Optical/IP Networks

Powell Loses FCC Vote

An extra week of negotiations obviously wasn’t enough for Federal Communications Commission (FCC) Chairman Michael Powell to get the majority he was hoping for to dramatically scale back existing regulations of the telecom industry (see FCC Rules on Regulations and FCC Guru: RBOCs Will Win).

At today’s FCC meeting, which got underway one week and two hours after it was originally scheduled (see FCC Delays UNE Ruling), the chairman was outmaneuvered on the one issue he has been pushing hardest for: abandoning the unbundled network elements platform (UNE-P). The platform, implemented with the 1996 Telecommunications Act, requires incumbent carriers to allow competitors access to seven key network elements at set, low, wholesale prices (see The Other Powell Preps for FCC Vote).

This is reportedly the first time in 15 years that an FCC chairman has been the dissenting voice on a key ruling. It was a major defeat for Powell's agenda, and he was clear in expressing his disappointment.

"The majority apparently is a big fan of UNE-P,” Powell concluded after three of the five commissioners voted for scaling back the platform at a much less radical pace than he had been lobbying for. "Today’s decision clearly steps back from pro-facilities-based policy."

Today’s ruling also comes as a slap in the face to the incumbent regional Bells, including BellSouth Corp. (NYSE: BLS), Qwest Communications International Inc. (NYSE: Q), SBC Communications Inc. (NYSE: SBC), and Verizon Communications Inc. (NYSE: VZ). All of these companies were hoping for major changes in policy, saying they don’t want to invest in their own networks when their competitors can simply piggy-back on them at a fraction of the price (see Whitacre: Regulations Will Wither). Most of their stock prices fell on the news.

Both Powell and fellow Republican commissioner Kathleen Abernathy dissented to the portion of today’s ruling that handed the states a large chunk of the decision-making power over which areas have sufficient levels of competition to start dismantling UNE-P, as well as over when different elements can be removed from the bundle.

“It’s a model that only works if hundreds of stars align… and stay that way,” Powell complained, insisting that with 50 states and the federal government reaching different opinions, there is “little chance of regulatory harmony.”

Not everyone agrees of course. “The states are really well-equipped to deal with this," says David Svanda, the president of the National Association of Regulatory Utility Commissioners (NARUC). “We are truly in the best position to make the granular analysis that’s needed.” Especially disappointing to Powell was the decision to keep switching on the UNE-P list for residential markets where states deem there are significant impairments to competition. Switching will, however, be removed from the bundle for all business markets requiring a DS1 or above, over a three-year transition period. The states have 90 days to claim that there is competitive impairment that requires switching also in these markets.

All was not lost to Powell, however. Both he and Abernathy were pleased with the Commission’s ruling to unbundle competitive Internet service providers' access to new buildouts of fiber networks (see Fed Reg Debate Heats Up). "I embrace today’s decision,” Abernathy said. "I believe that we’ll see increased competition overall… We’re not taking anything away… We’re simply removing the shackles for future investments.”

The two Democratic commissioners, Michael Copps and Jonathan Adelstein, who voted in favor of the UNE-P decision, dissented on the broadband ruling, saying they thought it would have a detrimental effect on competition in the area. “I fear that this decision might well result in higher prices for consumers, [and could] lead to re-monopolization.” Copps said.

The only commissioner who seemed thoroughly pleased with today’s ruling was Republican Kevin Martin, who got his way on both the broadband issue and the UNE-P issue. This comes as more remarkable, given that Powell and Martin come from the same party. A recent Optical Oracle report actually predicted that Martin would likely undermine Powell's vote (see Hanging Fire With the FCC).

“Martin got his entire agenda,” says Network Conceptions LLC analyst Phil Jacobson. “This became a Martin forum… Powell became a very ineffective leader today.”

No matter how wide the gulf between the opposing commissioners on this issue, today was their last chance to meet a court-imposed deadline to rewrite the regulations. Courts have already rejected two other attempts by the FCC to rewrite the rules (see Supremes Rule for Competitive Carriers).

While the Commission has offered guidelines as to how the telecom regulations should be scaled back, few observers expect today’s ruling to bring much clarity to the industry’s regulatory situation.

“For the most part, the rulings will be a lawyer's cash-pig,” Craig Johnson, an independent analyst based in Portland, Ore., writes in an email. “The Bells will sue in the states where they feel they are being 'taken advantage of' by the PUCs and the xLECs and LD players - and those cases will work their way up through the legal system and we will be right back to where we are today [in a couple of years]"

The RBOCs immediately fired up the rhetoric in protest.

"Rather than reform the rules to provide an economic stimulus to the entire industry, the FCC has chosen to continue guaranteeing profits to the long-distance companies without requiring them to invest anything in the local phone networks,” SBC President William Daley said in a statement today following the ruling (see SBC Reacts to FCC Vote). “It is a loss for American consumers, telecom employees, and advocates of real reform.”

The Bells, which have been counting on Powell to push through regulatory relief, all saw their stock prices drop following the ruling. Qwest was the hardest hit, seeing its stock plummet nearly 14 percent, or $0.55 to $3.50 a share in afternoon trading.

On the other side of the fault-line, competitive and long-distance carriers that have based much of their business on the UNE-P can breath a small sigh of relief today, for while UNE-P is being dismantled, it’s not being done at the cut-throat rate that many may have feared (see 24172}).

"The FCC decision supports the actions of the states to open the local service market to competition, and we remain committed to bringing competitive choice to as many customers as possible,” AT&T said in a statement today. “By leasing facilities initially, we bring competition to market that much sooner. Today's decision on switching therefore is a great win for our customers.”

— Eugénie Larson, Reporter, Light Reading

COMMENTS Add Comment
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ThouShaltNotJudge 12/5/2012 | 12:36:39 AM
re: Powell Loses FCC Vote "... Especially in the residential markets, they argue, it simply doesnG«÷t make financial sense for them to build parallel networks or to invest in network elements of their own."

... Not to mention one's decision to form a company and enter a market that simply doesn't make sense (financially or otherwise); unless of course one is handed an unfair advantage, complete with asylum from it ever being taken away.
sroy 12/5/2012 | 12:36:39 AM
re: Powell Loses FCC Vote A decent compromise in which neither side is really happy.

IXCs/CLECs get UNE-P kept with increasing costs on the connection to the subsciber phased in over 3 years (change in telrec model).

ILECs get exemptions on new deployments to both new housing developments and businesses.

Keeping the power with the states on the decision making is interesting based on the rulings recently from Kansas/Indiana/Oklahoma PUTCs and the impeding rulings from North Carolina/Texas/Missouri.

The battle is just starting.
optical_optimist 12/5/2012 | 12:36:37 AM
re: Powell Loses FCC Vote LR, two questions ....

1) Can you clarify whether any change in regulatory classification was made for RBOC DSL services ?

2) Can you also clarify again fiber access buildouts ? Must the RBOCs unbundle any and all services that are delivered over the fiber loops ?

Commentary ..

This UNE-P decision is a good thing. Ed Whitacre and his henchman, William Daley, have been curtailed. If the RBOCs disagree with the wholesale rates, then they should go back to the PUCs of the individual states and duke it out.

The RBOCs act as if the local telecom service space is their birthright. They welcomed the 1996 Telecom Act as a vehicle to get into long distance and to expand their service area. Now they don't want to give up their monopoly power.

I was very surprised that the Wall Street Journal's editorial board praised Michael Powell's strategy for changing the telecom rulebook. The way the Journal sees it the RBOCs should not be forced to "subsidize their competitors". Extending the Journal's logic, I guess they would prefer Ma' Bell and MCI being denied the right to connectivity to local phone switches for long distance back in the 1980s.

Michael Powell cannot ignore history. He seems to feel that because consumers have some many technology choices (wireless, cable modem, land line, etc,) that the Bells don't need to provide access anymore. In his mind the RBOCs are disadvantaged relative to the cable MSOs. Yes, they probably are, but the MSOs were never a recognized monopoly from a federal government perspective. Their fully investors bore the risk/rewards of their capital investments. The latter cannot be said of the RBOCs historically.
OSXman 12/5/2012 | 12:36:37 AM
re: Powell Loses FCC Vote Anyone have any thoughts on whether the decision will have a meaningfully positive impact on broadband investment?
optical Mike 12/5/2012 | 12:36:35 AM
re: Powell Loses FCC Vote From the FCC news release @ http://www.fcc.gov/

Broadband Issues G«Ű The Commission provides substantial unbundling relief for loops utilizing fiber facilities: 1) the Commission requires no unbundling of fiber-to-the-home loops
lightbeer 12/5/2012 | 12:36:29 AM
re: Powell Loses FCC Vote The RBOCS shouldn't be too disappointed by this ruling considering that they have many years of experience lobbying and cajoling the state PUCs. SBC is probably the one with the most to lose because the California PUC is notoriously pro consumer and will probably give them no relief from consumer UNE-P.

My view is that this will do little to spur the RBOCS into laying fiber to the neighborhood because they were just using this as a carrot to get the FCC to relieve them of UNE-P while enjoying the benefits of offering LD.

I have seen numerous trials of FTTC/H etc. from the RBOCs and even have fiber to the pole in my front yard. But it didn't quite make it into my house 20 feet away. You ask why? Well BellSouth loves to run these little trials to see if the technology works and is economical. I guess it is not economical for them to do this considering the technology seems to work for the cable guys.

I bet the xPON guys are licking their chops at this announcement thinking that RBOCS will start rolling out FTTH. Don't go out and exercise all those options yet, there are a few things to think about when it comes to RBOCS:

1. They will lead you along to put every bell and whistle into your product.
2. Make you spend large amounts of cash to pass OSMINE and NEBS.
3. Give you large roll-out numbers to make you start salivating.
4. Beat you down to negative margins in contract negotiations - thinking you will make it up with manufacturing efficiencies in year 4 or 5.
5. Surprise G«£we decided to give half the contract to another vendorG«• blowing your numbers out of the water.
6. ..... and finally with PO in hand they will call you up and tell you that they put the project on hold.

Seen it happen more than once.

I donG«÷t see the RBOCs rolling out any new expensive fiber build outs anytime soon considering their financial position. If they do roll-out some FTTH/C build outs they will play the same game as the CLECs and cherry pick the better neighborhoods.

Keep Drinkin,

optical_optimist 12/5/2012 | 12:36:29 AM
re: Powell Loses FCC Vote I agree with lightbeer. Regulatory relief alone will not cause FTTH to be wide open in the RBOCs. DSL is still the play.

If we assume FTTH and FTTx will be done via PON technology (which could be wrong, but let's assume its PON), the RBOCs are a very long way from operationalizing PON en masse. The optical splitter engineering alone will keep their network planners very busy. Throw in the fact that the FSAN consortium's network management standards have no alignment with TIRKS/NMA, and it all spells a very slow roll for PON in the RBOCs. Maybe they will prove us wrong, but I doubt it.
Consultant 12/5/2012 | 12:36:27 AM
re: Powell Loses FCC Vote All the talk about UNEs depressing broadband investment is just a smokescreen. The real RBOC anxiety is that local competition via UNE-P levels the playing field.

DSL deployments are slow in this country for a variety of reason having little to do with competition. These reasons include long loop lengths relative to Europe and Japan, the inability to make money on DSL, and low population density.

The RBOCs don't have the money to make investments and eliminating the competition's access to the RBOC network doesn't change that in the least.

Consultant 12/5/2012 | 12:36:26 AM
re: Powell Loses FCC Vote Fiber builduouts to residential subscribers requires a compelling services. What are those services? VOD has an inspiring history. RBOCs going to offer 200 television channels? That requires guts, not an RBOC character trait.
Consultant 12/5/2012 | 12:36:26 AM
re: Powell Loses FCC Vote Big Deal. Does anyone really think the RBOCs are going to retrofit existing copper facilities with fiber to the home? What are the services that are going offered? There are no services that can justify such investment. It is difficult enough to get consumers to pay $45 a month for DSL.

The only service that might make a retrofit work would be television. And I don't see the Dinosaur RBOCs having the corporate culture or enterpreneurial spirit to attack the MSOs on their home turf.

Fiber to the home will continue to be greenfield deployments.
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