Posted: 03/2002

SOAP BOX

FCC Faces Momentous Decisions in 2002

By H. Russell Frisby Jr.

The Federal Communications Commission is at a crossroads. In 2002 while Congress continues to wrestle with the fundamentally flawed Tauzin-Dingell bill (H.R. 1542), the federal regulatory agency is charged with making many key decisions that could either advance competition or prevent the full realization of the goals of the Telecommunications Act of 1996.

One road, which supports competitive principles, will lead to economic recovery through increased investment in new technology and continued entrepreneurship. This road will bring to consumers and businesses less expensive, faster and better telecommunications services and equipment. The benefits will be great, and include increased innovation, improved service quality and a reduction in retail rates.

However, down the other pothole-filled road is possible re-monopolization or duopoly, which would lead to stagnation of innovation, higher prices and fewer choices for end users. This dead-end path would guarantee that local telephone markets do not flourish with competition, as the Telecom Act intended.

This year the FCC faces key decisions on a host of issues that will determine which fateful path it chooses. In so doing, the commission should be cautious not to be brainwashed by Bell company arguments that the only type of competition is intermodal or vertical. This means that a market would be fully competitive if there was one wireline carrier competing against a cable company, a wireless provider, and a satellite operator.

By contrast, the law supports intramodal competition, which contends there should be competition within horizontal sectors of the industry. Intramodal competition is what competitive local exchange carriers (CLECs) and integrated communications providers (ICPs) have been engaged in, competing against incumbent telcos specifically in the wireline market. Intramodal competition has been the catalyst for competitive providers to invest billions of dollars to build alternative networks.

There is a need for robust intramodal competition to ensure that intermodal competition can occur. For instance, the BOCs have had DSL technology since the late 1980s, but they never deployed it for a high-speed Internet offering to consumers. Only when competitive broadband service providers came on the scene post-1996 and began offering DSL, and cable companies upgraded their networks to enable cable modem offerings, did the BOCs find the incentive to offer customers the service.

The FCC is considering issues such as broadband policy, special access performance measures, network access, rights-of-way, and enforcement. Adding to the mix is the pending U.S. Supreme Court decision on total element long run incremental cost (TELRIC) pricing, which could affect various FCC proceedings. The issues, discussed below, must be addressed correctly and fairly to ensure that competition continues and becomes more robust over time.

Broadband Policy

The deployment of broadband networks and services is the basic theme surrounding most of the issues on which the FCC must act this year.

The Competitive Telecommunications
Association (CompTel) does not believe we face a broadband deployment crisis today that justifies Draconian policy changes and legislative actions.

When it comes to broadband, we believe there is a demand problem, not a supply problem. The demand problem is exacerbated by high costs for broadband access and a lack of killer applications to encourage use of broadband by consumers.

CompTel believes the U.S. government actively should promote investment by competitive broadband providers to bolster demand for innovative services and new applications that may convince more users to purchase broadband access. However, uncertainty regarding copyright issues and intellectual property rights may stifle many of the applications for which broadband is ideal. As a result, CompTel warns the FCC should be wary of trying to fix a problem that is not theirs to fix.

Special Access

Throughout the nation, the BOCs remain the dominant providers of last-mile connections to end-users. In many cases, competitive providers must rely on these facilities to reach their own customers. But poor maintenance of these lines and other performance-related problems jeopardize competitors’ reputations and their ability to provide reliable alternative services.

The users of special access provide some of the largest networks that carry much of the nation’s telecommunications traffic. Poor quality and service related to special access lines harm the carriers’ reputation and ability to provision service, and it is detrimental to overall network integrity.

The FCC currently is looking into problems competitors are having with special access lines, the point-to-point dedicated circuits that competitors use to connect customers to their PoPs or CO.

CompTel recently filed comments regarding this FCC rulemaking, proposing a uniform set of performance measures, including provisioning interval standards, which we believe the FCC should adopt. These measures will make apparent any incumbents’ discrimination and will determine the punishment for any improprieties.

Network Access

The FCC is also in the midst of its first triennial review of unbundled network elements, which includes UNE combinations such as UNE-P or enhanced extended links; line splitting and line sharing; and broadband last-mile access. In this review, the FCC is examining the regulatory framework behind the national list of UNEs to ensure that it reflects technological advances made in the past three years. In addition, the FCC will decide which elements are necessary and should be available to competitive carriers.

CompTel believes all UNEs are important, and that a threat to any specific network element is a threat to all UNEs. We will continue to petition the FCC to increase the availability of unbundled local switching and UNE combinations to allow competitive providers to serve small business and residential customers efficiently.

UNEs play an important role in the evolution of alternative facilities-based networks. Eliminating or undermining the UNE strategy likely would result in the construction of fewer facilities, not more. In today’s unforgiving financial climate, new facilities-based networks unlikely will be built, because investors are unwilling to support business plans that require a large upfront investment without the guarantee of revenue-generating customers. UNE strategies enable new service providers to gain a customer base and generate revenue, which in turn will enable them to build their own networks to handle increased demand.

CompTel also believes the FCC should look to the state commissions, which have played a critical role in determining rates, terms and conditions associated with the national list of UNEs. We are pleased that the FCC recognizes the important role the states play and is considering a Federal-State Joint Conference on UNEs.

Rights of Way

Access to public rights of way is another obstruction in the deployment of competitive telecommunications and broadband networks. Instead of focusing on providing services to customers, carriers are stuck negotiating a maze of local permit and licensing requirements. This is a frustrating process that takes up valuable time and money.

To be successful, competitors need reasonable and nondiscriminatory access to public rights of way. To that end, CompTel developed a list of recommendations to help create a uniform process in which competitors can access public rights of way. Among the suggestions were the removal of inappropriate or unrelated administrative requirements, and a fee structure that reflect the actual costs of managing and using rights of way.

Enforcement

Without strong enforcement, the results of these proceedings will be moot. CompTel believes the FCC can do much more to enforce existing laws and regulations that make competition possible. The penalties exacted on noncompliant BOCs must be fast and financially meaningful. In addition, federal and state regulators must be empowered with the enforcement authority they need to ensure that they properly can back up the policies they have devised.

CompTel supports legislation to give federal and state legislators adequate enforcement powers. We also are monitoring the activity of the BOCs to ensure they are complying with the law.

So far, the incumbent monopolies successfully have avoided many of their obligations required under the Telecom Act. In 2001, the BOCs incurred hundreds of millions of dollars in fines for blatant violations and accepted the fines as a cost of doing business in lieu of providing competitive carriers the access they are obligated by law to receive.

We are encouraged by statements FCC Chairman Powell and several key legislators have made, indicating enforcement should be a priority at the FCC. We will keep a watchful eye on the FCC, encouraging it to use every available tool to enforce existing laws. However, we remain concerned that the FCC’s current rules do not provide sufficient guidance to carriers to ensure full compliance with the market-opening provisions of the 1996 Act.

Pricing

Many of the policy decisions tie directly into an impending decision at the Supreme Court regarding TELRIC pricing, which was designed to compensate incumbents for their full forward-looking costs of providing network elements.

CompTel supports the FCC’s adoption of TELRIC and believes that TELRIC is the proper and correct pricing methodology for UNEs. We believe the ILECs have the greatest incentive to invest in broadband facilities when UNE rates are TELRIC-based, and they have the fewest incentives to invest in broadband facilities when UNE rates are above TELRIC levels.

In the coming months, these FCC proceedings will be well underway. Meanwhile, the BOCs will be pushing for new legislation to renew their monopoly. By bringing these aforementioned issues to the table, the FCC has empowered itself, while sending a signal to Congress that no new laws are needed.

But ultimately, which road will the FCC choose? CompTel hopes the FCC’s decisions reflect its goals: competition, fair treatment for all service providers, increased investments and ultimately a wide variety of choices and lower costs for the customer.