CLECs Worry AT&T’s Wire Center Trials Portend Existential Threat

"They want to ruin the CLEC industry,” said Randy Nicklas, chief technology officer at XO. Not every CLEC is so certain. To Comptel, this is more about AT&T’s relationship with that company’s end-users. Comptel neither opposes nor supports the trials, said Karen Reidy, vice president-regulatory affairs. The association of CLECs is far more concerned with preserving Internet Protocol interconnection rights, she said. But interconnection rights could come into play here too, some say: AT&T’s petition for wire center trials warned of “IP-oriented” service requirements on next-generation networks, and its reply comments explicitly denounced the prospect of mandated IP-to-IP interconnection. CLECs also question how the trials might affect business markets, and what will happen to their existing contracts with businesses if ILECs strip out their copper.

"I see the All-IP Pilot Program as an opportunity,” said Commissioner Ajit Pai by email. It’s “a controlled experiment into what happens when we stop requiring carriers to invest in old, 20th-century infrastructure and allow them to start investing in more efficient, more reliable, and more effective next-generation IP-based infrastructure,” said Pai. He has been one of the strongest commission voices for repealing “old-world regulations” (CD Oct 17 p3). “That’s all this trial is: a way to see what works and what doesn’t,” said Pai. “We did it before with the DTV transition and a number of other data-driven pilots. This is the same thing."

The confusion stems from shifting descriptions of the trials themselves, say CLECs and some observers. Throughout its November petition (http://xrl.us/bnyhdx), AT&T blasted the old rules, calling for deregulation. “AT&T believes that this regulatory experiment will show that conventional public-utility-style regulation is no longer necessary or appropriate in the emerging all-IP ecosystem,” the company wrote. But within weeks, CLECs say, the telco seemed to be walking back its requests. AT&T’s Hank Hultquist said at an FCBA event in February that the trials weren’t intended to end interconnection policy or competitors’ rates for unbundled network elements. “We didn’t ask to end the world as we know it,” said the AT&T vice president-regulatory affairs (CD Feb 22 p1).

That didn’t smooth things over. In its reply comments, Free Press criticized AT&T’s “rebranding effort.” Although the telco and its supporters have “worked diligently to portray the carrier’s aims as benign,” they can’t disguise AT&T’s true goal, said the group that often backs regulation: To “end all state and federal regulatory oversight governing our nation’s communications infrastructure.” Metropolitan Telecommunications, citing the shifting statements of AT&T executives, said it was unsure what exactly to reply to. Hultquist’s FCBA comments contradicted the call for relief that was “quite clearly requested” in AT&T’s original petition, the CLEC said. “Because AT&T has, to date, not modified the radical demands it makes in its formal Petition through its Comments or through any ex parte, the Commission and the parties have no choice but to take AT&T’s Petition at face value until it is modified."

"AT&T’s trial proposals leave out many details, without which it’s difficult to respond to their request at all,” said Jodie Griffin, staff attorney at Public Knowledge. “If AT&T has specific technical issues they want to work out, that may be understandable, but a deregulatory experiment conducted with a ‘let’s just see what happens’ mindset would be unproductive and distracting from the real issues” in the public switched telephone network transition, she told us. Some of those issues -- like retiring copper for fiber or wireless -- are “extraordinarily complicated,” which is why the FCC needs to implement fundamental principles to guide its decisions, she said. “We can’t just wait until vaguely-described experiments disrupt basic phone service for actual users before deciding that the phone network should continue to serve the same social goals we always expected it to pre-transition."

Technology or Regulatory Trial?

"The trials themselves would not materially affect CLECs’ rights,” Hultquist told us. The proposed trials wouldn’t alter the copper retirement rules in place today, he said: They're simply about preparing for the retirement of TDM networks and services. “The trials are about testing how can we, as gracefully as possible, complete the transition to an all-IP world,” he said. “The trials are not testing some regulatory proposition."

But regulatory propositions abound throughout AT&T’s filed briefs, CLECs say. The petition characterized the wire center tests as a “regulatory experiment” designed to identify “regulatory impediments” to the IP transition. As Verizon sees it, the trials are about outdated regulation, a spokesman said. The AT&T wire center trials, and a complementary petition by NTCA to remove unnecessary regulations, “present the FCC with the opportunity to ensure that legacy regulations are not hampering the transitions to new IP-based networks and services that consumers are demanding,” the spokesman said.

If AT&T were to clarify in a filing that this is just a technology trial -- that it simply wants to make sure the transition from TDM to packetized IP-based technologies goes smoothly and without disruption, “I think everyone would rest easy,” said Broadband Coalition spokesman Chip Pickering, who represents CLECs and broadband providers. But because the proposal seems to have grown out of an August letter to Pai seeking much more, competitive carriers are rightfully concerned, said the former Republican congressman from Mississippi. That filing (http://xrl.us/bnxgg6) laid out a series of steps to facilitate retirement of the legacy TDM-based network and transition to an IP-based system. Such steps include reforming wholesale obligations under sections 251 and 271 of the 1996 Telecom Act to eliminate unbundling, resale, collocation and other requirements, and clarifying that IP-based services are information services, exempt from the interconnection requirements in Section 251(c)(2).

It’s against that backdrop that CLECs see the wire center trial proposal, Pickering said. The proposal bears a certain resemblance to the ex parte filing -- its request for forbearance from Section 214 discontinuance requirements is essentially step three in the Pai ex parte filing, he said. That filing is “basically the fears of the CLECs: That you would end interconnection,” Pickering said. “When you end interconnection, you basically end competition,” he said. “Because of the Pai ex parte, it appears that this not a technology trial, but a change-of-the-rules trial."

"The FCC has copper retirement rules in place today,” Hultquist told us. “The proposed trials would not alter those rules.” But look at page 19 of AT&T’s petition, said Michael Mooney, general counsel-regulatory policy for Level 3. AT&T argues for its trials in the “very same document” where it argues “for the ability to retire copper loops,” he told us. AT&T included “legacy copper loop requirements,” in its list of “twentieth century regulatory obligations” that “need to be eliminated.” The requirement to maintain unused copper loops impairs the business case for building more fiber in feeder facilities of a hybrid loop that retains copper in distribution facilities, the ILEC wrote.

"AT&T’s not just suggesting doing some test trials,” Mooney said. “They're suggesting things that are much broader than that.” The trials themselves might be limited enough to not impact copper retirement to a “material degree,” he said. But Mooney thinks the wire center trials are simply “a distraction” that pull attention from AT&T’s ultimate goal: The elimination of regulation as the industry moves toward an all-IP world. “If I were a dominant incumbent, or if I had a last mile bottleneck, I would want that, too."

Interconnection and last-mile access rights are the cornerstones of the Telecom Act, CLEC representatives told us. They're intended to be technology neutral, CLECs say, to promote and maintain functioning markets, be it over copper, fiber, TDM or IP. To CLECs, the trials threaten that reality. CLECs are especially wary because if this really were about a simple technology transition, AT&T wouldn’t need FCC permission, they say.

AT&T’s petition said its trials would help the FCC identify the extent to which “any regulation is necessary at all.” While focusing on the upsides to eliminating regulation requiring incumbents to pour billions of dollars into the “increasingly obsolete” plain old telephone service (POTS) network -- an idea endorsed by the FCC National Broadband Plan -- AT&T hinted at more. State public utility commissions could impose “IP-oriented” service requirements that could “discourage ILEC investment in all-IP networks,” AT&T said. That could bring with it price regulation, further undermining investment incentives and distorting competition, it said. State regulators have no jurisdiction over IP-enabled services such as VoIP, AT&T said. The FCC should clarify that it has exclusive jurisdiction over these services, and to “put an end to such claims” by the states, AT&T said. “Legacy rules raise the specter of monopoly-style regulation even of replacement IP networks."

But at the February FCBA event, Hultquist said AT&T’s trials were “fairly narrow” and not designed to seek pre-emption, the end of competitors’ rates for Unbundled Network Elements, interconnection “or anything else.” Yet AT&T is clear on what it thinks about IP interconnection. In reply comments defending its proposals, AT&T said the FCC need not address IP-to-IP interconnection issues to authorize the trials, but such regulation remains “needless, harmful, and unlawful” (CD Feb 27 p4).

"AT&T has created enormous concern and uncertainty because its own description of the trial shifts,” said economist Joseph Gillan of Gillan Associates, who has done work for CLECs and has called the August ex parte filing the “largest regulatory ask” in his lifetime (CD Oct 1 p15). When Hultquist tried to explain the trials at the February NARUC conference, “he was backpedaling so fast he created wind,” Gillan told us. In reality, if this were only a technology trial, “AT&T would not need FCC blessing,” Gillan said. “The reason AT&T needs the FCC’s concurrence is precisely because it does intend to limit customer options, and competitors are understandably concerned that AT&T will place their interests last."

There’s been so much effort to “obfuscate” the truth, that the true nature of the trials changes depending on who you're talking to, said telecom lawyer Thomas Jones of Willkie Farr, who represents CLECs such as tw telecom, EarthLink and Cbeyond. The trials “are very confusing” as AT&T has described them, he said: It has characterized the trial as letting ILECs choose some wire centers where they can conduct experiments for the transition from old to new technology. “It’s not entirely clear what they mean by that,” Jones said. If what AT&T is seeking is the ability to strip out the DS1 and DS3 electronics and replace them with Ethernet packet mode electronics, while simultaneously jettisoning a lot of the old rules giving competitors access, “that’s pretty broad,” Jones said.

"I don’t think that AT&T is proposing to rip out all copper,” said Comptel Assistant General Counsel Mary Albert. “I think that what they're proposing is to limit service to the customers who are more expensive to serve by taking out the copper there and converting them to wireless if they want to continue as an AT&T customer.” The question is whether that includes the Walmarts of the world, she said. Albert said she doesn’t think AT&T would stop serving its big business customers, “but we don’t know because we don’t know exactly what the trial may end up being."

AT&T has “laid out what they would like to do with their customers,” said Comptel CEO Jerry James: Move many of them to a purely wireless relationship. That’s “not an acceptable solution for companies who rely on their dial tone service to talk to and converse with their customers,” he said. The proposal “creates concerns” that, in migrating to wireless, AT&T no longer wants to interconnect with Comptel’s members or other competitors, he said. “The FCC needs to step in and make the pathway clear as to what’s going on.”

Predicting the Outcome

"An All-IP Pilot Program won’t leave anyone behind,” Pai said. “Residential customers with fixed telephone service today should continue to have voice service available to them, and business customers should know in advance what IP-based services will replace what they currently have."

But look at the trials from a practical perspective, said Nicklas, who thinks AT&T wants to “ruin” the CLEC industry. Say AT&T intends to cut the copper back to a pedestal, turn it into a packetized form there, and backhaul it over fiber, he said. “Where do we access that?” A pedestal is an external box placed in a copper distribution plant to shorten the loop. It’s not in the easily accessible central office, but far out, Nicklas said. “How are we going to get there, AT&T? Are you going to lease us dark fiber to get there?"

AT&T may be “dressing it up” in the form of a “purported technology transition,” but the transition to IP services started long ago -- decades ago, Nicklas said. “This is all just camouflage -- and not very good camouflage -- for them wanting out of the current regulatory framework."

To Granite Telecommunications, the main concern is how the trials will affect the business market. The CLEC provides business phone service nationwide, focusing on customers which have hundreds or thousands of locations with a relatively small number of lines at each location. Granite’s customers use copper-based services, as does 90 percent of the business market, said Senior Vice President-Corporate Strategy Sam Kline. “We haven’t heard anything that even remotely describes how this trial would continue to provide them service.” AT&T assures regulators that customers in the trial areas will still have access to phone services. But “access over what, if they take out the copper?” Kline asked. Granite’s national customers -- like the U.S. Postal Service and drug store CVS -- generally don’t operate out of big multi-dwelling buildings, so they might not be able to get access to fiber, said Kline. The only other alternative he can see is wireless, but “just giving everybody in CVS a cellphone isn’t practical,” he said. “For our customers, what do they do? ... How do they get served? They really are dependent on copper."

The trials could also impact existing business contracts, Kline said. A lot of Granite’s contracts either specifically exclude fiber, or don’t include alternate technologies besides copper, he said. From a contractual point of view, “if you take out the copper, what does it mean?” he asked. Granite isn’t opposed to the trials or to new technology or to change, Kline said. “The problem is, it’s certainly not clear to us how the trials affect us contractually, and as a company.”

XO is “very much” concerned about continued access to ILEC inputs during the trials, and how the trials could affect its contracts with vendors in the chosen market, said Thomas Cohen of Kelley Drye, who represents XO. “We use inputs, in some instances, from AT&T or another ILEC for the provision of those services,” he said. “So all of a sudden you say we're going to start a trial -- and the entire premise for all of those agreements goes away -- that harms our customers, first and foremost, and then us. This should not be treated lightly at all, because of that."

In terms of last-mile plant, Cohen said, XO takes several types of inputs: raw copper, which XO then bunches together to build Ethernet over Copper; or T1 lines in the form of TDM special access lines, or as an Unbundled Network Element. XO then sells those services to businesses, who depend on them, Cohen said. What if, during the trials, “all of a sudden the inputs change, and a customer who bought it yesterday is left in the wilderness?” he asked. “That’s a problem."

This all wraps up into the special access debate, Jones said. When providing special access services to business customers, ILECs are subject to unbundling and dominant carrier regulation, Jones said. But the FCC has eliminated last-mile wholesale regulations for business customers over packet electronics, he said. That means the “regulatory backstop” for retail wholesale facilities “disappears by virtue of the technology change,” he said. “This is the absurdity of it. … The source of the market power that the ILECs have is that physical connection -- the wire, be it copper or fiber -- to the end user. Changing the technology makes no difference, really, and yet that’s what triggers the deregulation."

'No Dramatic Effects'?

Businesses will continue to be served, with “no dramatic effects,” said Anna-Maria Kovacs, visiting senior policy scholar at Georgetown University’s Center for Business and Public Policy. During the trials, copper loops will remain in place and CLEC access will be unaffected, she told us. And businesses who “choose to leave the copper” already have alternatives -- cable passes “almost all of them” and “is marketing actively to them,” she said. Plus, incumbents have less than half the Ethernet market, with CLECs dominating the rest, she said, so businesses have facilities-based alternatives at “almost all their locations, even today.” Kovacs is bullish on the potential upside to CLECs. “The IP transition gives CLECs an opening to increase their share, because customers will be reexamining all their options,” she said. “As CLECs point out in their investor presentations, IP is a huge opportunity for them and they have invested and positioned them well, with fiber-rich networks."

"I'm sympathetic to the CLECs who don’t know what’s going to happen, but that’s the whole point of running a trial,” said former FCC official Blair Levin. “I would rather find out by having a couple of experiments where we could find out what happens, that have in my view limited risk, than simply having a theoretical debate arguing about what is likely to happen.” But since so many businesses are still on the POTS network, the commission will have to figure out whether to approach the IP transition differently for business markets and residential markets, he said.

"I don’t get why a trial is so scary, unless [the CLECs] are worried that trial may prove out that some of their concerns aren’t valid,” an ILEC official told us. “I'm not saying they are or not. I don’t know.” But “this is the start of a conversation that needs to be had,” the official said.

To the extent Granite is purchasing service in the form of unbundled loops from ILECs, the trials won’t affect that, one telco executive said. But in the sense that Granite and other CLECs have a “sense of foreboding about the future, then I can understand that,” the official said. “In the long run -- especially for businesses -- it’s hard to believe that copper is going to be the future forever,” the official said, encouraging CLECs to invest in their networks and extend fiber to business locations.

But it’s not economically feasible for competitors to build out throughout all geographic areas, and the FCC recognized that in the National Broadband Plan, said Granite General Counsel Mike Galvin. “We of course compensate ILECs for whatever network they build out,” he said, with lease agreements that cost Granite hundreds of millions of dollars each year. “We're not asking for a free ride,” he told us. “We just want to avoid a situation where only one company -- or perhaps two companies -- are the only ones able to furnish the underlying services, which in large part were built at a time when those companies were part of the monopoly system."

It’s true, said Nicklas: Nothing lasts forever, and despite several technical innovations giving copper new life, it won’t work past a certain bandwidth requirement. That’s why XO has spent hundreds of millions of dollars to develop fiber networks -- but that takes a long time, he said. “We didn’t have a century of riding on the back of taxpayers to build all that stuff."

Questioning the Need for Trials

Several CLECs and their supporters don’t see why trials are suddenly necessary. Comptel’s members have been IP-enabled for more than a decade, James said. “What’s new here?” asked Nicklas. “What is going to be discovered for them? I don’t understand it as a CTO."

The industry already provides IP services today, “so they shouldn’t need the trials,” said Lisa Youngers, XO vice president-federal affairs. The scope of what AT&T has proposed is “inconsistent to give any sort of results that could be relied upon,” and there’s no control group or any real basis for analysis, she said. “They're just not necessary.”

The FCC is already handling the transition properly by having a Technology Transitions Task Force, Youngers said. The agency should deal with the IP transition via that task force, and workshops, and pending dockets for Session Initiation Protocol and section 251-252 interconnection and copper retirement, she said. The trials are all about “some other goal” of AT&T’s -- “to get rid of regulation and get rid of competitors,” she said. “It’s about cutting off our ability through regulation” to have access to collocation, she said: But AT&T wouldn’t say it that way because “that’s not how you sell it."

The trials probably won’t give FCC much useful information anyway, some CLECs say. They're “a completely useless mechanism for testing what an unregulated wholesale environment looks like after the technology transition, because the ILECs will have an incentive to be on their best behavior during a test,” Jones said: As CLECs are forced to replace DS1 and DS3 equipment with packet mode technology, the ILECs would play nice during a trial. That would lead to the “lesson” that there’s no need for last-mile regulations. But, he said, several years later, after “that supposed lesson has been learned” and there is no regulation over last-mile facilities, CLECs and businesses would be dependent on ILECs to “voluntarily give them a decent price for access to those last-mile facilities, even though the ILEC would have no incentive to do that at all.” CLECs would have to either increase their prices or exit the market altogether, and ultimately business customers would have to pay more, he said.

"My guess is that the AT&T wire center trials are going to be a wild success,” said Mooney. If the FCC let him define where he'll test, how the test will work, and what success looks like, Mooney expects he could have a successful trial, too. “Trials could almost certainly be manipulated to reach whatever outcome is desired, and different kinds of trials could surely prove out completely different results from a policy perspective,” he said. “Maybe we should test it in a completely regulated environment."

"I don’t really get how anyone can say, ‘Oh my God, we can’t have a trial,'” an ILEC official said. Without a trial, regulators would just be guessing about which regulations to keep in the new IP world, the official said. “I understand and sympathize” with some of their concerns -- such as the future of interconnection and section 251 and 252, the official said. “Believe it or not, I do actually get the fear.” But “I always took it as the start of a conversation that we need to have,” the official said. “You're really arguing we shouldn’t do a trial? Isn’t that what good government and good practices are about?”