UNE Rules Destined for Court Review, Again

Competitive local phone companies supporting millions of residential and small business customers may see their network costs rise during the next few years by several dollars per line under a regulatory ruling that is likely headed for another review before a federal appeals court.

The FCC voted last month to phase out rules allowing discounted wholesale access to the residential networks controlled by BellSouth Corp., Qwest Communications International Inc., SBC Communications Inc. and Verizon Communications Inc.

Competitors like AT&T Corp. and MCI Inc. have one year to transition away from the so-called UNE platform used to sell local analog phone service to residential and small business customers over the Bell networks. The transition applies to competitors’ existing customer bases and forbids them from adding new customers under the old regulations.

Federal regulators also adopted new rules used to provide phone and data services to larger businesses over the Bell networks in a ruling SBC said “disregarded the tens of thousands of miles of fiber that our rivals have deployed in virtually all metropolitan areas and cavalierly dismissed alternatives, such as special access, that multiple carriers currently use to compete.”

SBC adds the commission “has adopted an order that is headed for another judicial rebuke.”

Jonathan Lee, vice president of regulatory affairs with CompTel/ASCENT, the organization representing the Bells’ rivals, said the network rules that apply to the business market “seem to focus a lot on potential deployments to the exclusion of actual market evidence.”

Prior to the Dec. 15 ruling, Washington insiders had predicted the rates local phone companies such as AT&T and MCI pay for access to the residential networks controlled by the four regional Bells could increase by $7 to $11 per line once the government-mandated UNE platform is no longer available.

“We are not going to be in a position to absorb significant rate increases,” Robert Quinn, AT&T vice president, federal regulatory affairs, says. “I don’t think the business has finalized its plan for how those rate increases are going to be reflected.”

AT&T and MCI have been supporting millions of local residential phone lines over the Bell networks, but the two biggest long-distance companies have announced plans to scale back from the consumer market in anticipation of changing federal rules.

Mark Cooper, research director for the Consumer Federation of America, said in a statement “consumers will be the ones paying the price through diminished choices and higher rates.”

Local phone companies supporting consumers and small businesses could pay the Bells regulated resale rates to support customers under rules that have not been overturned, but Quinn says that would require AT&T to spend the money on new operational support systems to migrate customers to an entirely different platform under ‘total service resale.’ He says it is unlikely AT&T would do that. AT&T tried resale years ago in New York, but AT&T spokeswoman Claudia Jones says “there were outages and other operational difficulties” that did not make it a feasible alternative to UNE-P.

“I think we’re stuck with whatever rate increases” the regional Bells impose after the rules change, Quinn says.

Telecommunications companies have been considering different options to support their residential and small business customers after the federal appeals court in the District of Columbia rejected the rules in March 2004.

The Bells long have complained they have been forced to lease their networks to rivals at artificially low rates below their own costs. State regulators have set the wholesale rates based on a formula SBC and other incumbents assert is severely flawed.

Competitors like Talk America argue they need a large number of customers before they can justify investing in their own networks. Two years ago, Talk America began planning to build a network to support its residential phone customers. The strategy was rather straightforward: acquire a large number of customers over Bell infrastructure, then build a network to support those customers. That plan is still in tact today, at least in Michigan. Talk America President and CEO Ed Meyercord says the company plans to support 250,000 of 340,000 customers in the Great Lakes state within a year to 18 months. Talk America also is evaluating markets, including Atlanta, Chicago and Pennsylvania, to determine whether an investment makes sense and the company is exploring other alternatives to support customers, such as finding an alternative carrier to switch local traffic.

Over the last several months, local phone companies also have entered commercial agreements with the Bells for access to their networks, but Talk America is not among those companies. Meyercord cites a provision in an agreement between SBC and Sage Telecom that forbids Sage from building local networks in SBC’s territory. “That was a rather large stumbling block” to striking an agreement with SBC, he says.

Robert McCausland, vice president of regulatory affairs with Sage, says the agreement requires Sage to purchase all its analog switching and loops from SBC, but it “does not prohibit Sage from utilizing its facilities for other functions.” For example, he says Sage may implement its own voice mail equipment and could deploy other technologies without violating the accord.