COURT EYES INTERMODAL COMPETITION'S IMPACT ON DSL REGULATION

Stage for debate was set by Kellogg who argued that FCC’s line-sharing order should be thrown out because agency hadn’t taken competition into consideration when it approved rules. Cable has 71% of high-speed Internet access market and there are numerous other “platforms” such as satellite and wireless, Kellogg said. FCC should have at least considered market as whole before adding another unbundling requirement on ILECs, particularly one that unbundled advanced services function, he said. “The only issue before the court is if the FCC can shut its eyes to alternatives outside the [DSL] market” in determining if line sharing is required, he said. FCC’s Dec. 1999 line-sharing order requires ILECs to lease high-frequency part of their loops to competitors who use it to provide DSL.

FCC attorney Laurence Bourne and Covad attorney Jonathan Nadler explained to Judges Harry Edwards, Raymond Randolph and Williams that rules applied only to telephone companies, which were “functionally different” from cable. They're different “in the providers’ eye but not the consumer,” responded Edwards. “The way things are opening up [in communications convergence], everyone is doing everything.” Williams said FCC’s application of sharing regulation only to ILECs “sounds like gerrymandering.” Kellogg said FCC “gerrymandered by class,” focusing only on “a category of providers [CLECs] that want to provide service over ILEC lines.” However, Bourne told judges that FCC had no choice because Telecom Act’s Sec. 251 required it to unbundle ILEC facilities so CLECs could share incumbent’s elements. However, Kellogg argued that Telecom Act didn’t tell FCC to unbundle nearly every element including advanced services.

Edwards said he wasn’t sure “what to do with this” because there also was concern about DSL’s not moving fast enough. Wouldn’t competitive access spur DSL, he asked. Kellogg said sharing requirement was deterring DSL buildout because Bells were hesitant to spend money to build remote terminals if they had to share those new facilities with competitors at low-cost TELRIC [total long-run incremental cost] rates. “It’s a very expensive process and we're not terribly inclined to do it if we have to offer [these facilities] at TELRIC rates,” Kellogg said. “So this order has had a dampening effect.”

Line-sharing appeal was heard in conjunction with related and probably more significant ILEC appeal of FCC’s Jan. 2000 “UNE remand order” (00-1015) that responded to Supreme Court remand of agency’s unbundled network element (UNE) rules. Court ordered that 2 cases be heard on same day by same panel of judges.

Kellogg argued in UNE case that FCC didn’t meet Supreme Court’s mandate because it didn’t impose any “meaningful” limits on Bells’ UNE obligations. Commission was supposed to set new standard for when Bells had to unbundle but instead it issued confusing language that resulted in adding to UNE list, he said. Among Kellogg’s complaints: (1) FCC is supposed to consider whether CLECs have alternatives to using ILECs’ UNEs, but it said alternatives wouldn’t be considered unless they were available throughout geographic areas and customer categories. Kellogg said that meant ILECs couldn’t stop unbundling any element until there were alternatives to that element everywhere. He said FCC wouldn’t consider unbundling ILEC high-capacity transport because alternatives to those facilities weren’t available on “ubiquitous” basis. (2) FCC used unfair cost standard for determining whether CLECs required certain UNEs. Cost standard is supposed to determine whether cost of alternatives to those UNEs is too high, he said, but it was set in way that resulted in ILECs’ having to unbundle nearly every element. “It’s still rigged,” Kellogg complained. (3) FCC added some elements to preserve UNE-platform concept, he contended. Kellogg said agency also agreed to eliminate switching from UNE list only in very limited, top market that accounted for “less than 1% of our customers.” He said there was no justification for why “lines were drawn in such a restrictive way.”

FCC attorney Richard Welch urged court to look “at the actual rule” Commission issued, which showed significant difference from original rule, in response to Supreme Court’s instructions to create standard and look at alternatives. However, Williams asked how FCC could decide unbundling couldn’t stop until entire country had alternatives, particularly since CLECs weren’t obliged to enter every part of country and serve all customers. Welch responded that it was “perfectly appropriate for the FCC to try to encourage widespread entry.” Williams said it looked like Commission “assumes the market is the whole U.S.”

Welch said, for example, that without more ubiquitous transport availability, competitors would have to “piece it all together, with inefficient routing and increased costs.” That’s why it was appropriate to eliminate UNE requirement for some switching in urban areas but not for transport, he said. Williams said he had question about “logic” of process: “If ILECs have to turn everything over to CLECs, I'm not sure what’s left.” Welch said ILECs weren’t required to turn over everything, “only where they are impaired.”

Judges asked numerous questions about case as well but it was hard to determine what court ultimately would do on either one of appeals heard Thurs. Some observers said UNE issue could become moot because FCC was conducting triennial UNE review right now that could change current UNE requirements.