NARUC TRIENNIAL REVIEW PANELISTS URGE STATE COORDINATION ON UNES

The order will require state regulators to determine whether the absence of UNEs will impair telecom market competition. NARUC had planned the workshop for its summer committee meetings here this week in the expectation that the Triennial Review order would be out and its detailed requirements known. Since the order wasn’t released, panelists discussed factors and issues they wanted the states to consider as they carried out their analyses of how essential unbundled switching and transport were to competition in the mass market and high-capacity services market.

Richard Rubin, AT&T vp-regulatory affairs, said the states must base economic impairment on the costs of an entire retail service, including the extra costs of the incumbents’ manual hot cut processes. He said CLECs would be operationally impaired until they could switch customers totally through software: “Is it as easy for a CLEC to move a customer as it is for the ILEC?” He said CLECs would suffer impairment without UNE-P because that lack would restrict their ability to offer bundled services.

SBC Regulatory Vp Judy Walsh said states’ impairment analyses must consider the relevant markets and exactly what was meant by impairment. She said states would have to decide whether CLECs’ inability to compete in a particular market was due to UNE-related impairment or to other factors such as competition from wireless or cable providers: “Don’t allow nonimpairment issues to influence your decisions. We have incentives for keeping wholesale customers on our network.” Walsh said SBC had been improving its UNE-loop (UNE-L) provisioning to make the process more efficient. She said the 9-month proceeding on mass-market UNE impairment could be instrumental in restoring the health of the telecom industry by removing current uncertainties.

Tom Koutsky, Ztel vp-public policy, said UNE-P was as fundamental to its retail services as steel was to retailing autos. He said when states addressed the UNE impairment issue, they must look at whether competitors could serve the mass market without UNE-P and whether there were UNE-P alternatives such as an active non-ILEC wholesale market: “The question is whether real wholesale alternatives to the ILECs exist. Can I buy switching from someone else?”

Steve Davis, Qwest senior vp-law & public policy, said economic impairment questions involved whether competitive provision of certain UNEs was economically wasteful. He said forcing unbundling for UNEs such as local switching that were economically suitable for competitive supply would work to thwart competition, not promote it. In considering economic impairment, he said states also must determine whether the economic issues in a market were universal or carrier- specific. He also cautioned states “not to confuse ease with ability.” UNE-P may be easiest for competitors, he said, but states must look at whether an efficient competitor is able to compete effectively using UNE-L with its own switching facilities.

MCI Public Policy Dir. Carl Giesy said competitive carriers didn’t want to depend on incumbents and would prefer to use their own facilities wherever they could. He said that UNE-P now could provide fast and seamless customer switchovers, but incumbents’ UNE-L hot cuts to date hadn’t demonstrated the scale and scope needed to handle high customer churn rates. He said states’ impairment analyses must consider what economic and operational issues prevented competitive carriers from using their own switches. Giesy said his reading of the FCC’s release indicated states would have to find both economic and operational impairment existed in order to retain the switching UNE.

Bill Ojile, gen. counsel for rural incumbent Valor Telecom, said impairment would depend on market geography. He said economic and operational impairment factors would be different for rural markets because competition acted differently in rural areas and took different paths. “Don’t make general findings of impairment without considering the differences existing in rural areas,” he cautioned.

Cathy Boone, vp-external affairs, Covad Communications, said continued availability of UNE-P was critical to competitors’ ability to offer bundled services. “Bundling is critical to competitors’ success” and the manual processes of UNE-L would impair CLECs’ services, prices and reliability. she said. She said CLECs shouldn’t be denied line sharing. Boone also disputed incumbents’ claims they were being forced to sell UNEs at money-losing rates, saying she had seen “no real evidence” that total element long run incremental costing (TELRIC) had produced wholesale rates below cost.

Granular Nature Cited, But Regional Approaches Are Urged

Speakers at the triennial review workshop said the required granular nature of the UNE impairment analyses would limit how much states could do on a cooperative basis, but they said there were certain aspects of the UNE impairment reviews that lent themselves to regional approaches. They said states could help the process along by coordinating their evidence requests and hearings and could develop consistent policies on protection of proprietary data. “We don’t want to have to answer 30 different sets of discovery requests and adhere to 30 different timetables,” Covad’s Boone said.

Speakers said states should limit discovery requests to the most-essential data and have expedited processes for hearing discovery disputes. As long as parties avoid protracted wrangling over data discovery and other procedural issues, the FCC’s 9-month timetable for mass-market UNE impairment analyses should be enough time, speakers said.

Speakers said litigation over the FCC’s order would be inevitable. Davis of Qwest said: “We could go through this entire impairment analysis process only to have the courts overturn the whole [FCC] thing.” But Koutsky of Ztel said that absent a court stay of the FCC order, states would have no choice but to launch their own UNE impairment proceedings and conform to the FCC’s timetables. Speakers said even if the FCC order itself were upheld by the courts, the individual states’ UNE impairment rulings under that order were likely be litigated. Once the initial impairment findings are made, states will need to consider follow-up reviews as market conditions change and competitors enter or leave a market, speakers said.

When it comes to determining impairment for unbundling of dedicated high-capacity transport and high-capacity loops, speakers said the analyses would have to be done route by route on transport and building by building for high-cap loops.

Michael Lowe, Verizon vp & assoc. gen. counsel, said states wouldn’t be able to perform the analyses unless they knew where the fiber was: “We don’t know who all has fiber out there. We know that in the top 50 MSAs [Metropolitan Statistical Areas] there are 1,800 fiber networks, 180,000 route miles of fiber and 30,000 buildings connected to that fiber.” He said the mergers, bankruptcies and other competitive industry changes hadn’t made that fiber disappear: “States need to ask the CLECs where that fiber is.” He said once the initial impairment analysis was finished, there wouldn’t be any need to revisit the issue later: “The facilities won’t vanish. They'll just go to another provider.”

Vp-Govt. Relations Julia Strow said the availability of competitive alternatives would be the trigger for relief from high-cap unbundling requirements. But the presumption, she said, should be that competitive impairment would exist unless the evidence proved otherwise. She said the states had had a big role in opening competitive markets and were expected to have much discretion under the Triennial Review order to implement what the FCC intended. Strow also said it was critical to keep access to current facilities during the pendency of the impairment reviews. Just as in the mass- market impairment proceeding, she said states could help the process along for high-cap circuits by developing generic discovery templates and common protective orders.

Peter Martin, dir., BellSouth wholesale regulatory policy, said determining availability of competitive high-cap alternatives would require that everyone with high-cap transport facilities participated in the state impairment analysis dockets, including energy utilities and entities that normally wouldn’t be subject to state commission jurisdiction. He said in high-cap, as in mass markets, states should provide for follow-up proceedings after the initial impairment reviews where incumbents could seek unbundling relief that reflected future market conditions.

Allegiance Telecom Senior Vp Larry Strickling said that to the extent states found there would be competitive impairment without continued high-cap unbundling, “there must be action taken to correct the impairments found.” He said carriers such as Allegiance that depend on high-cap circuits had “access needs beyond the UNE-P carriers.” He said states could put the onus on the incumbent telcos to pick the routes and buildings for the impairment analyses. Strickling also said retirement of copper plant was a potential major issue in the states’ high-cap impairment reviews

The outcome of the state UNE impairment reviews will have substantial impact on competition and telecom customers, said consumer advocates on the panel. Phil McClelland of the Pa. Office of Consumer Advocate, representing NASUCA, said most residential competition today was based on UNE-P. The core question facing states, he said, “is how much less competitive would UNE-L be than UNE-P in the operational and economic sense.” He said the fact that the Bell companies had made few competitive forays outside their home regions “offers a clue to the difficulty of effectively competing across the country even with UNE-P.” Given the tight time- line and the fact that all the states would be conducting impairment reviews at the same time, “procedural collisions are inevitable,” he said.

Mark Cooper, research dir. for the Consumer Federation of America, said availability of UNEs at rates based on forward-looking cost wasn’t a transitory policy because there never would be true end-to-end facilities-based competition. He said competition in providing certain specific UNEs was possible, but some form of network unbundling would have to remain. In analyzing impairment, Cooper said states should look at: (1) The number of alternative suppliers. (2) Whether economies of scale and scope were shared by incumbents and competitors. (3) Parity in customer transfers. He said economic impairment would vary from state to state. Cooper said the FCC should let the states determine whether to require line sharing: “As it is, the FCC has granted the incumbents a monopoly on 21st Century telecom.” Notebaert Thanks States for Giving Qwest Chance to Help Itself

Qwest Chmn. Richard Notebaert told state regulators he was grateful for the chances they had given Qwest to dig itself out of the mess it had been in. He said the company had used the opportunity to improve its finances and services: “We've done everything we said we'd do if given a chance. We've still got a huge challenge but we are committed” to meeting it.

Notebaert said: “Our commitment to the ‘Spirit of Service’ is critical today. You can get dial tone anywhere… It’s our sprit of service that keeps people coming back to us.” He said Qwest had brought in new top- level people “of unquestioned integrity” to lead the turnaround. He said employees had been embarrassed to admit they worked for Qwest but “now they take pride in what we are doing.”

He said Qwest had “refused to utter the ‘B’ word. Instead, we've restructured our debt, sold our directory assets, got out of noncore businesses and settled with our customers and suppliers. We've made great progress.” He said Qwest had worked hard to build bridges with its regulators, customers and communities.

Qwest’s regulators “have generally been supportive,” Notebaert said. “There are always some who don’t want to let go of the past. We don’t want to forget the lessons of the past and we're working to regain trust.” He said Qwest for a time had forsaken its role as a good corporate citizen of the communities it served: “They felt betrayed when we withdrew our support” for community organizations. “But we're back to supporting the community organizations and encouraging our employees’ community participation.”

Qwest’s investors have been rewarded, Notebaert said. “The spirit of service works. Our stock has improved substantially.” He said various customer surveys had demonstrated Qwest’s dramatic improvements in customer satisfaction. “We've still got a long way to go,” he told regulators. “We're still carrying too much debt. We can’t afford it. We're working on it, but we'll need some help” in dealing with competition, he said: “We need the freedom to price and bundle services, solicit win-backs and offer incentives like our competitors. It’s in customers’ interests to have discounts and competition.”

In response to a question, Notebaert said Qwest was pushing broadband service and would be spending $100 million this year to extend broadband service availability and was exploring new technologies that would help deployment in rural areas. He also said Qwest’s deals with satellite video providers were “very important” to his company’s plans for offering multiservice bundles.