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Optical/IP

Will Powell Pull the Plug?

The Federal Communications Commission (FCC) is getting ready to dismantle regulations that compel regional Bells to allow their competitors access to their networks at fixed low rates, according to a Wall Street Journal article this morning.

The FCC would not confirm whether or not it has reached a verdict in its more than one-year-long review of the regulations. “The Commission does not comment on open proceedings,” says FCC spokesperson Michael Balmorris. “It is highly speculative and premature to say what the Commission will ultimately adopt.”

Industry observers, however, say it would not be surprising if the Commission, under the leadership of widely-perceived RBOC-fan Chairman Michael Powell, ultimately sides with the Bells. “To me, this really smacks of the RBOCs owning Powell,” says Craig Johnson, an independent analyst based in Portland, Ore.

If the FCC does vote to abandon the regulations next month, it will be a huge victory for the Bells, which functioned as monopolies in their regions until the Telecommunications Act of 1996, which forced them to open their networks to competitors. The regulations put in place at that time were intended to open the competitive landscape and make it easier for new service providers to enter markets traditionally dominated by the RBOCs (see Fed Reg Debate Heats Up).

All four of the remaining Bells, BellSouth Corp. (NYSE: BLS), Qwest Communications International Inc. (NYSE: Q), SBC Communications Inc. (NYSE: SBC), and Verizon Communications Inc. (NYSE: VZ), have been very vocal in their criticism of the regulations, claiming that the prices they are allowed to charge competitors for access to their networks and unbundled networking elements (UNE-P) are lower than the amount it costs to run them. In addition to unreasonably low prices, they say, the regulations also hurt the industry as a whole, since they dissuade competitive carriers from investing in their own networks (see Whitacre: Regulations Will Wither).

“UNE-P has resulted in economic damage [for the RBOCs],” says SBC spokesman George Thompson. “And [that damage] trickled down and hurt other parts of the industry. Ultimately, it’s unsustainable.”

The competitive carriers, on the other hand, insist that abandoning the regulations that ensure their access to local networks will once again give the RBOC monopolistic control over most local service offerings (see Competitive Carriers Lash Out at FCC). In addition, they point out, the RBOCs have been granted approval to offer long-distance services in most of the states in their regions based on the fact that their networks were sufficiently open to competitors. To date, the RBOCs can offer long-distance services in 35 states (see RBOCs Get Long Distance Go-Ahead).

Now, traditional long-distance providers have reason to fear that the Bells will not only dominate local services, but that they will also gain large market shares in long distance.

“They’re goners,” says Craig Johnson of the competitive carriers if the FCC does vote to abandon the regulations. “What do they have left to sell? …If they do this, it will be the nail in the coffin for all [standalone] long-distance businesses.”

“I think it’s a disastrous decision,” agrees Network Conceptions LLC analyst Phil Jacobson. “I think it’s going to hurt innovation, and I think it’s going to hurt the economy.”

In May last year, a D.C. court of appeals ruled that the FCC had to reevaluate which network elements should be included in the UNE-P regulations. The Commission has until February 20 to reach its conclusion. While some elements are likely to remain regulated, the Journal article claims that the current version of the FCC plan calls for a two-year phase-out period for CLECs’ discounted access to the Bells’ network switches that route calls to customers. “That is very humorous,” Johnson says. “It took eight years to get here.”

While it might make sense in some cases for competitive carriers to build their own networks and invest in their own equipment in the business market, Jacobson says that abandoning regulation of the residential market doesn’t make any sense at all, since revenues are far too low to justify having several networks in the same area. “I don’t see any situation where facilities-based residential competition makes any sense,” he says.

Before the FCC can vote on dismantling the UNE-P regulations, the Commission will have to overcome what is expected to be considerable legal challenges from the competitive carriers, as well as from state regulators.

“I think we’re living through historic times here,” Jacobson says. “Unfortunately, it’s not going to go well.”

— Eugénie Larson, Reporter, Light Reading
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Consultant 12/5/2012 | 12:55:11 AM
re: Will Powell Pull the Plug? The article doesn't distinguish between UNE-P and UNE-L. Ms. Larson might want to consider in her reporting that the FCC cannot do away with access to unbundled network elements because it is the Law.
The FCC has no authority to over-ride the 1996 Telecom Act.

- R.
lastmile 12/5/2012 | 12:55:10 AM
re: Will Powell Pull the Plug? What is the difference between welfare and 'piggy-back'?
The RBOCs are sick and tired of giving the competition a free ride on their system.
Enough is Enough.
If public funds helped the RBOC's build their infrastructure, then by all means everyone has a right to those obsolete copper lines. But if they decide to upgrade to fiber to compete with their unregulated counterparts then why give them sleepless nights?
The FCC will take the correct action because they have had an ample time to review the mess that the telecom act of 1996 has made of this great industry.
I have no special love for either the RBOC's or the CLEC's but as a matter of principle, all new infrastructure should be deregulated. If the CLEC's hate deregulation they should invest and compete and not piggy-back.
willywilson 12/5/2012 | 12:55:08 AM
re: Will Powell Pull the Plug? I have no special love for either the RBOC's or the CLEC's but as a matter of principle, all new infrastructure should be deregulated. If the CLEC's hate deregulation they should invest and compete and not piggy-back.

Well, you should have special love for the RBOCs, because "deregulation" of the telephone system will mean its formal re-monopolization by the RBOCs.
willywilson 12/5/2012 | 12:55:08 AM
re: Will Powell Pull the Plug? The article doesn't distinguish between UNE-P and UNE-L.

I didn't read the WSJ article yet, but from the context it seems clear that it's about UNE-P. The FCC's decision on this one has been apparent for nearly a year. They will remove switching as a UNE (and therefore as a part of UNE-P) over a period of three years, but it will only be the federal requirement.

This will permit the state commissions to keep switching as an element. And it won't apply to rural UNE-P carriers. The fun part about this one is that the RBOCs were permitted to forbid the collocation of switches in the COs.

I wonder what the FCC will say about this, especially now that voice switches can literally be put on a line card. By itself, the FCC's forthcoming decision on switching as a UNE might be a lot less than meets the eye. But the devil will be in the details, and no one should ever underestimate the FCC's vulnerability to corruption, particularly given its current chairman's political ambitions.

Ms. Larson might want to consider in her reporting that the FCC cannot do away with access to unbundled network elements because it is the Law.

But the FCC can define what the elements are, which makes this a distinction without a difference!

The FCC has no authority to over-ride the 1996 Telecom Act.

This is true in a direct sense, but in a practical and indirect sense the FCC has the power to turn the Telecom Act into a dead letter. The upcoming order on switching as a UNE is probably a lot less important than the Broadband NPRM, under which the FCC proposes rules that would effectively define the entire phone network as "broadband capable" and therefore exempted from competition.

If you read the speeches made by Powell and others at the FCC, it's clear that they think "competition" is a contest between monopoly wireline telephone, oligopoly wireless, monopoly cable, and monopoly satellite. The FCC does not value wireline telephone competition and is preparing to effectively end it, while leaving the text of the Telecom Act standing as a dry and empty shell.

Just wait.
lightdimming 12/5/2012 | 12:55:07 AM
re: Will Powell Pull the Plug? 'because "deregulation" of the telephone system will mean its formal re-monopolization by the RBOCs.'

CLEC will die and become one of the extinct species. Without competitors, there is no need for RBOCs to upgrade/improve the existing equipment/service and still be able to charge high price because customers have no choice.

Although companies selling/maintaining legacy telecom equipment may be benefited, but what will happen to those companies making new high tech telecom equipment, ... next generation SONET, 10G ethernet, RPR, MPLS, VoIP, Metro/Ultra long haul Optical Transport, Optical Switching, MEMS, ....

Is there any deregulation related to the equipment upgrade in the new FCC rule???

I hope the new FCC rule will not create a "Perfect Storm" in the already suffered telecom sector.
cwiley 12/5/2012 | 12:55:07 AM
re: Will Powell Pull the Plug? have no special love for either the RBOC's or the CLEC's but as a matter of principle, all new infrastructure should be deregulated. If the CLEC's hate deregulation they should invest and compete and not piggy-back.

In principle I agree. However, over 100 years of monopoly cannot be undone with out the initial protection of government. Without regulation there will not be any oportunity for competition.

Clint
LightSwitch 12/5/2012 | 12:55:01 AM
re: Will Powell Pull the Plug? Using the 'Perfect Storm' analogy, I would submit to you that the CLEC's are the fish in the hold of the boat (RBOC) that's trying to make its way back to port. While the fish are of value, the boat stands a much improved chance of staying afloat through the storm by dumping its hold.

OK..maybe that's a little Corny. Yes, many CLEC's will die but just think...The RBOC's have not been interested in investing into future builds so that the CLEC's can benefit. Once the CLEC's are gone, RBOC's will once again feel motivated to expand and build. This is good for all. (BTW you cannot have several monopolies in the same business space, that would be oxy-moronic)

As for incentives for those companies making new high tech equipment (OOO,MPLS,VoIP, etc...), again, RBOC's will become more apt to expand their perspective bandwidth with the introduction of many new technologies. Maybe they would consider building an all-optical network if they knew that some free-rider (CLEC's) wasn't going to skim the profits.
FinBurger 12/5/2012 | 12:55:00 AM
re: Will Powell Pull the Plug? As much as it may disappoint some vendors, competition in access networks is happening, just not like people wanted. As one of the previous respondents noted, the real game is one of 'substitutes', as the economists say. Here are your choices:
Telephony: RBOC copper, Wireless, cable-phone.
Video: Cable, Satellite, rabbit-ears.
Data: DSL, Cablemodem, and others.

CLECs, Cable overbuilders, and other 'side by side' competitors have died, or dying.

You will note that all real live competition comes from diverse physical networks. This is because access networks are *indeed* a natural monopoly. In the huge preponderance of cases, it makes no economic sense to build two identical networks to serve the same area. FACT OF LIFE. Get over it.
rjmcmahon 12/5/2012 | 12:55:00 AM
re: Will Powell Pull the Plug? Using the 'Perfect Storm' analogy, I would submit to you that the CLEC's are the fish in the hold of the boat (RBOC) that's trying to make its way back to port. While the fish are of value, the boat stands a much improved chance of staying afloat through the storm by dumping its hold.
_____________________

The better analogy is that the captain, an ignorant old fool, and is trying to keep the fish so he throws the working crew overboard.
rjmcmahon 12/5/2012 | 12:55:00 AM
re: Will Powell Pull the Plug? A lesson municipal leaders can take from the current administration example in Iraq, where the plan is to establish a military presence for at least 18 mos while using the oil revenues to rebuild a democracy there, is that democratic reconstruction sometimes requires both the use of power combined with the exercising the rights of eminent domain.

Municipal leaders that prioritize democratic reconstruction in our communications networks will realize the FCC can never provide for their local communities. They'll need to bypass Powell if they are going to help in reconstructing our democratic social contract.
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