling that incumbents do not need to share new fiber facilities. “It seems like an awfully big grab by the FCC,” Ivanuska said.

Nobody is entirely sure just how big a grab, though, because the initial order summary was confusing and ambiguous to carriers on both sides of the debate, and the final draft won't be completed for several weeks. For instance, the order eliminates line sharing, which gives competitors the right to lease the high-frequency portion of the loop to provision DSL services, but it also allows competitors that currently provision broadband services via high-capacity facilities to retain access to those facilities. “Does that mean transmission speeds will be throttled below the capability of the underlying facility? That seems awfully strange.” Ivanuska said.

Covad Communications, which relies heavily on line sharing, said in a statement that the ruling would result in less choice for consumers.

Another concern for competitors is that the broadband relief granted to incumbents is only the beginning. An open FCC proceeding will address whether incumbents will be forced to unbundle any broadband facilities.

“This order seems to be a continuation of a trend toward a less competitive landscape, and that's disturbing,” said Randy Curran, CEO of ICG Communications. “It's sort of like death from a thousand cuts. The FCC needs to leave this alone now.”

Whatever angst competitors may feel pales in comparison to the Bell companies, which were clearly stunned by the order. While encouraged that the FCC “appears to be trying to do the right thing” regarding broadband, Tom Tauke, senior vice president of public policy and external affairs for Verizon Communications, said the commission missed a golden opportunity to pull the plug on regulatory uncertainty.

“Instead of certainty, they've injected chaos,” Tauke said. “This order is not good for the industry, consumers or investment. The FCC simply blew it.”

Competitors say the order will lead to increased facilities investment on their part — even though they should retain most of their rights to lease incumbent facilities. “We spent $150 million on equipment because of UNE-P,” said Tom Koutsky, vice president of law and public policy for Z-Tel Communications. “Equipment vendors would have been in more trouble if UNE-P had been eliminated, because we would have been in trouble.”

Nevertheless, Tauke predicted the order would lead to less investment in incumbent facilities — despite the apparent broadband relief — because it adds a layer of regulation that is as onerous as it is puzzling. Incumbents now must get permission from state commissions should they want to retire portions of their copper networks in favor of fiber, he said.

“This appears to be an attempt by the FCC to require us to maintain two networks,” Tauke said.

Herschel Abbott, vice president of governmental affairs for BellSouth, was more blunt: “I would be very surprised if capex remains where it is as a result of this ruling.”

Of greater concern for the Bells is the power the ruling gives state commissions. “Instead of the FCC establishing a national policy, we're going to have 51 state commissions setting national policy,” Abbott said. “That's just insanity.”

Inevitably, states will come to opposite conclusions based on the same set of facts, added Steve Davis, senior vice president of policy and law for Qwest Communications. “It's not a question of whether the states will make the right decisions. The problem is the absolute chaos that will result,” he said.

Instead of simply delegating authority, the FCC could have carved out a role for the states by giving them more enforcement authority. Abbott added that economic impairment is a non-factor. “There is a glut of switching out there,” he said. “There are so many switches out there that the market would set fair prices.”

Tauke questioned whether the FCC would be able to develop clear and concise criteria for the states to follow in making their impairment assessments. He likened it to the 14-point checklist developed by the commission to govern incumbent entry into long-distance. “The checklist was supposed to be so simple that we would be able to file our applications on the back of a postcard,” he said. “The reality is that every application we have filed consisted of thousands of pages.”

Inevitably, the FCC's order will be challenged in court. Should that happen, legal experts said the Bells and other incumbents shouldn't expect much — if any — relief. “I don't think the D.C. Circuit anticipated that the granular analysis was going to be done by the states, but that doesn't mean they won't be satisfied with the order,” said Christy Kunin, a telecom attorney and partner in the Washington, D.C., office of Gray Cary.

The Supreme Court also isn't likely to step in, said John Roberts, professor of telecom law at Chicago's DePaul University. The Supreme Court has made it clear in prior telecom decisions that the FCC has the latitude to delegate some of its authority to the states, he said. “The Supreme Court has said that the Telecom Act is so complex and vague that they are willing to cede to the commission a wide area of deference,” Roberts said.

The fact that the FCC's 3-2 decision was marked by a great deal of disagreement and dissension among the commissioners also makes it less likely that the high court would set it aside. “The split vote reinforces that this was a difficult and complicated task,” Roberts said. “The Supreme Court will give the FCC some room on this one.”

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