CLECs Call for IP Interconnection, Unbundling Requirements

If the FCC neglects to apply its longstanding competition policies to the “emerging packet-mode environment,” competitors will no longer have any forum to ensure they can obtain access to last-mile facilities and interconnection at reasonable rates, CLECs and special access purchasers told several commissioners, the Wireline Bureau and Office of Engineering and Technology in meetings last week, according to ex parte filings (http://xrl.us/bnxgc4). Tens of thousands of businesses would otherwise lose their broadband provider as both competitive providers and ILECs would reduce their investments, leading to decreased innovation, said the group. It included CompTel, EarthLink, Cbeyond, Integra Telecom, Sprint Nextel, tw telecom, XO, the Broadband Coalition and the Ad Hoc Telecommunications Users Committee.

The FCC should require that ILECs give competitive providers of voice service direct interconnection to ILECs’ VoIP networks in Internet Protocol format on reasonable rates, terms and conditions, the CLECs and special access service buyers said. This is “necessary” because ILECs “have no rational incentive to provide direct IP-to-IP interconnection of VoIP networks,” they said. Cbeyond has asked AT&T to exchange local voice traffic in IP format, but AT&T refused, it said.

"The other side wants to assume a failure and impose regulation before any failure has been observed,” said Hank Hultquist, AT&T vice president-federal regulatory. The telco recognizes that regulation may be needed when there is a proven market failure that hurts consumers, but it would depend on the “nature of the failure,” he told us. If the commission observed a failure that was harming consumers, and the “Internet became balkanized” such that a company and AT&T couldn’t interconnect, then that could require resolution through litigation or regulation or some other means, he said. “Experience has shown us that regulation is not needed to produce robust interconnection, and that the regulation we have on the” public switched telephone network “has produced arbitrage and perverse behavior,” he said.

The FCC should apply the “established impairment standard” to packet-mode unbundled loops, the groups said. Where competitors are impaired in the absence of packet-mode loops, the FCC should enforce reasonable unbundling practices, they said. The Telecom Act said ILECs must give competitors access to their networks elements if failure to do so would “impair” the competitors from providing the services it seeks to offer. The agency should also apply “appropriate price and non-price policies” in special access markets where ILECs have market power over packet-mode special access services, the groups said. It said ILECs are “more likely to offer packet-mode services in response to requests for proposal in locations where the incumbent LEC faces competition from a competitive provider.” The CLECs told the commission that Verizon “should have no objection” to its proposed approach, because it already told U.K. regulators that, as a purchaser of wholesale access inputs there, “Verizon holds the view that continued regulatory controls must remain in place to safeguard access to the necessary wholesale inputs and thereby support competition to the benefit of customers.” The groups quoted a Verizon letter to Ofcom (http://xrl.us/bnivb7) in response to that regulator’s call for comments on a review of the business connectivity market.

"If you were to have a regulated rate for IP-based traffic, somebody is going to arbitrage that. That’s just the way it works,” said Phoenix Center President Lawrence Spiwak. Regulated rates that are perceived as low will be a magnet for people to come and “dump all their traffic,” he said. “You're going to have the same arbitrage problem you have now ... which the FCC finally got taken care of.” Spiwak thinks there still needs to be “some sort of model to ensure IP interconnection,” with a “backstop” to deal with companies that refuse to accept traffic. But companies might be loathe to accept such regulation -- just look at how upset many were over the FCC order mandating data roaming between different carriers, he said.

The CLECs asked the commission to “adopt a technology-neutral approach to copper loop retirement so as to eliminate uneconomic and anti-competitive regulatory incentives” for ILECs to retire copper “before the end of its useful life.” That’s especially where no wholesale packet-mode last-mile facility is available at reasonable rates. Over the summer, at the request of Commissioner Ajit Pai, AT&T submitted its own checklist (http://xrl.us/bnxgg6) detailing “critical first steps” the commission should undertake to begin the transition to an IP-based network ecosystem, which the company said was discussed in the National Broadband Plan. AT&T’s checklist took the commission in a different direction than the CLECs’ proposals, calling for the commission to clarify that “IP-based services are information services” and exempt from the interconnection requirements in Section 251(c)(2) of the Telecom Act. The filing also asked the commission to “reform wholesale obligations” under Sections 251 and 271 to eliminate unbundling, resale, collocation and other requirements that “could require ILECs to maintain TDM networks and services.” Medley Global analyst Jeff Silva predicted AT&T’s proposal “will gain a life of its own in policy circles going forward.” It “could become somewhat of a rough template for a deregulatory agenda under a Republican administration and a GOP-controlled FCC,” should former Gov. Mitt Romney win the election Tuesday.

"They're asking that as the electronics change, that all competitive policy end,” said Chip Pickering, spokesman for the Broadband Coalition, which represents competitive carriers. AT&T presents the image of an old antiquated copper network that has vanished, and that’s a “false, misleading image,” he told us. In reality, the network is the same -- everything stays the same -- with the exception that the technology moves from TDM to packet mode, he said.

"The mere reordering of its digital-bitstream from a TDM to IP architecture does not lessen, to any degree, the enormous inherited advantages of incumbency,” said economist Joe Gillan of Gillan Associates, who has done work for CLECs and other competitive providers. Gillan, a Universal Service Administrative Co. director, called AT&T’s position that the Telecom Act’s interconnection obligations no longer apply “absurd.” Those obligations are “critical, but not intrusive.” Agreements “must be filed, agreements cannot discriminate, agreements must be available for opt-in, and compensation must be reciprocal,” he said. “There is almost no set of obligations that requires so little (for compliance), yet delivers so much (in terms of competitive protection)."

Those who want common carrier style restrictions to be brought into the new IP world should rethink “what it means to be an incumbent,” a carrier executive said. In the IP space, ILECs are often the smaller competitor, facing cable companies who are “much bigger than we are,” he said. As the industry makes the transition to the IP world, it would be “odd” for ILEC providers to be the only ones subject to “legacy and intrusive and burdensome regulations,” he said. At the end of the day, the IP and phone world are converging, and there shouldn’t have two sets of governance, he said. “At some point in time, only one of these worlds, or some hybrid of them, is going to be the one that’s left.”