FCC ADOPTS UNE REGIME IN 3-2 VOTE, WITH POWELL DISSENTING

Delivering strongly worded statement warning about outcome of majority vote on UNE-P and state power, FCC Chmn. Powell dissented on UNE-P portion of order as well as another section that eliminated Bells’ obligation to offer unbundled line sharing, which is mainstay of Covad, for one. Comr. Abernathy dissented on same issues. Comrs. Copps and Adelstein dissented on order’s treatment of broadband services, with Adelstein explaining he was uneasy because some parts of broadband package were adopted late Wed. night.

As expected, agency, which reportedly still was fine- tuning decision Thurs. morning, didn’t issue order, instead offering news release and background sheet of information. Asked when order was expected, Wireline Bureau Chief Bill Maher said “soon” but hinted that it might not surface until spring. Each commissioner gave long statement during meeting, explaining what they liked and didn’t like and, in doing so, reflected 3-2 split between Powell and Abernathy on one side and rest of commissioners on other.

Among key parts of order: (1) Agency voted 3-2 against eliminating switching from national UNE list, which means UNE platform will remain intact. (2) Order instead gives state regulators authority to determine whether switching, or any other elements, should be dropped. State involvement was seen by majority as way to meet court requirement that UNE review be done on more “granular” basis. FCC will set guidelines for how states conduct those reviews to determine whether competitors would be “impaired” without particular UNE in question. National guidelines will require states to look at both “operational and economic” barriers to CLEC entry without particular UNE, for example requiring that they look at hot cut process and what it costs. If states determine that no impairment exists for any element, there would be 3-year period for carriers to transition from UNE-P. Much of this new regime was recommended by NARUC earlier this month.

Powell said this “Picasso-esque” state process would be “chaotic” because there would be 51 versions of UNE rules, challenged in courts. NARUC Pres. David Svanda of Mich. PSC said that didn’t occur in Sec. 271 process, in which states play similar role. States aren’t planning to develop processes that are different from neighboring states, he said: “We are interested in making accurate measurements based on our experience. We're good at working together.” Abernathy called new regulatory framework “a lawyer’s dream” but “nightmare” for companies. She said she “worries” whether UNE-P part of order could survive court review.

(3) FCC order included “presumption” that switches serving large businesses no longer had to be unbundled, but states still would have 90 days to “rebut” that national finding. Those would be type of businesses served by high- capacity loops such as DS-1. Order also includes “presumption” that switches used for mass market should remain unbundled unless states want to disagree, which they can do in 9-month period.

(4) Agency, along with eliminating line sharing, adopted group of broadband provisions that, among other things, gave Bell companies some relief from unbundling requirements for fiber facilities, which they said they needed to encourage investment in new broadband facilities. Order required no unbundling of fiber-to-the-home loops. It also eased unbundling rules for hybrid loops, meaning cases in which incumbent LEC deployed fiber part way into neighborhoods but not all the way to customers’ homes. It preserved competitors’ existing access to hybrid loops but said there wouldn’t be unbundling obligations on upgraded hybrid loops. In news conference after meeting, members of FCC’s Wireline Bureau explained that distinctions in broadband sharing requirements involved new vs. old facilities and copper vs. fiber technology. Abernathy said broadband provisions offered balance between 2 competing goals of Telecom Act -- giving carriers incentives to invest in new facilities and providing competitive access to networks.

(5) Agency retained requirement that Bells unbundle their dark fiber, DS3 and DS1 capacity transport elements. However, it made dark fiber and DS3 subject to “route- specific review” by states to identify where competing carriers were able to provide their own facilities rather than use unbundled Bell facilities. On related issue, order said CLECs weren’t impaired without optical carrier-level transport circuits, so Bells didn’t have to unbundle them.

(6) It clarified 2 issues involving inputs into formula for determining TELRIC prices that Bells must use when they lease UNEs to competitors: (a) Changing cost of capital input to reflect competitive environment. (b) Changing depreciation input to reflect decline in value of facilities in competitive market.

(7) Changes were made in rules to ease access to enhanced extended links (EELs) by facilities-based CLECs, agency said. Order also addressed “no facilities” complaints by CLECs that said they were denied UNEs by Bells on ground that requested facilities weren’t available. In addition, FCC said it would seek comments on whether to modify its “pick-and-choose rule. Abernathy had sought such review and Powell said notice of proposed rulemaking will tentatively conclude pick-and-choose should be eliminated.

Reactions after meeting proved FCC had pleased no one. Facilities-based carriers fretted about loss of access to line sharing and hybrid fiber. Bells lost UNE-P battle but appeared pleased with broadband unbundling decisions as did high-tech companies that pushed for broadband relief to encourage investment. “I'd give it a ‘C,’ said Randolph May of the Progress & Freedom Foundation.

“This has been an exceedingly difficult decision by the Commission” but it resulted in “principled, balanced approach,” said Martin. He said disagreement mainly was over one thing -- whether to eliminate switching UNE -- and there was agreement on many other things. “I believe in limited government, competition instead of regulation,” Martin said. “I believe we have faithfully implemented this policy today.”

Powell said broadband provisions “will stimulate services and applications to consumers.” However, eliminating line sharing was “ill-conceived,” he said, because 40% of DSL service was provided by companies using some line sharing. “Line sharing has clear benefits for consumers.” Powell reserved his strongest language for UNE-P provisions, likening Commission’s action to abrogation of national role that’s required in Telecom Act and saying it was “a retreat from facilities-based competition.” “Legal errors are many” in that part of order, he said: “The majority apparently is a big fan of UNE-P because it has contorted the letter and spirit of the statute and the court’s interpretation of our responsibilities in an effort to ensure its indefinite preservation.”

Explaining his partial dissent, Comr. Copps said FCC was “playing fast and loose with the country’s broadband future” by freeing incumbents of sharing requirements for broadband loop facilities. Decision means that “as incumbents deploy fiber anywhere in their loop plant, a step carriers have been taking over the past years to reduce operating expenses, they are relieved of the unbundling obligations that Congress imposed to ensure adequate competition.” He said he also was concerned about eliminating line sharing but accepted it as part of compromise. He said he was “also worried about the process” in which FCC adopted “one of the most important decisions to date by a split decision plagued by shifting pluralities.”

Adelstein noted this was his “baptism by fire” because it was first open meeting item on which he has voted. He said he had hoped agency could come to agreement but “the fact that we couldn’t agree on all aspects reveals major policy differences over the proper role of the states and what the Commission must do to facilitate competition, particularly in the switching and broadband markets.” He said he too was uncomfortable voting on item “before we have seen a draft reflecting the latest cuts.” However, he said from policy standpoint, Telecom Act envisioned state commissions serving as “full partners” in implementing Act: “My role is to implement the law as written by Congress, not to impose my own policy preferences upon it.” Adelstein said he had some concerns about broadband provisions. He said he supported “efforts to spur investment in broadband” but “aspects of this integrated broadband package, agreed upon late last night, may well undermine the ability of competitors to drive deployment in the future as the network moves from copper to fiber.”