FCC ADOPTS ALL-OR-NOTHING RULE FOR INTERCONNECTION AGREEMENTS

It wasn’t clear, however, how much the order will apply to commercial agreements. An FCC source told us that issue - - and whether the FCC had a regulatory authority to limit CLECs ability to pick and choose -- would be discussed in the order, expected to be released “soon.” The source said the order “is based on tentative conclusions” the Commission outlined in the NPRM (CD June 23 p6). It will become effective 30 days after publication in the Federal Register.

The FCC concluded Thurs. the current pick-&-choose rule was “not compelled by the language” of Sec. 252(i) of the Communications Act. It said the new all-or-nothing rule would “promote more give and take in negotiations, which will produce mutually beneficial agreements that will be better tailored to meet carriers’ individual needs.” The Commission also said it expected the new rules would reduce negotiation time, expense and possible areas of dispute, while providing “adequate protection against potential discrimination.” “The order concludes that the benefits of adopting the all-or- nothing rule outweigh the burdens, and therefore replaces the pick-and-choose rule,” the FCC said.

Chmn. Powell said the decision removed a rule that had “thwarted… more specialized interconnection agreements with incumbent LECs.” He said by adopting the all-or-nothing rule, “the Commission advances the cause of facilities-based competition by permitting carriers to negotiate individually tailored interconnection agreements designed to fit their business needs more precisely.” FCC Comr. Abernathy said by requiring that competitors opt into interconnection agreements on an “all-or-nothing” basis, “we ensure that third parties take the bitter with the sweet. In doing so, I am optimistic that we will promote more meaningful negotiations.” But Comr. Adelstein said “the question remains whether this change will provide sufficient incentive for incumbents and competitors to reach mutually-acceptable agreements,” given the experience of “the past 8 years and the past few months,” demonstrating “how difficult it is” for the parties “to reach negotiated agreements for access to [UNEs] and other critical inputs.”

Powell said the Commission action continued to “safeguard against discrimination,” consistent with Sec. 252(i). “Specifically, nothing in our decision diminishes the ability of a requesting carrier to avail itself of the arbitration process clearly set forth in section 252 of the Act,” he said: “Our decision today ensures that facilities- based competitors are given a fighting chance to participate in local markets.”

Copps said he was “not convinced that dismantling the pick-and-choose rule… will usher in a new era of negotiation and unique commercial deals.” He said while “statements about enhancing give-and-take negotiation have intuitive appeal, their logic here is thin.” He said the fact that the only wholesaler in the wireline market was “also the dominant force in retail competition” made contracting “difficult… Take-it-or-leave-it bargaining means competitors will walk away without any wholesale alternatives. To understand this difficulty, look no further than the lack of widespread commercial agreements reached during the months since the USTA II decision.” Copps said eliminating the pick-and-choose policy would increase the costs of contracting for smaller carriers and make it harder for them to compete: “The real losers are consumers… who will face a dwindling set of choices and more limited competition as a result.”

Copps also noted that the pick-and-choose rule was upheld by the Supreme Court in AT&T v. Iowa Utilities Board in 1999 and there was “no looming judicial charge that compels us to depart from our pick-and-choose policy.” “The highest court characterized the rule as ‘not only reasonable,’ but also ’the most readily apparent’ interpretation of the statute,” he said: “This is strong stuff for a Commission whose policy pronouncements do not always pass muster with the courts of land.” But Abernathy said that, when upholding the pick-&-choose rule as a valid interpretation of the Act, the Supreme Court recognized that the rule might “significantly impede negotiations (by making it impossible for favorable interconnection-service or network-element terms to be traded off against unrelated provisions),” and suggested that the Commission could change course if that happened.

In light of the Supreme Court’s conclusion, Comr. Adelstein said he would have supported “a more measured approach.” For example, he said the Commission could have adopted its all-or-nothing approach for negotiated agreements, but allowed the limited use of the pick-&-choose rule for new entrants. “Such an approach, though not compelled by our rules, would be a measured way to grant additional flexibility, now that we have concluded that multiple interpretations of the statute are permissible,” he said. Adelstein said the FCC should be “cautious” about an approach that “may permit parties to delay unreasonably making available even those provisions of interconnection agreements that have been arbitrated by state commissions. We should at minimum commit to monitoring the implementation of this new approach.”

Abernathy said the adopted reform was “part of a much broader transformation… While I have no doubt that the Commission will continue to mandate the unbundling of bottleneck transmission facilities, it is equally apparent that the concept of maximizing unbundling of all elements in all geographic markets cannot be sustained.” She said as the Commission moved toward adopting new rules under which “competitors will be increasingly required to rely on their own facilities and to differentiate their services, the availability of customized interconnection agreements will be all the more vital.”

The Bell companies applauded the decision, saying it would encourage more robust negotiations for interconnection agreements. BellSouth Vp-Govt. Affairs Herschel Abbott said the reinterpretation of pick-&-choose would “reduce gamesmanship and thus foster more productive negotiations. The new regime will allow CLECs and BellSouth to reach interconnection agreements that better meet the unique needs of each CLEC.” Verizon Senior Vp-Federal Regulatory Affairs Susanne Guyer said “while few companies actually took advantage of the ability to pick-and-choose attractive elements from other interconnection agreements, having that option available constrained and complicated the process of reaching mutually beneficial agreements.” USTA Pres. Walter McCormick said the decision would “help bring the telecom industry closer to a market-driven environment,” as well as “help promote further investment in the nation’s communications infrastructure and speed the deployment of innovative services to consumers.”

But ALTS Pres. John Windhausen called the decision “a step in the wrong direction.” He said while the Commission claimed that the decision would lead to more commercial negotiations, “the loudest voices in support of this change were the incumbent LECs… who have the least incentive to negotiate with competitors. It is the smaller competitive carriers -- who have no market power -- that needed the negotiation rights that Congress put in the 1996 Act, and that the Supreme Court unanimously affirmed.”

ALTS had said the Commission would face “enormous litigation risk” if it decided to eliminate pick-&-choose rules, because “the legislative history of the 1996 Act supports [current] interpretation, and the Supreme Court… held that this interpretation is the most logically correct reading of the statute.” ALTS Gen. Counsel Jason Oxman told us “it certainly seems that the FCC is vulnerable on appeal.” When asked, he said he didn’t know whether ALTS would appeal the decision: “We'll have to see the order and digest it before deciding.” But the FCC source said “the Supreme Court said the interpretation was reasonable but not correct.” Windhausen said “ALTS can only hope that this latest FCC action does not presage further moves to restrict CLECs’ access to ILEC last mile transmission facilities.”

CompTel/Ascent CEO Russell Frisby said the elimination of pick-&-choose did “nothing to promote commercially negotiated agreements between small competitors and the Bells, which continually wield their control over last-mile facilities in an effort to lock alternative providers out of the market.” Rather, he said the FCC “further” limited “the choices available to competitive carriers… There will be needless litigation costs to competitors, as they will be forced to dedicate their limited resources to legal fees related to contracting interconnection agreements, rather than investing in new technologies and networks.”