Local Phone Companies Continue Retreat in Wake of FCC Ruling

Acceris Communications Inc. is among the U.S. local phone companies scaling back operations in the wake of changing regulations that take effect today.

Earlier this week, the telecommunications provider announced it would stop accepting new orders for local residential phone customers in five states: Florida, Massachusetts, New Jersey, New York and Pennsylvania.

The San Diego-based company said it will continue to support 25,000 existing local residential phone customers in those states.

In December, federal regulators voted to phase out over a year rules governing wholesale access to the incumbent networks controlled by BellSouth Corp., Qwest Communications International Inc., SBC Communications Inc. and Verizon Communications Inc.

The rules take effect today and represent the demise of a leasing platform that fostered local residential phone competition and had been the subject of court appeals in Washington, D.C. for eight years: the unbundled network element-platform, or UNE-P.

The rules stipulate local providers leasing the incumbent networks can no longer submit new orders under UNE-P. Competitors also are required to pay the regional Bells an additional $1 per line per month to support their existing residential customers under the old rules.

In a letter sent to its competitors last month, Verizon said it was developing an alternative arrangement.

Verizon is developing a short-term plan that is designed to minimize disruption to your existing business operations, the largest local phone company said. This new commercial services offering would allow your continued use of Verizon’s network utilizing existing processes for ordering, provisioning, maintenance and repair for a limited period of time while a longer term commercial agreement is negotiated.

Despite the rule changes, under at least some circumstances, local phone companies that have not signed a commercial agreement with a Bell company to replace a UNE-P arrangement will be able to continue adding local residential phone customers for the time being.

For example, the Georgia Public Service Commission has required Atlanta-based BellSouth to continue accepting new UNE-P orders until competitors negotiate an interconnection agreement, says BellSouth spokeswoman LeAnn Boucher. She says competitors could be required to make retroactive payments to BellSouth to settle the difference between the UNE-P rates and the future negotiated rates.

The Georgia PSC made quite clear in their decision that they expected CLECs to start this [negotiation] process quickly, Boucher says. They also left open another proceeding to address any additional compensation above the current rates BellSouth should receive if a new interconnection agreement hasn’t been reached by March 11.

BellSouth spokesman Bill McCloskey says the company has negotiated commercial agreements with rivals covering approximately 300,000 UNE-P lines within its nine-state territory. At the end of the year, competitors were leasing about 1.9 million UNE-P lines from BellSouth to support consumers. Competitors also have relied on the UNE-P to offer local service to small businesses; BellSouth ended the year with 750,000 business UNE-P lines.

Carriers large and small have entered numerous commercial agreements with the other Bells over the last year since a federal appeals court in Washington, D.C. rejected FCC rules. Denver-based Qwest, the fourth-largest local phone company, has entered commercial agreements with its competitors covering about 95 percent of the UNE-P lines in its 14-state territory, says Steve Davis, senior vice president of policy and law and deputy general counsel with Qwest.

Acceris, a subsidiary of Counsel Corp., said it was attempting to negotiate long-term agreements to secure access to the incumbent networks. Local phone companies like Acceris dont have much of a choice.

In one year, competitors seeking access to the Bells networks to support their existing local customers must either have arranged a commercial agreement or pay higher rates under regulations known as total service resale. There were 17.1 million UNE-P lines as of June 2004, according to the most recent FCC data on local phone competition.

AT&T Corp. and MCI Inc. have millions of UNE-P customers, but both carriers are retreating from the consumer market in the wake of the regulatory changes and have announced plans to combine with their larger network suppliers and old rivals: SBC and Verizon, respectively.

In a statement criticizing the FCC, Congressman Edward Markey, a Massachusetts Democrat, said the agency fostered a regulatory environment that led to the big mergers by limiting long-distance phone companies ability to compete in the local residential market.

This combination, much like the recently announced merger between AT&T and SBC, would have been unnecessary until the FCC issued a series of decisions which closed the door on the long-distance industrys ability to compete in the local residential telecommunications marketplace, he said in a statement released Feb. 14, referring to Verizons plans to acquire MCI. The FCCs decisions are predictably causing companies to merge and will result in fewer competitors in the marketplace and thats bad news for consumers, high-tech workers, manufacturers and the prospects for further innovation.

The Telecommunications Act of 1996 paved the way for local phone competition by requiring the Bells to open their networks to competitors. In return, BellSouth, SBC, Qwest and Verizon were allowed to enter the long-distance market.

Over the years, competitors have argued they need to develop a large base of customers under the leasing regulations before they could justify spending millions of dollars on switching equipment. The Bells response before regulators and lawmakers: their rivals had no incentive to build infrastructure because regulators were allowing them to lease the incumbent networks at artificially-low rates.

Many of the Bells competitors never migrated to their own networks, but federal regulators point to such facilities-based carriers as Cavalier Telephone and McLeodUSA Inc. According to data submitted by the Bells, their competitors are supporting more than 3 million consumers and small businesses with their own switching equipment.

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