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FCC Examines Colocation Conflict

Competitive local exchange carriers (CLECs) are preparing to do battle with Incumbent LECs (ILECs) as the Federal Communications Commission begins taking comment for its revised rules later this week. ILECs have won at least one round in their attempt to keep CLECs out of their colocation facilities by retaining the right to restrict the deployment of multifunction equipment.

In March the Court of Appeals in Washington, D.C., ruled in favor of the ILECs in the GTE vs. FCC case and said the FCC must revise and clarify its rules regarding what type of equipment CLECs may install in ILEC central offices.

Until the FCC finishes redrafting its rules, the strictest interpretation of the Federal Communications Act of 1996 remains in effect, which means that U.S. ILECs have the authority to prevent CLECs from deploying equipment in their facilities that doesn't provide basic network connectivity. Specifically, this affects equipment such as DSLAMs (digital subscriber line access multiplexers), routers, ATM (asynchronous transfer mode) multiplexers, and remote switching modules, to name a few.

“Unless the FCC keeps a broad open standard, the ILECs will get very picky about the type of equipment they use and will prevent next-generation switches from being deployed,” says Jon Calis, a partner with Kelley Drye & Warren, a New York City-based law firm representing CLECs and equipment vendors on this issue.

The ILECs argued that the FCC had gone too far in its interpretation of the federal statute. According to the law, ILECs are required to provide physical colocation of equipment that is "necessary for interconnection or access to unbundled network elements at the premises of the local exchange carrier." But the FCC interpreted the statute to mean something much broader, allowing competitors to colocate equipment that is " 'used or useful' for either interconnection or access to unbundled network elements, regardless of other functionalities.”

The court has asked the FCC to redefine its rules and more clearly state its reasoning. That process is already underway, with the deadline for official comment slated for October 12. A ruling is expected sometime around the beginning of the second quarter 2001.

Even though most ILECs have agreed not to enforce the statute to its fullest until the final FCC rules have been issued, some have already flexed their newly strengthened regulatory muscle. For example, SBC Communications Inc. (NYSE: SBC) and Sprint Corp. (NYSE: FON) have both reportedly been resistant to allowing multifunction ATM and aggregation gear from Lucent Technologies Inc. (NYSE: LU) into their facilities. Sprint was not available for comment, and SBC says it could not comment since it is still working on its official comments for the FCC.

This latest battle over colocation comes at a particularly bad time for CLECs as venture money dries up in the sector and many CLECs are having financial trouble (see ICG's Sinking Ship). CLECs are relying on multifunction equipment to offer new revenue-generating services.

"This is a critical time for facility-based CLECS,” says Gale Kalitsi, regulatory attorney for Focal Communications Corp., a Chicago-based CLEC that operates in 19 tier-one markets. “It’s tough to move into offering advanced services when so much of the regulation in this area is gray.”

The outcome is just as crucial for vendors looking to sell equipment to CLECs. "The companies that are the most at risk are startups that are working on new next-generation equipment,” says Theodore Weitz, VP and general counsel for Tachion Networks Inc., an equipment vendor that has taken an active role in lobbying for more favorable provisions from the FCC.

But lawyers on the CLEC side are confident that the FCC will formulate rules in their favor.

“I’m very bullish about the outcome,” says Calis. “I believe the FCC really understands the economics that the next generation of equipment brings to the CLECs."

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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