TELECOM INDUSTRY STRUGGLES TO INTERPRET NEW UNE ORDER

While the order generally followed the outline approved 6 months ago, the FCC gave more guidance to state regulators involved in UNE reviews. For example, on switching, the FCC said states should examine whether there were at least 3 CLECs using their own switches or 2 wholesale switch providers other than Bells. At that point, the state would have to determine that CLECs weren’t “impaired” and thus unbundled switching could be phased out for consumer markets unless a waiver were justified. The Commission also directed the states to set up a process to ensure that the Bells could “batch” hot cuts of large numbers of lines. Frisby said CompTel was trying to determine whether the additional state guidance was good or bad for CLECs. He said he didn’t agree with FCC Chmn. Powell that the so-called 3-2 trigger had little significance. The order, as expected, concluded that CLECs serving the enterprise market wouldn’t be “impaired” if switching were dropped from the UNE list. The agency gave a 90-day deadline for states to consider waivers of that conclusion, a time period Frisby said might be a problem.

The FCC also gave more information on its mandate that CLECs be able to use Enhanced Extended Links (EELs), but added several guidelines that Frisby said merited study, including a requirement for 911 capability and that circuits must terminate into a colocation facility. ALTS said the order directed the Bells to “stop their anticompetitive practice of saying ‘no facilities available’ when a CLEC places an order for a UNE.” ALTS praised language requiring the Bells to provide transport to CLECs in most markets, using a test that ALTS had recommended. ALTS Gen. Counsel Jonathan Askin said the Bells had proposed a geographic-based test while ALTS wanted a process in which transport would be taken off the UNE list “only when there are 4 competitive transport providers available on a route-by-route basis.”

Covad, not surprisingly, was happy about the FCC decision to grandfather the existing base of line sharing customers, which was seen as easing the impact of the agency’s vote to eliminate line sharing. In addition, the transition process allows new customers to be added in the first year. In the 2nd year, there would be no line sharing as a UNE but carriers could negotiate arrangements with incumbents outside the Telecom Act’s interconnection framework. The Commission allowed prices to transition away from TELRIC over that 3-year period and emphasized the availability of line splitting, an alternative to line sharing that Covad already was using. Covad said line splitting was similar to line sharing, with the key difference being that under line splitting, access to the residential line was “split” between Covad and a competitive voice provider, while under line sharing it’s “shared” with a local phone company. Covad CEO Charles Hoffman said the line-sharing decision, “while still fundamentally flawed, is on balance better than what many anticipated in February.”

The decision to deregulate Bells’ providing broadband service -- in other words, not requiring UNE sharing with competitors in some cases -- drew the expected strong praise from the broadband community and facilities providers. The FCC offered few surprises for the Bells, but competitors such as CompTel pledged a careful reading, once again railing against the FCC for deregulatory action that Frisby said “just doesn’t make sense,” particularly the different regulatory treatment of copper and fiber loops. The FCC said the Bells would not be subject to unbundling rules for all newly deployed networks of fiber to the home but must continue to unbundle copper loops for broadband services. The agency gave the Bells unbundling relief for packet-based hybrid fiber-copper loops, which ALTS called “extremely disappointing.” The Bells will have to continue unbundling Time Division Multiplexing (TDM) networks. TIA said the FCC’s action set a “paradigm for national broadband facilities-based policy.” The broadband industry has indicated a belief that the deregulatory move will encourage the Bells to increase investment in broadband facilities.

Legg Mason analysts said the order generally tracked the Feb. 20 decision, despite a few “wrinkles” such as the line- sharing changes. In general, “the Bells still suffered a near-term UNE-P defeat and gained a long-term broadband victory, while the converse is largely true for AT&T, MCI and other local competitors,” the firm said in a report. Legg Mason said its regulatory team saw the Bells gaining “some new ammunition to take various shots at UNE-P and gain partial relief over time but our ILEC analysts are a little more pessimistic about the Bells’ prospects.” Randolph May, senior fellow at the Progress & Freedom Foundation, said that while the order appeared to be fairly close to what was approved in Feb., “seeing the order in cold hard print reinforces the impression that, unless overturned in court, UNE-P is here to stay for many years.” May said “this unfortunate result is counterbalanced to some extent by the majority’s decision not to require unbundling and sharing of new fiber loops and packet-switching equipment.”