As FCC Mulls IP Transition, ILECs Look to Marketplace to Set Wholesale Prices

Ellen MuraskinOn Aug. 6, FCC commissioners rule on competitive carrier access post IP transition. The issue at hand: whether CLECs continue to have access, at regulated cost, to their end-user customers as the incumbents, on whom they rely, gradually switch their last miles from copper and TDM to fiber and IP. It’s an issue that certainly concerns telecom agents, as a wide choice of competing carriers gives them more leverage in assembling connectivity packages for their clients.

Judging by Chairman Tom Wheeler’s recent statements, the commission leans toward an extension of 1996 Telecom Act-style regulation, obligating ILECs to continue giving CLECs access to their customers at or near cost. But no one will hazard a guess as to how the five-person commission will vote, and how consistently across different types of services.

Some messages played on behalf of the incumbent carrier side portray this as an anti-fiber, pro-copper argument; one that would force ILECs to bear the cost of maintaining copper infrastructure while building out fiber. But speaking for CLECs, Samuel Kline, senior vice president – Corporate Strategy at Granite Telecommunications, last month welcomed the LECs to carry on their transition; the issue, he said, was preserving competition by sharing those new lines with competitive carriers, at rates equal in affordability to copper.

To hear the ILEC side of the story, I spoke with two people; one active on the regulatory side, the other on the product side, both on condition of anonymity. Objections to mandating competitive access to fiber seem to fall under three main headings:

  • Rules drafted in 1996 can’t be applied in the new, quickly shifting telecom landscape.
  • The UNE-P (“unbundled network element”) rulings that mandated competitive access to local loop have already been reversed and are no longer relevant in light of existing, functional competition.
  • A gradual transition will give CLECs enough time to react to new connectivity options.

“I reject the notion that nothing has changed in the competitive marketplace between 1996 and 2015,” said the policy source. In dropping the UNE-P rulings, she maintains, the FCC looked at the marketplace and decided that what was needed in 1996 was no longer necessary in 2002.

“There were other competitive choices, from …

… the cable companies, maybe other CLECs. The Act says that as competition acts and moves, you then decide what inputs and levers you need to make a functional competitive marketplace.”

ILECs Now Supply Wholesale Fiber Voluntarily

In their FCC filings, the ILECs have drawn a distinction between simple DS1 and DS3 TDM lines, whose access can remain at reasonably comparable wholesale rates, and “commercial platform services” – chief among them Ethernet services to businesses – which should not.

“We started providing CLECs commercial platform services voluntarily when the requirement for UNE-P went away,” said the policy source. “Something that is voluntary should not be made mandatory.” (The Unbundled Network Element order requiring CLECs to provide access to local loop was remanded by the D.C. Circuit Court of Appeals in 2002.)

There’s no arguing that ILECs must build out in fiber as bandwidth demands increase. While copper can deliver a 1.5Mbps DS1 circuit and in some places as much as 20 Mbps, that’s not true everywhere.

“As demand increases to DS3 and above, you need to migrate from copper to fiber-based technology,” said my ILEC product source. “My platforms are primarily based around Ethernet or MPLS. The big demand is for data, at much higher bandwidths than a DS1.” 

ILECs also carry baggage that CLECs and cable companies do not, in the form of tens of thousands in legacy switches that will need to be replaced.

“Today, CLECs, ILECs, and cable companies all compete in the same marketplace. How we deliver the service is based on what facilities we have. If we all had the choice, we’d all deliver in fiber. The scenario we’ve looked at is one in which we would retire that copper over time, but everyone would be fully appraised, and then we would be able to offer services over fiber to CLECs as well.”

Competition Is Alive and Fierce

The old FCC rulings allowed us to not have to offer those services over fiber; we do that today voluntarily,” said the ILEC product source, echoing his colleague. 

They both would like to see that continue, and let the marketplace determine rates. He notes that his company’s market share has decreased relative to cable companies and CLECs, proving that competition is working well without price regulation.

“It’s very competitive right now, looking both at the number of players in the space, and the prices being charged. Based on market pressures, I have only seen Ethernet pricing …

… continue to decline for the last five years.”

Asked how resellers should regard ILECs’ case with the FCC, the policy source said that she would tell them, “We’re moving into the IP world, where everyone wants to go. The question is, how do you to this in a smooth transition, knowing that there will be some changes? There always are. That’s why we didn’t want to do a flash cut (i.e., a sudden hike in prices).” New pricing for new bandwidth and services will be determined over time, she said.

The worst outcome for the ILECs would be not only regulated pricing, but on a regulated schedule, according to her industry colleague.

“If it becomes very regulated and timelines are imposed, there could be a very detrimental effect on the industry,” he said. “The CLECs want TELRIC-based DS1 and DS3 pricing over fiber.” [TELRIC (Total Element Long-run Incremental Cost)] is a calculation method the FCC ordered ILECs to use in charging CLECs for colocation and interconnection in 1996.] “The infrastructure costs to provide fiber are considerably more than to provide copper. It’s apples and oranges.”

Angie Tocco, independent agent and co-founder of LanYap Networks, shows sympathy for the ILEC argument, even as she appears to be caught in a balancing act between her existing TDM and present/future IP marketplaces.

“The changes seem almost punitive to the LECS that are mandated to maintain the current infrastructure while attempting to increase their IP base,” Tocco wrote in an email exchange with Channel Partners. “We have a great deal of traditional TDM services in our current book of business, so while I truly understand the former [IP transition], I feel the latter [TDM] is equally important.

“While retaining our current base is imperative (as it is with the LECS), we also need a straightforward approach to IP migration,” Tocco adds. She also points out that while AT&T maintains that it will keep its copper services indefinitely, the carrier stopped compensating agents for them more than a year ago.

Aggregators will find it easy to replace revenues lost from carriers such as AT&T, Tocco says, “but agents will be compelled to find creative ways to adapt in order to stay abreast of the trend rather than being steamrolled by it.”

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