TCS Daily

A Call for ELP

By Duane D. Freese - December 5, 2002 12:00 AM

Back in the 1960s, claim processors at Ford had strict time guidelines for repairs done by dealers for warranty work. Strict times, that is, except for one thing - wiring problems. For them, dealers could take as long as they wanted. And some did, up to 100 or more hours in a few cases.

Why did Ford provide such an opportunity for a few unscrupulous dealers to milk wiring problems? Well, Ford did audit dealers who had a lot of problems, but to little avail on wiring issues. The fact was it could take just about forever to fix a short in an automobile, as miles and miles of wire wound its way in the looms of a luxury automobile.

Fortunately for Ford, other automakers were in the same fix. All had to provide options, such as power doors and windows and air conditioning, that customers wanted. None wanted customers - especially of luxury cars - to take their business elsewhere.

The squeeze, though, did provide automakers with plenty of incentive to innovate. They eliminated the single wires running to each device in favor of plugs and switches that, combined with modern computers, provide consumers more conveniences yet also make wiring problems easier to find and repair.

Local telephone service certainly could benefit from similar innovation today. It would open the door to new and better services for consumers such as cheaper high-speed broadband Internet connections. Unfortunately, the hand-wired phone loops, unlike the hardwired cars, strangle not the Big Four local phone companies' pocketbooks, which would encourage rapid innovation, but competition. And that discourages roll out of advanced services for consumers.

This wasn't supposed to be the case. The Telecommunications Act of 1996 aimed to give local phone competition a boost. Competitors were to gain access to the local loop, in return for which the regulated Bell local phone monopolies could enter competitive fields, such as long distance. The environment would spur competition and new products.

The problem, though, is that competitors could never duplicate the $300 billion local loop the Bells built up over a century. Not overnight. So, the law called for the Bells to lease various elements to competitors - so-called unbundled network elements, or UNEs - at wholesale rates, as well as rent space for collocation of equipment in Bell facilities. As competition took root, competitors would have the wherewithal to build out their own facilities, enabling full-fledged facilities based competition. Or so it was hoped.

But nearly seven years later, even as long distance competition has intensified as the Bells have garnered permission slips from regulators to enter it, local phone competition has barely gotten off the ground. The reason: the Bells - SBC, Verizon, BellSouth and Qwest - have used every legal trick and regulatory loophole to slow down competitors' entry.

Hundreds of startups - many with bad business plans, but all relying on the telecom act's undelivered promise of a fair shake - died when they tried to rent various separate elements of the Bells' systems. The Bells' charges for them when added together often left no margin for marketing and profit. And if they tried to cut costs by providing their own elements, well, then there were collocation charges - $50,000 to $100,000 in annual rents for each Bell office in which equipment had to be located - and, worst of all, switching customers from the Bell's switches and systems to your own could take not minutes, not hours, not even days, but weeks or even months to accomplish.

It was, and is, ridiculous. With long distance service, thanks to modern computer-driven switching technology, it takes 15 minutes to make a switch from one provider to another. It's so easy, in fact, that regulators had to establish hurdles to switching long distance providers to avoid so-called slamming, the illicit switching of a customer from one provider by their competitor. Bottom line: It still can be done overnight.

What makes that possible is that it's in the local phone monopolies' interests to see those switches computerized because it saves them money. It also makes it easier now to switch customers of other long distance companies to their own long distance services.

But that isn't the case with the local phone loop. Switching to a competitor's network requires manually locating the customer's line, then physically connecting it to the competitors' switch, and it works to the advantage of the Bells to be slow and sloppy in doing that work as it keeps customers from migrating to competitors' systems.

It was because of such provisioning problems that the Federal Communications Commission a couple of years ago moved to allow competitors to lease the entire UNE platform, including the switches - UNE-P, as it is called - from the Bells. And when states stepped in following FCC guidelines for the leasing of that platform at forward looking costs, wholesale prices dropped and local competition finally got off the runway.

It hasn't risen too high. The Bells still control 90 percent of residential phone lines. Unfortunately, though, the Bells went to court to fight the rules. They complained UNE-P and the forward-looking prices under which states were leasing them were below their historical costs of operation.

Unfortunately, while the Supreme Court upheld the pricing method, a federal appeals court ruled that the FCC needed to decide on a market-by-market basis whether sufficient competition exists to require wholesale leasing of the UNE-P platform. Faced with that complication, the FCC is considering getting rid of its UNE-P provision, specifically requiring competitors to provide their own switches.

And that has both the Bells' competitors and state regulators up in arms. Competitors to the Bells warn that removal of UNE-P would leave them at the mercy of the Bells.

And last week, 80 state regulators from 34 states wrote the FCC asking it not to eliminate the UNE-P provisions. "Reversing course against competitive entry, I don't believe, will spur investment among incumbents," said Marilyn Showalter, chairwoman of the Washington Utilities and Transportation Commission.

In fact, though, the Bells are right. UNE-P isn't the best solution. But their answer - letting them charge pretty much what they want for access to their systems - is no better. What is is new and better wiring - a switching system that would allow moving to a competitors phone system from the Bells' seamless.

And there may be a way. It is called Electronic Loop Provisioning, or ELP. The technology amounts to creating a fiber loop with a series of multiplex switches that would connect all the Bells' central offices together and allow entry to the system at various points around the loop. It would operate much like long distance switching

Economist Laurence Kotlikoff of Boston University, in a study supported by AT&T, argues that ELP technology "is available now and can be installed at relatively low cost."

What does "relatively low" mean? Kotlikoff told me about $40 billion - which is equivalent to what was spent by both CLECs and the Bells for capital improvements in 2000.

That sounds like a lot, but it could be a real bargain. ELP technology also could open the door to more rapid dissemination of broadband. By reaching out into neighborhoods, Kotlikoff says, it would make possible delivery of DSL service at 8 Megabytes per second speeds - much faster than is available in most places now - and at a cost about 40 percent below current $43 a month rates. Even throwing in a $5 surcharge to help pay for ELP, broadband would fall within the $30 price range that surveys show people are willing to pay for that service.

As could be expected, the Bells don't buy that. They say ELP would wed them to second-rate technology, when they want to pursue fiber to the home. And they have told federal regulators that if UNE-P is lifted, then they will have the incentives to invest in broadband on a grand scale.

Fiber to the home certainly would be grand. But it would cost hundreds of billions of dollars, not tens, and take decades, not years, implement. Further, the Bells have a sorry history in delivering on their promises, as a Nov. 7 letter to the FCC by CompTel, which represents competitive carriers, shows. SBC, for example, promised the Indiana Public Utility Commission in 1995 to put in $120 million worth of broadband infrastructure to schools, hospitals and other public buildings in exchange for rate relief, and did nothing. Verizon won rate relief from Pennsylvania in return for a promise to roll out broadband at 54 Mbs speeds. It has since rolled back its promise to 1.5 Mbs, and isn't even delivering that.

Regulatory relief for the Bells, in short, produces nothing. If ELP isn't the answer, something like it will have to be. Fairness demands it. For as Eduardo Menasce, president of Verizon Enterprise Solutions Group, admitted to Network World Fusion recently, "It's much easier (for us) to go after long-distance. It's less capital intensive to move from local to long-distance than the other way around."

The FCC can't allow the Bells to short-circuit competition. It should tell the Bells that if they don't like ELP they must come up with an alternative - one that makes it as easy for a competitor to switch a local Bell customer to its local service as it is for a Bell to switch a competitors' long distance customer to a Bell long distance account.

Otherwise the agency should issue a call for ELP.



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