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Regulatory News – New FCC Lineup, Uneven Rules Fuel Competitors’ Concerns

Posted: 04/2001

Regulatory News

New FCC Lineup, Uneven Rules Fuel
Competitors’ Concerns

As the second quarter of the year begins, several significant policy issues
stand to affect the competitive telecommunications industry, including
regulation of competitive carriers and the unbundled network element platform (UNE-P).
Add to this the changing faces at the FCC (www.fcc.gov),
as well as prolonged restructuring at the federal agency, and it’s unclear at
this stage exactly how commission enforcement measures will help ease the
competitors’ concerns.

It won’t be easy, sources say.

"These may seem like small issues, but if you let them slide, they’re
gonna kill you," says Jonathan Lee, vice president of regulatory affairs
for the Competitive Telecommunications Association (CompTel, www.comptel.org).
"These are issues that will keep coming up."

Competitors now are witnessing the collision between regulation and
deregulation, says Genevieve Morelli, Washington telecom counsel with Kelley,
Drye & Warren LLP (www.kelleydrye.com).

Rationalizing regulation between participants is becoming increasingly
difficult for lawmakers, Morelli explains, especially about whether to increase
it for CLECs. Up to this point, the ILECs have been regulated, while competitive
carriers and new entrants have not.

But times are changing quickly, noted Dan Gonzalez, vice president of
regulatory affairs for XO Communications Inc. (www.xo.com).

"We’re used to fighting fires on a daily basis," Gonzalez said
during a recent CompTel policy track panel discussion. "We can never take a
breather."

Competitors such as XO now are subject to new federal regulations that have
popped up in the last 12 months or so, he said. This includes new requirements
to file semi-annual and individual reports on broadband, service quality and
number utilization.

"These are burdensome and potentially troublesome regulations,"
Gonzalez said.

At the same time, certain FCC requirements for the ILECs have been dropped or
reduced, Gonzalez added, including service quality and customer reporting.

"It’s new regulations for us and less for the ILECs," he said.

Particularly troubling, Gonzalez noted, is the fewer number of service
quality reports the ILECs are required to submit (it went from quarterly to
yearly).

This shouldn’t be happening, he suggested, just as SBC Communications Inc. (www.sbc.com)
subsidiary Ameritech Corp.(www.ameritech.com)
continues to struggle with quality of service (QoS) problems, and as Verizon
Communications Inc. (www.verizon.com)
struggles with an increase in the degradation of its service to CLECs in New
York.

"The FCC now has proposed service quality reporting on the CLECs, and
it’s premature," Gonzalez said. "We are unbelievably dependent on the
facilities of the ILECs, which still largely own the local loop. At this stage
of the marketplace, it imposes a costly burden on CLECs and it’s time
consuming."

It should be understood by state and federal lawmakers that competitors have
to provide good QoS in order to compete in the first place, he added, suggesting
that related QoS reports from the competitors are a moot point.

"We [the CLECs and the ILECs] don’t have parity of regulation and that’s
how it should be," Gonzalez asserted. "The Telecom Act imposes
regulations on the ILECs because we do not stand on the same plateau."

Another related problem for competitors is the reduced number of ILEC
accounting reports now required by the FCC. The CLECs use ILEC accounting
information to aid them in negotiating such items as UNE rates or ILEC pole
attachment rates. Fewer reports give the CLECs less information to work with,
they claim.

Speaking of UNEs …

Competitive carriers say that the ILECs must make combined UNEs–which are
the so-called UNE-Platform or UNE-P–universally available to them, or
residential and small business subscribers will suffer.

While the ILECs are legally obligated to provide UNE-P in most U.S. markets,
the FCC several months ago established an exception.

The FCC ruled that the ILECs have no obligation to provide switching
facilities to competitive carriers in the most heavily populated zones of the
top 50 metropolitan service areas (MSAs) when those carriers seek to serve
customers with more than three access lines.

Switching, competitors say, is a key UNE. Without access to switching in
these urban markets, competitors say there is no access to the UNE-P.

Morelli says competitive carriers are lobbying the FCC to lift that
restriction, which has been particularly harmful to small businesses because
they tend to have between four and 20 access lines, the very range where the UNE-P
would be the most cost-effective means of providing local service.

UNE-P is the most promising vehicle for broad-based competition for
residential and small-business subscribers, according to Morelli, who, along
with telecom consultant Joseph Gillan, co-founded the Promoting Active
Competition Everywhere (PACE) Coalition.

PACE, for a year now, has been focusing on ensuring that competitive telecom
services are delivered to residential subscribers and small businesses through
use of the UNE-P.

"If the UNE-P is made available on a commercial basis, it explodes the
market wide open," Gillan told PHONE+ during CompTel’s annual convention in
February. "The upside is so great and there’s no downside for
competitors."

"It seems like a no-brainer," Morelli added.

Morelli and Gillan said this is not the time for the FCC to restrict an entry
strategy for competitors. For instance, Gillan said that what’s killing DSL
providers is that they have no marketing channel, which is due to the FCC’s
failure to get UNE-P out there as a marketing channel.

Regardless of whom CLECs serve and in which markets, they should have access
to unbundled local switching and UNE-P, said Ernest B. Kelly III, president of
the Association of Communications Enterprises (ASCENT, www.ascent.org).

"Any restrictions placed on these technologies certainly would violate
the spirit if not the letter of the law," Kelly noted.

ASCENT recently conducted a survey to determine the implementation of the UNE-P
on a state-by-state basis, and found "a disturbing lack of progress by many
states in ensuring that the UNE-P is available to competitive carriers,"
according to Kelly (see chart).

In fact, five years after enactment of the Telecommunications Act of 1996,
Kelly says, officials in roughly half of the 50 states have yet to take the
steps necessary to make the UNE-P "readily and meaningfully available to
competitors."

ASCENT has asked the FCC to exert its authority by undertaking an ongoing
program to remind the states of the importance of the UNE-P to local
competition. The association also wants the FCC to persuade non-compliant states
to make the UNE-P available to competitors.

Richard F. Burk, president and CEO of nii communications (formerly Network
Innovations Inc., www.niicommunications .com), based in San Antonio, Texas, says
the problems that competitive carriers face in accessing and using the Bell
companies’ UNEs are severe.

"Real progress is being made, but only where the [Telecom] Act has been
enforced and allowed to work," Burk says. "Unfortunately, the Bells
seem to think they are entitled to decide where and when that is."

Some sources claim that the RBOCs are trying to make deals with regulators in
which they promise to go into second- and third-tier markets if they aren’t
forced to unbundle their networks.

The RBOCs discredit such claims. In fact, SBC, Verizon and BellSouth Corp. (www.bellsouth.com)
have cited statistics showing that CLECs are using their own switching
facilities to serve customers with less than 20 lines. Therefore, the RBOCs
claim, the "switch carve-out" is not hindering competition.

But ASCENT says that few CLECs are actually doing this.

Smiling Faces

FCC Chairman Michael K. Powell soon will have a new commission to lead. The
three current commissioners–Susan Ness, Gloria Tristani, and Harold Furchtgott-Roth–plan
on leaving the federal agency sometime this year.

Furchtgott-Roth will leave once President Bush names his replacement. Ness
and Tristani also will stay on until two new Democrats are named. There also is
one other Republican seat to fill in addition to Furchtgott-Roth’s.

Such big changes worry competitive carriers and their lobbyists. For one,
everyone is scared of the unknown. For another, the new commission will take up
valuable time getting situated. And in the case of competitors, time is money.

And this could take up a lot of time.

FCC bureau chiefs and commissioners, for example, believe that the current
FCC staff lacks the engineering expertise necessary to understand the new
Internet technologies that it must regulate.

Powell and most of his bureau chiefs said during a February meeting that the
FCC specifically lacks "engineering resources."

Some "30 to 45 percent of engineers are approaching retirement
age," Powell said. "When we hire entry-level engineers at GS 5 and 7
levels, and you are competing with the very industries you regulate for the same
talent, you have a problem."

The FCC’s aging engineering staff has expertise in areas such as legacy
technologies, including the public switched telephone network, and broadcast
radio and television. However, since chief technologist Professor David J.
Farber returned to the University of Pennsylvania a few months ago, no one at
the FCC seems to understand many Internet-based technologies, such as instant
messaging and Internet access over cable facilities, FCC staffers said.

This now leaves the FCC dependent for information from the very companies
that it regulates, as well as from speakers at public forums and FCC
communications lawyers.

Powell said the FCC doesn’t have "an independent technical capability
… and [we] cannot rely on the industry we regulate."

The FCC Cable Services Bureau, for instance, has 30 attorneys, but only five
engineers who understand the technologies, according to bureau chief Deborah
Lathen. Meanwhile, the bureau’s responsibilities have exploded, she says, as it
has moved into broadband policy, direct broadcast satellite, Internet access and
new missions, such as interactive television.

"We have to recognize that our capabilities really are strained,"
she says. "We have difficulties attracting people because of salary
limitations."

Powell said the FCC needs more money from Congress for salaries, training and
new technical tools. Some Republican members of Congress, on the other hand, are
more apt to simply do away with the FCC altogether rather than give it more
money.

Generally speaking, a Republican- dominated FCC, no FCC or a technically
challenged FCC don’t seem like such great options to competitive carriers.

The rest of the year in Washington, they add, will be nothing short of
interesting.


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