Splintered FCC Modifies Rules Regarding ILEC Network Unbundling

A deeply divided FCC voted yesterday on a series of issues regarding the obligations of incumbent local exchange carriers (ILECs) such as Verizon, BellSouth, SBC, and Qwest to unbundle their networks and lease the unbundled portions (unbundled network elements, or “UNEs”) to competitors at low, regulated rates.

The issues are complex and the details of the FCC’s ruling will likely determine how it affects any particular competitor (or potential competitor) in the execution of any particular business plan. Those details, however, will not be available for perhaps several weeks as the FCC staff finalizes the actual order embodying the FCC’s decision. Based on the statements of the Commissioners at the FCC’s open meeting today, however, as well as on the agency’s press release describing the action, here is what the FCC did:

  • Three-year phase-out of “line sharing.” Prior to today’s ruling, an ILEC was required to make available to a data-oriented competitor (such as Covad) the “high-frequency” portion of a loop, i.e., the capability of the loop to offer DSL service, without requiring the competitor to purchase the entire copper loop itself. This allowed competitors to offer DSL services with relatively low payments to the ILEC, and without having the burden of offering or being responsible for the subscriber’s voice service. Over a three-year period these low rates for this arrangement will be phased out. This is bad news for entities such as Covad, whose business models depend on the availability of low-cost access to the “high-frequency” portion of existing copper loops.
  • Elimination of switching as a UNE for large business customers. Prior to today’s ruling, an ILEC’s switching capability—the ability of its network to individually route calls to the number dialed—was available as a UNE. Today’s ruling removes switching as a UNE when the competitor is serving business customers with at least a DS-1 capacity loop (effectively, 24 or more incoming telephone lines). The logic of this ruling is that CLECs serving these large business customers can and should obtain their own switching capability to serve those customers.
  • Elimination of ILEC unbundling obligation for new fiber-to-the-home loops. In order to encourage ILECs to invest in new broadband-capable facilities—fiber to the home in particular—the FCC ruled that ILECs need not provide such facilities on an unbundled basis to competitors. This is unlikely to have a significant impact in the market (although ILECs will likely deploy some fiber-to-the-home as a public relations gesture) since such facilities are, on the whole, uneconomic whether they must be unbundled or not.
  • Phase-out of ILEC unbundling obligation for hybrid fiber-copper loops. For the same supposed reason—encouraging investment in broadband facilities—ILECs will have a lessened obligation over time to unbundle bandwidth in situations where the ILEC serves a neighborhood by means of fiber running from the switching office to a location near a neighborhood, with copper running to individual homes. This kind of hybrid fiber-copper deployment is the ILECs’ standard means of serving new neighborhoods today. ILECs over time will likely claim that normal deployment of these facilities were “incented” by the FCC’s new regulations; in fact, they would have occurred anyway. Over time this new rule will make it difficult or impossible for competitors (other than entities such as wireless and potentially cable, which do not need ILEC loops at all) to serve the particular areas the ILEC reaches using these hybrid systems.
  • Availability of other UNEs to be reviewed by states. Competitors may lease UNEs when their ability to compete would be “impaired” if the UNE were not available. The courts have ruled that this assessment of “impairment” must be made on a market-by-market basis. Although Chairman Powell and Commissioner Abernathy had sought to limit the availability of certain UNEs—including switching for all customers—on a nationwide basis, given their views of how to apply the “impairment” standard, Commissioners Martin, Copps, and Adelstein voted to leave such questions to individual state regulators (based on guidance from the FCC to be contained in the final order). This is a major victory for competitors like AT&T and others who sell millions of lines of service based on “UNE-P”—which means obtaining all relevant network elements, including the loop, local switching, and inter-switch transport. Had the FCC ruled that switching was no longer available as a UNE anywhere, this business model would have become unviable. As it is, individual states—which on the whole are viewed as more competitor-friendly than the present FCC—will make that decision over time.

The FCC took various other actions today as well, such as reaffirming “dark fiber” as an available UNE, and initiating a rulemaking to consider requiring a competitor adopting an existing interconnection agreement to adopt the entire agreement, or none of it. These and other matters will be much clearer when the FCC’s actual order is released.

Although a full understanding of the FCC’s action is unavailable at this time because the final order is not available, please contact us if you would like a more detailed assessment of what the FCC’s action means for your particular operations.