FCC Adopts Unbundling Order

December 15, 2004. The Federal Communications Commission (FCC) adopted, but did not release, an Order on Remand regarding incumbent local exchange carriers' (ILECs) obligations under 47 U.S.C. § 251 to make their network elements available on an unbundled basis.

The FCC issued only a short release [2 pages in PDF], and four Commissioners wrote brief separate statements. This item is FCC 04-290 in WC Docket No. 04-313 and CC Docket No. 01-338.

Background. This Order on Remand is the FCC's fourth set rules regarding the unbundling requirements of ILECs. The previous three were overturned in part by the federal courts.

The FCC announced its third set of rules on February 20, 2003, but did not release the text of this triennial review order [576 pages in PDF] until August 21, 2003, six months later. See, story titled "Summary of FCC Triennial Review Order" in TLJ Daily E-Mail Alert No. 725, August 25, 2003. See also, stories titled "FCC Announces UNE Report and Order", "FCC Order Offers Broadband Regulatory Relief", "FCC Announces Decision on Switching", "Commentary: Republicans Split On FCC UNE Order", and "Congressional Reaction To FCC UNE Order" in TLJ Daily E-Mail Alert No. 609, February 21, 2003.

On March 2, 2004, the U.S. Court of Appeals (DCCir) issued its opinion [62 pages in PDF] in USTA v. FCC, overturning key parts of the FCC's triennial review order (TRO), and remanding the proceeding to the FCC. See also, story titled "Appeals Court Overturns Key Provisions of FCC Triennial Review Order" in TLJ Daily E-Mail Alert No. 848, March 3, 2004.

The just announced item is the FCC's order on remand.

Section 251. This order addresses the Section 251 unbundling obligations of ILECs. Unbundled network elements (UNEs) are those portions of telephone networks that the ILECs, such as Verizon, BellSouth, SBC and Qwest, must make available to competing carriers seeking to provide telecommunications services. The Telecommunications Act of 1996 provides that ILECs must provide access to certain of their network elements at regulated rates.

47 U.S.C. § 251(c)(3) provides that ILECs have "The duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory in accordance with the terms and conditions of the agreement and the requirements of this section and section 252 of this title. An incumbent local exchange carrier shall provide such unbundled network elements in a manner that allows requesting carriers to combine such elements in order to provide such telecommunications service."

Section 251 unbundling requirements were created by the 1996 Act. 47 U.S.C. § 251(d)(1) requires that "Within 6 months after February 8, 1996, the Commission shall complete all actions necessary to establish regulations to implement the requirements of this section."

Section 251(d)(2) requires the FCC, in establishing unbundling requirements, to "consider, at a minimum, whether ... the failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer." The interpretation of the work "impair" has been central the FCC's unbundling orders, and the Court opinions overturning them.

Just Announced Order on Remand. The FCC has not released the text of the Order on Remand. It has only issued a press release describing the Order on Remand.

This FCC release states that "We clarify the impairment standard adopted in the Triennial Review Order in one respect and modify its application in three respects. First, we clarify that we evaluate impairment with regard to the capabilities of a reasonably efficient competitor. Second, we set aside the Triennial Review Order’s “qualifying service” interpretation of section 251(d)(2), but prohibit the use of UNEs for the provision of telecommunications services in the mobile wireless and long-distance markets, which we previously have found to be competitive. Third, in applying our impairment test, we draw reasonable inferences regarding the prospects for competition in one geographic market based on the state of competition in other, similar markets. Fourth, we consider the appropriate role of tariffed incumbent LEC services in our unbundling framework, and determine that in the context of the local exchange markets, a general rule prohibiting access to UNEs whenever a requesting carrier is able to compete using an incumbent LEC’s tariffed offering would be inappropriate."

The FCC release further states that "Competing carriers are impaired without access to DS1 transport except on routes connecting a pair of wire centers, where both wire centers contain at least four fiber-based collocators or at least 38,000 business access lines. Competing carriers are impaired without access to DS3 or dark fiber transport except on routes connecting a pair of wire centers, each of which contains at least three fiber-based collocators or at least 24,000 business lines. Finally, competing carriers are not impaired without access to entrance facilities connecting an incumbent LEC’s network with a competitive LEC’s network in any instance. We adopt a 12-month plan for competing carriers to transition away from use of DS1- and DS3-capacity dedicated transport where they are not impaired, and an 18-month plan to govern transitions away from dark fiber transport. These transition plans apply only to the embedded customer base, and do not permit competitive LECs to add new dedicated transport UNEs in the absence of impairment. During the transition periods, competitive carriers will retain access to unbundled dedicated transport at a rate equal to the higher of (1) 115% of the rate the requesting carrier paid for the transport element on June 15, 2004, or (2) 115% of the rate the state commission has established or establishes, if any, between June 16, 2004 and the effective date of this Order."

The release further states that "Competitive LECs are impaired without access to DS3-capacity loops except in any building within the service area of a wire center containing 38,000 or more business lines and 4 or more fiber-based collocators. Competitive LECs are impaired without access to DS1-capacity loops except in any building within the service area of a wire center containing 60,000 or more business lines and 4 or more fiber-based collocators. Competitive LECs are not impaired without access to dark fiber loops in any instance. We adopt a 12-month plan for competing carriers to transition away from use of DS1- and DS3-capacity loops where they are not impaired, and an 18-month plan to govern transitions away from dark fiber loops. These transition plans apply only to the embedded customer base, and do not permit competitive LECs to add new high-capacity loop UNEs in the absence of impairment. During the transition periods, competitive carriers will retain access to unbundled facilities at a rate equal to the higher of (1) 115% of the rate the requesting carrier paid for the transport element on June 15, 2004, or (2) 115% of the rate the state commission has established or establishes, if any, between June 16, 2004 and the effective date of this Order."

Finally, the FCC release states that "Incumbent LECs have no obligation to provide competitive LECs with unbundled access to mass market local circuit switching. We adopt a 12-month plan for competing carriers to transition away from use of unbundled mass market local circuit switching. This transition plan applies only to the embedded customer base, and does not permit competitive LECs to add new switching UNEs. During the transition period, competitive carriers will retain access to the UNE platform (i.e., the combination of an unbundled loop, unbundled local circuit switching, and shared transport) at a rate equal to the higher of (1) the rate at which the requesting carrier leased that combination of elements on June 15, 2004, plus one dollar, or (2) the rate the state public utility commission establishes, if any, between June 16, 2004, and the effective date of this Order, for this combination of elements, plus one dollar."

The Commissioners split three to two, along party lines. The Democratic Commissioners, Michael Copps and Jonathan Adelstein, dissented.

FCC Chairman Michael Powell wrote in a separate statement [PDF] that "The rules have also been carefully designed to pass judicial muster, for I hope we have learned that illegal rules, no matter their other merits, are no rules at all."

Said Powell, "We can only hope that the fourth time is the charm."

FCC Commissioner Kathleen Abernathy wrote in a separate statement [PDF] that "I have great sympathy for carriers that crafted business plans in compliance with our rules, only to have the rug later pulled out from under them. The only responsible solution to this problem is to adopt rules that comply faithfully with the decisions of the D.C. Circuit and the Supreme Court, so that we can finally move forward with stable rules in place."

Abernathy (at right) wrote too that the proposals of the two dissenting Commissioners are "flatly inconsistent with the D.C. Circuit’s decision in USTA II. That decision is unquestionably the law of the land, and we are duty-bound to adhere to it."

FCC Commissioner Michael Copps wrote in a separate statement [PDF] that "What we have in front of us effectively dismantles wireline competition. Brick-by-brick, this process has been underway for some time. But today’s Order accomplishes the same feat with all the grace and finality of a wrecking ball. No amount of rhetoric about judicially sustainable rules and economically efficient competitors can hide the blockbuster job this Commission has done on competition. During its tenure, the largest long distance carriers have abandoned the residential market. And as a result of today’s decision, other carriers will follow suit. In their wake we will face bankruptcies, job losses and customer outages. Billions of dollars of investment capital will be stranded. And down the road consumers will face less competition, higher rates and fewer service choices."

FCC Commissioner Jonathan Adelstein wrote in a separate statement [PDF] that this order "officially cuts the cord on the local competition" and "relegates consumers to an inevitable future of higher rates and fewer choices."

Adelstein added that "Most stark is the Commission’s treatment of local loops, which carry telephone traffic from customers’ locations to a service provider’s network. These local loops act as the on and off ramps to reach the alternative facilities-based networks that competitors have constructed at considerable expense. In this Order, the Commission adopts unbundling rules for these elements that are strangely disconnected from the operational and economic barriers a competitor would face if it had to duplicate the incumbent’s legacy network. This blow to competition and choice comes with a certain slight of hand, couched by the majority as “inference tests” compelled by the courts. But “inferences” aside, there should be little doubt about the real-world implications of this Order."