TAUZIN URGES FCC TO ABOLISH UNE-P, OTHER UNBUNDLING

Witnesses said that while FCC regulations in some ways had contributed to decline in sector, most stopped short of assigning complete blame for telecom recession to FCC policy. But they did say that more certainty, which probably would be created by reduction of UNEs, was very likely to result in more investment in new facilities. “I have never seen a period with greater uncertainty,” Stephen Brodeur, pres., Cambridge Strategic Management Group, said of telecom sector.

Tauzin said UNE-P was discouraging investment by ILECs worried that newly built facilities would be used by competitors to steal customers and by CLECS, which could rent facilities at much cheaper rate than they would cost to construct themselves. “Michael Powell’s FCC needs to rip the rules put in place by Al Gore and [ex-FCC Chmn.] Reed Hundt out by the roots and throw them away,” Tauzin said. “At the very least, our Republican FCC Commissioners should want a wholesale change to the overly regulatory approach taken by Al Gore and Reed Hundt.” Tauzin emphasized need to abolish UNE-P and prevent new facilities, especially fiber, from being subject to unbundling rules.

Upton said he believed UNE-P and unbundling of new broadband facilities had “been a major contributor to the massive decline in investments in the telecommunications sector, particularly new facilities.” He asked witnesses how potential reversal of UNE-P could affect telecom sector. Robert Atkinson, dir., policy research for Columbia U. Institute for Tele-Information and former FCC Common Carrier Bureau deputy chief, said “it could be better, it could be worse,” and it was likely to have more detrimental effect on smaller markets. Blake Bath of Lehman Bros. said it certainly would lower cost of capital to industry. Brodeur said UNE-P elimination might have detrimental affects in short term, but was likely be beneficial in long term.

Dingell said: (1) UNE-P must be abolished. “It was a bizarre invention of the Commission that subverted the language and clear intent of the 1996 Telecom Act,” he said. (2) FCC should conclude there’s no ILEC obligation to provide unbundled access to fiber loops and subloops used for transmission of packet based services. (3) FCC mustn’t defer to states as it undertakes review of what network elements must be provided on unbundled basis. Meanwhile, Rep. Stearns (R-Fla.) touted need for more spectrum for 3G wireless services and more certain digital content rules.

Atkinson said telecom sector had entered period where past certainties no longer existed. “Chronic volatility” that telecom sector has entered is likely to result in pattern of “boom-bust” cycles that were unfamiliar to many who had regulated or invested in telecom, which was much less “volatile” in past. Regulations may bear some responsibility, he said, but it’s likely less a factor than “laws of physics and the laws of human nature,” he said. While regulation isn’t only factor in recent decline of telecom sector, Brodeur said, regulations “will clearly be a factor in the continued emergence of competition in the sector and the continued investment by existing operators in cutting edge technology and capabilities.”

Robert Crandall, Brookings Institution senior fellow, said deregulation of telecom was progressing very similarly to deregulation of other industries, such as airlines and trucking, which also experienced slumps. He said FCC should make clear that traditional telephone and cable companies wouldn’t face regulation of new high-speed broadband Internet services. Unbundling of traditional telephone services also is important, he said, but not as important as removal of regulation on newer services. But Crandall discounted effect telecom slump was having on overall economy, saying telecom represented just 2% of GDP. He also said UNE-P had been used primarily by AT&T and WorldCom to offer bundled local-long distance service, as opposed to being used by competitive telecom firms to gain “toehold” in competition.

Telecom Subcommittee ranking Democrat Markey (Mass.) said panel wasn’t balanced and told witnesses: “You are advocates for the past.” He said removal of UNE-P would reduce competition and said Bells had century of history of declining to invest in new services and facilities when not pushed by competitive forces. “Isn’t it better to have more competition,” asked Markey, who questioned witness how competition could drop broadband prices when FCC regulations could reduce competition. Eric Strumingher, Cobalt Capital investment analyst, said broadband prices were high because cost of providing service was expensive.

In news conference preceding hearing, Sue Ashdown, exec. dir., American ISP Assn. said if FCC didn’t apply unbundling to new facilities, RBOCs would be able to use them to undermine competition created by UNE-P. Without unbundling requirements on new build-outs, Bells will be able to use market power they achieved through monopoly to force competitors out of business, she said. Argument that intermodal competition would emerge was discounted. David Mack, of National Small Business United, said small businesses didn’t have benefits of intermodal competition since most small businesses were served only through wireline. He said small business would suffer higher rates if competitors were forced out of market by FCC reversal on UNE-P.