Tuesday, December 14, 2004

FCC Adopts New Network Unbundling Rules

The FCC adopted rules concerning incumbent local exchange carriers' (incumbent LECs') obligations to make elements of their network available to other carriers seeking to enter the local telecommunications market.



The new rules were issued in response to the March 2004 decision by the U.S. Court of Appeals for the D.C. Circuit which overturned portions of the Unbundled Network Element (UNE) rules in the FCC's Triennial Review Order.



The FCC said the new framework builds on its actions to limit unbundling and provide incentives for both incumbent carriers and new entrants to invest in the telecommunications market in a way that best allows for innovation and sustainable competition. Highlights of the new rules include:

An Unbundling Framework. -- The new rules clarify the impairment standard adopted in the Triennial Review Order in one respect and modify its application in three respects. First, impairments are evaluated with regard to the capabilities of a reasonably efficient competitor. Second, the Triennial Review Order's "qualifying service" interpretation of section 251(d)(2) is set aside. The use of UNEs are prohibited for the provision of telecommunications services in the mobile wireless and long-distance markets, which the FCC previously found to be competitive. Third, the impairment test draws reasonable inferences regarding the prospects for competition in one geographic market based on the state of competition in other, similar markets. Fourth, the appropriate role of tariffed incumbent LEC services are considered in the unbundling framework, and that in the context of the local exchange markets, a general rule prohibiting access to UNEs whenever a requesting carrier is able to compete using an incumbent LEC's tariffed offering would be inappropriate.



Dedicated Interoffice Transport. -- Competing carriers are impaired without access to DS1 transport except on routes connecting a pair of wire centers, where both wire centers contain at least four fiber-based collocators or at least 38,000 business access lines. Competing carriers are impaired without access to DS3 or dark fiber transport except on routes connecting a pair of wire centers, each of which contains at least three fiber-based collocators or at least 24,000 business lines. Finally, competing carriers are not impaired without access to entrance facilities connecting an incumbent LEC's network with a competitive LEC's network in any instance. The new framework adopts a 12-month plan for competing carriers to transition away from use of DS1- and DS3-capacity dedicated transport where they are not impaired, and an 18-month plan to govern transitions away from dark fiber transport. These transition plans apply only to the embedded customer base, and do not permit competitive LECs to add new dedicated transport UNEs in the absence of impairment. During the transition periods, competitive carriers will retain access to unbundled dedicated transport at a rate equal to the higher of (1) 115% of the rate the requesting carrier paid for the transport element on June 15, 2004, or (2) 115% of the rate the state commission has established or establishes, if any, between June 16, 2004 and the effective date of this Order.



High-Capacity Loop. -- Competitive LECs are impaired without access to DS3-capacity loops except in any building within the service area of a wire center containing 38,000 or more business lines and 4 or more fiber-based collocators. Competitive LECs are impaired without access to DS1-capacity loops except in any building within the service area of a wire center containing 60,000 or more business lines and 4 or more fiber-based collocators. Competitive LECs are not impaired without access to dark fiber loops in any instance. We adopt a 12-month plan for competing carriers to transition away from use of DS1- and DS3-capacity loops where they are not impaired, and an 18-month plan to govern transitions away from dark fiber loops. These transition plans apply only to the embedded customer base, and do not permit competitive LECs to add new high-capacity loop UNEs in the absence of impairment. During the transition periods, competitive carriers will retain access to unbundled facilities at a rate equal to the higher of (1) 115% of the rate the requesting carrier paid for the transport element on June 15, 2004, or (2) 115% of the rate the state commission has established or establishes, if any, between June 16, 2004 and the effective date of this Order.



Mass Market Local Circuit Switching. -- Incumbent LECs have no obligation to provide competitive LECs with unbundled access to mass market local circuit switching. The new rules adopt a 12-month plan for competing carriers to transition away from use of unbundled mass market local circuit switching. This transition plan applies only to the embedded customer base, and does not permit competitive LECs to add new switching UNEs. During the transition period, competitive carriers will retain access to the UNE platform (i.e., the combination of an unbundled loop, unbundled local circuit switching, and shared transport) at a rate equal to the higher of (1) the rate at which the requesting carrier leased that combination of elements on June 15, 2004, plus one dollar, or (2) the rate the state public utility commission establishes, if any, between June 16, 2004, and the effective date of this Order, for this combination of elements, plus one dollar.




Representing the majority, FCC Chairman Michael Powell wrote "For eight years, the effort to establish viable local unbundling rules has been a litigation roller coaster. Regrettably, years of fierce battles to bend the rules entirely toward one sector or another without proper respect for the legal constraints have contributed to a prolonged period of uncertainty and market stagnation... Facilities competitors are favored under the Act and Commission policy and we have attempted to permit wide unbundling for the key elements of loops and transport, where there is clear and demonstrable impairment."



In a dissenting opinion, FCC Commissioner Michael Copps said "What we have in front of us effectively dismantles wireline competition. Brick-by-brick, this process has been underway for some time. But today's Order accomplishes the same feat with all the grace and finality of a wrecking ball. No amount of rhetoric about judicially sustainable rules and economically efficient competitors can hide the blockbuster job this Commission has done on competition. During its tenure, the largest long distance carriers have abandoned the residential market. And as a result of today's decision, other carriers will follow suit. In their wake we will face bankruptcies, job losses and customer outages. Billions of dollars of investment capital will be stranded. And down the road consumers will face less competition, higher rates and fewer service choices."http://www.fcc.gov

  • In March 2004, a three-judge panel in the D.C. Circuit Court of Appeals overturned the FCC's Triennial Review Order with regard to network unbundling rules. The FCC rules, which were announced in February 2003 but actually issued in August 2003, empowered state public utility commissions as the decision makers on issues regarding UNE-P unbundling and local competition. The Court of Appeals said the FCC erred by not providing unified, federal guidelines and by pushing many FCC decisions to the states. The court also upheld the Triennial Review Order's exemption provided to incumbent carriers from unbundling for certain fiber-fed loops and for line sharing.

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