STATES RENEW CALL TO FCC FOR UNE CONTROL

Regulators from Colo., Ore., Mich., Mont., Wash., Tex. and N.D. spoke in NARUC teleconference outlining states’ position. NARUC Telecom Committee Chmn. Joan Smith of Ore PUC, said states in their reply comments had 2 main requests: (1) Keep UNE path to competition flexible by letting states add state-specific UNEs to any national UNE list, particularly if FCC were to delete some UNEs such as local switching from its current list. (2) Convene federal-state joint conference on UNEs as soon as possible to coordinate federal and state UNE policies and help ensure against jurisdictional clashes. State comments also said that if FCC declined to let state commissions modify national UNE list, then all UNEs now on list should remain there.

Colo. PUC Chmn. Ray Gifford said that while at least 23 states supported state additions to any FCC UNE list, his commission and several others also wanted flexibility to subtract UNEs from any national list if warranted by state- specific market conditions. Such a policy in effect would make national UNE list advisory, with states becoming final arbiters of which UNEs and UNE combos incumbent telcos must provide within their borders. Gifford said policy errors could be costly: “Small policy errors in 50 states would be less costly than a big national policy error.”

N.D. PSC Comr. Tony Clark said in his very rural state CLECs had achieved 20% local market share, with at least half their penetration achieved because of UNE-P. He said joint conference would be very helpful in addressing UNE policy differences among states. Wash. Utilities & Transportation Commission Chmn. Marilyn Showalter said allowing state UNE additions together with joint conference to ensure federal- state policy coordination offered best way to resolve “the inherent tension between the simplicity of a single national rule and the need to recognize state and regional differences.”

Although reply comments often receive less publicity and generate less debate than initial ones, numerous organizations alerted news media to their filings Wed. at FCC in triennial review of UNEs. Many tied issue to downturn of telecom market. Competitors and their trade organizations, joined by consumer groups, argued that limiting number of available UNEs would make financial situation worse. FCC has proposed eliminating some UNEs from list, perhaps with different number of UNEs in different geographic areas, depending on how much competition exists in each area.

Consumer groups said any FCC decision to reduce scope of network unbundling would disrupt already-precarious competitive local marketplace. In joint reply comments, Consumer Federation of America, Tex. Office of Public Counsel, Consumers Union, Media Access Project and Center for Digital Democracy said any policy that reduced UNE availability “would deliver a death blow to local phone competition.” Consumer groups said reducing unbundling obligation by deleting mandatory UNEs or permitting additional restrictions on UNE availability would lead to remonopolization of local service. FCC shouldn’t “hit the competitive communications sector while it’s down,” groups said in accompanying news release. FCC should affirm current UNE list to foster competition and “avoid further disrupting the already precarious competitive phone carrier market,” they said. Groups said that limiting wholesale access to UNEs would lessen number of competitive telecom providers and decrease consumer choice. “If even part of the [CLEC] sector is to survive the current economic downturn, the FCC must preserve the current minimum list of UNEs and allow the states to conduct reviews of UNE availability on a product and geographic basis,” said CFA Research Dir. Mark Cooper, who wrote comments.

In its comments, Verizon retorted that CLEC filings “are sound bites without substance, reflexive repetition of arguments that… cannot be reconciled with competitive realities… sound economics” or numerous court decisions. Verizon said that in last 3 years “there has been a tremendous growth in alternative switches, transport and high-capacity loops, as well as an explosion in intermodal alternatives for both broadband and narrowband services.” Thus, competitors no longer are as dependent on those elements, carrier said.

Verizon recommended eliminating unbundling in 3 key areas: (1) Broadband: “Both the language of the [Telecom] Act and its… policy goals effectively compel the Commission to eliminate unbundling of all broadband elements -- including line-sharing, packet switching and deep fiber loops -- and not to identify any new broadband UNEs, such as DSLAMs and ‘unified’ loops.” (2) Traditional dedicated services: “There is no basis for mandating unbundling of UNES or combinations of UNEs to replace special access,” such as that provided to long distance and CMRS providers. “All manner of carriers are competing successfully either using their own facilities, third-party alternatives or the ILECs tariffed special access services,” Verizon said. Same goes for dedicated transport and high-capacity loop UNEs used to provide competitive service, it said. “The CLECs’ claims of impairment for transport and high-capacity loops rest largely on the massive costs of replicating the ILECs’ existing networks -- a red herring if ever there was one, since demand for services using these elements is highly concentrated.” (3) Traditional switched services: “Circuit switching and, as a result, the UNE-P combination, should be delisted throughout the country.” CLECs already are using 1,300 competitive circuit switches to provide service to more than 16 million local lines, Verizon said.

CFA’s Cooper said Verizon was overstating existence of competition: “That whole premise is dubious at best. Imagine if you withdrew switching. What would be left? At least a quarter of the CLECs with switches are in bankruptcy. When I looked at who bought the bankrupt companies, many of them were companies that now are in bankruptcy themselves. “

Weighing in closer to ILEC side, think tank Progress & Freedom Foundation (PFF) said it wanted to “reiterate the critical impact of the UNE rules and TELRIC prices on incumbent carrier investment incentives.” PFF said: “Simply put, no economic or financial theory, no empirical evidence and no analysis offered in the initial comments in this proceeding shake the unequivocal conclusion that forcing firms to sell output at a loss reduces their incentive to risk scarce capital to build facilities for producing that output.” PFF concluded that: “The current UNE rules lead to lower investment in critical network infrastructure and consequent reductions in the consumer welfare the Commission is charged to promote.”

Views were strong on both sides: SBC called unbundling rules “devastating” and said regulations “must be modified” because they “impede investment and undermine facilities- based competition.” AT&T said “weakening the requirements would reverse gains” that had been made in competition and “exacerbate industry instability.” Telecommunications Industry Assn., which represents equipment manufacturers among others, said “excessive regulation is hampering the widespread deployment of broadband communications technologies.” CompTel said “events in the industry since the opening comments were filed just 3 months ago, including both judicial and industry developments, have raised the stakes in this proceeding.” FCC “can re-energize local telecommunications competition by re-adopting and expanding the list of unbundled network elements or it can help the nation regress toward a system of monopoly local fiefdoms controlled by the Bell companies,” CompTel said. ALTS said current UNE list was “the bedrock foundation of local competition policy” and any disruption of unbundling requirements or additional restrictions on UNE availability would add regulatory instability to financial turmoil in telecom, with dire consequences for competition.