Incumbent telecom providers have been busy declaring victory after yesterday’s decision by the U.S. Solicitor General’s office to drop a Supreme Court appeal of the March circuit court ruling that struck down some of the Federal Communications Commission (FCC)’s UNE-P line-sharing provisions (see Courts Overrule FCC Again ).

At the same time, consumer groups and competitive carriers, including most CLECs, are crying foul.

Today, FCC Chairman Michael Powell told several wire services that the Commission would not appeal the legal decision, and that it would focus on drawing up new rules for UNE-P line sharing.

But here's a big question: With packet technologies and Internet-voice services such as VOIP threatenting to take over the world, does it really matter?

Many experts see the FCC -- and the telecom lobbying groups -- as laboring over regulatory policy that affects legacy issues, while next-generation services such as VOIP threaten their very existence (see S&P Cautions Bells on VOIP). The bottom line is that yesterday’s court decision -- and the UNE-P issue -- may not be all that relevant.

”This UNE-P issue is never fixed because it’s probably unfixable,” says Bob Atkinson, Director of the Columbia Institute for Tele-Information (CITI), based at Columbia University. “The debate becomes an artifact of history, because the future is the battle of VOIP versus the legacy network."

Service providers, of course, do not see it that way. And neither do CLECs and consumer groups. As soon as the U.S. Solicitor General’s office, which is overseen by the Bush administration, issued its decision, the lobbying and PR groups linked to CLECs and ILECs cranked up their marketing machines, issuing their respective protests and victory calls.

For example:

”XO is disappointed that the interests of millions of consumers and small businesses would be put aside in favor of the interests of a few, large corporate monopolies,” said a statement from XO Communications Inc. (OTC: XOXO).

”The Solicitor General's decision is a major victory for consumers and the nation's economy,” said SBC Communications Inc. (NYSE: SBC). And so on. The reactions fell along predictable lines.

Dana Frix, a lawyer and co-chair of the telecommunications practice with Chadbourne & Parke LLC represents some CLEC clients. He says UNE-P has got to be enforced, and abolishing it is not a solution.

"If you get rid of UNE-P, AT&T and MCI cannot provide local service, so the effective goal of the 1996 Telecom Act, which everybody agreed was a good idea, will not be being met." He says the government has got to find a way to make UNE-P more enforcable and put to rest the complaints of the incumbents. "In 1996, a deal was struck and [the incumbents] said it was reasonable."

But as CITI's Atkinson points out, the importance of the UNE-P debate may be greatly exaggerated by both parties. The FCC, which has been squabbling over UNE-P for years, hasn't made progress toward clarifying or ameliorating the regulatory environment for the industry as a whole. And rules regarding UNE-P, which determines how incumbents share and are compensated for their local loop assets, are still largely in effect, regardless of the recent ruling.

Let’s take it from the top, and summarize the action on UNE-P and related issues facing the FCC through the past year:

The FCC last summer issued its divisive 576-page Triennial Review, a sprawling document filled with regulatory details that were designed to clarify its regulatory stance (see FCC Rumbles on the Rules and MCI, Qwest Strike Deal). It had the effect of splitting the FCC, angering many and pleasing few industry constituents, and leaving many pundits to predict it would do nothing more but supply lawyers and courts with plenty of business. So far, that appears to have been the result.

In early March, a federal circuit court struck down some provisions of the Triennial Review, the most notable of which was the goal of delegating responsibility for regulating UNE-P pricing to the states. This was viewed by the mainstream press -- and the stock market -- as a victory for ILECs. The CLECs and opponents of the court decision protested it and said that the Supreme Court would come to its rescue. After yesterday’s decision in the office of the Solicitor General, it’s now clear that’s not going to happen.

FCC Chairman Powell, who is actually in the minority camp on the commission, has been pushing a new agenda that largely ignores the issue of UNE-P rules promoted by his own commission –- and instead focuses on examining the regulation of VOIP and pushing ILECs and CLECs toward open-market negotiations to resolve their differences, such as the recent deal struck between Qwest and MCI (see VOIP Seeks Its FCC Level, FCC Suggestion Spurs (More) Conflict, and Qwest & CLECs Negotiate UNE-P).

The Bush Administration’s decision yesterday not to push for appeal backs the minority camp in the FCC, which includes Chairman Michael Powell and fellow Republican Kathleen Abernathy. The other camp includes Democrats Michael Copps and Jonathan Adelstein, as well as Republican Kevin Martin who went against the wishes of Chairman Powell on many UNE-P issues.

The bottom line? With the industry’s myriad structural and technological shifts -- and the FCC's internal divisions -- the UNE-P debate may finally be starting to fade from prominence. Some analysts have noted that the rise of packet-switched technology such as VOIP has already made line sharing somewhat irrelevant (see VOIP to Star at FCC ).

Atkinson predicts the FCC will now be forced to find a more practical solution to switching conflicts in the local loop. He sees them possibly looking at the process of "batch hot-cut," a technological solution to line-sharing conflicts through which ILECs and CLECs can come to terms with an automated, standardized process for switching over large groups of customers. The idea is that if this process were standardized and made more electronic, it would minimize the costs involved for both parties when customers switch providers.

"The courts like batch hot-cut, and they would like the FCC to nail that down," says Atkinson. "Everybody agres they [CLECs and ILECs] must coexist. The ILECs now say they want the CLECs to access the network -- they just want to be paid a little more.

Chadbourne & Parke's Frix says Congress may need to take up the matter and clarify their defense of UNE-P and the consumer's needs. "The RBOCs have the right to use the legal process to bully consumers," says Frix, "But perhaps Congress needs to rewrite the [1996] act to make it clear that there is Unbundled Element [UNE-P] and there’s a cost basis, and the RBOCs can’t stop you from using it.”

— R. Scott Raynovich, US Editor, Light Reading