TCS Daily

Telecom's Future

By Duane D. Freese - January 15, 2003 12:00 AM

Federal Communications Commission Chairman Michael Powell told the Senate Commerce Committee on Monday that "we are at critical crossroads in communications," spurred by computerization.

Who could disagree with that? And who could disagree with the five goals set out by the son of Secretary of State Colin Powell for a more vibrant telecom tomorrow:

  • "Bring consumers the benefits of investment and innovation in new communications technologies and services.

  • "Expand the diversity, variety and dynamism of communication, information and entertainment.

  • "Empower consumers, by moving toward greater personalization of communications - when, where, what and how they want it.

  • "Promote universal deployment of new services to all Americans.

  • "Contribute to economic growth, by encouraging investment that will create jobs, increase productivity and allow the United States to compete in tomorrow's global market."

Great stuff. But how do you get there?

Sen. Bill Nelson, D-Fla., provided the answer. In one of the shortest statements ever issued by a U.S. senator on record, Nelson offered this wisdom: "Competition and the input of state regulators. That's what I'd underscore."

The worry of many senators expressed at the hearing on telecom's future on Monday is that the FCC, while giving lip service to competition, may soon undermine it, particularly local telephone competition.

One of the key rules the FCC will decide in the next six weeks involves the ability of competitive exchange carriers to the local Bell operating monopolies to lease from them their networks at wholesale rates. After years of litigation and hearings, state utility commissions, frustrated by a lack of competition, have begun to approve wholesale leasing. The so-called UNE-P (for "unbundled network element platform") has in two years doubled the level of competition in local phone markets that had occurred after the first five years of the telecommunications act of 1996.

But the level is still hardly Earth shattering - a mere 11 percent, about 21 million lines out of the 190 million that the Bells control, as Powell testified.

But what Powell had to say about UNE-P could hardly be reassuring to those interested in competition.

Powell cast the commission's decision-making on UNE-P as being forced upon it by the courts, because the courts ruled the FCC hadn't met a Congressional mandate to require only unbundling of those elements of the local Bell networks necessary for a competitor to gain entry into the market.

Powell has interpreted the court's ruling to mean that the "commission must establish, from the ground up, the clear impairment of each and every element that it orders unbundled. ... If even one of those elements cannot be sustained under the more rigorous impairment analysis, the UNE-P will not be government mandated as an alternative."
It sounds almost like an impossible task, as Powell describes. After all, cable companies that now supply phone service to 2.6 million lines don't need many, if any, of the Bells' network elements to go into business, so how can impairment be demonstrated on any element on a one to one basis? And one error and the whole UNE-P structure falls.

But it isn't quite that hard. As Robert Bork, former solicitor general and an antitrust expert, explained in a letter on behalf of AT&T to the FCC last Friday, the federal appeals court in remanding the UNE-P rule back to the commission didn't require that it prove it impossible for entry for just one competitor, that would create a duopoly, but of multiple competitors. "The commission's basic task in implementing the 'impairment' standard is to assess whether entry barriers exist for each particular network element that would prevent multiple firms from deploying alternative facilities," Bork wrote.

Entry barriers keeping multiple firms out of a market as opposed to just one - such as a cable company - mean that most of the elements the Bells are required to rent under UNE-P are necessary for entry of a competitor, at least at the start.

And by relying on state public utility commissions to make the determination of when sufficient competition exists to eliminate elements from the UNE-P list, the commission could more readily meet both Congress' desire to promote competition nationally and court mandates to determine on a market-by-market basis when competitive factors were such that the Bells could be released from unbundling obligations.

There is some hope that that is exactly what the FCC will do.

Commissioner Michael J. Copps, a Democratic holdover, said something that would make most Republicans proud. He told senators, "The commission and the state (regulatory) commissions have a joint responsibility under the (Telecom) Act (of 1996) to ensure that conditions are right for competition to flourish. The path to success is not through preemption of the role of the states.

"We rely on state commissions for their efforts to open local markets to competition. We rely on state commissions to evaluate the openness of local market in applications for long-distance authorization. ... Similarly state commission are often best positioned to make the granular, fact intensive determinations about any impairment faced by competitors in their local markets. The importance of federal-state cooperation cannot be overstated. It would be worse than unfortunate if our decisions in the upcoming proceedings led to less cooperation with our state partners."

And Copps was joined in those sentiments by Bush appointee Kevin J. Martin.

"I believe it is essential to continue to encourage local competition. By maintaining the ability of new entrants to access elements of the incumbent network that are essential for competitive services, consumers can receive the benefits of competition," Martin said.

And he added, in words similar to Copps, that "assessments of whether access to an element is necessary to provide service may vary significantly among different markets, states and regions. State commissions have worked well with the commission in implementing the requirements of the a1996 Act. A more granular review could allow for state cooperation and input, especially regarding highly fact intensive local determinations."

Considering the outcry by state utility regulators about curtailing UNE-P at this time, cooperation with them would involve not dismantling the UNE-P structure but providing the appropriate legal justification to the courts for its continuation in markets where barriers to entry to multiple participants remain high.

At this "critical crossroads" for the competitive future of telecommunications, that is the wisest path to take.

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