Should RBOCs be required to provide unbundled DSL access? No

Regulatory inconsistency is killing telecommunications investment. Whether through legislation or corrective Federal Communications Commission action, we need a more rational approach to unbundling and wholesale pricing that stimulates new investment in local networks by all competitors. Under the Telecommunications Act of 1996, incumbent local exchange carriers (ILEC) were required to "unbundle" elements of their networks and lease them to competitive local exchange carriers (CLEC) at discounted rates. Congress said these unbundled network elements (UNE) should be supplied at "just and reasonable rates," including "a reasonable profit." Alternatively, competitors could resell ILEC services by purchasing capacity at traditional wholesale rates.

The other side: Unbundled access would encourage broadband deployment
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But the FCC wrote implementing regulations based on an imperfect "pro-competitive" vision. It applied unbundling too rigidly, without regard to available alternatives or differences in geography, competition levels or customer classes. The Commission's Total Element Long Run Incremental Cost (TELRIC) pricing model compels incumbents to offer UNEs at prices often below cost and to reassemble UNEs into a "platform" that collapses the distinction between unbundling and resale. Because existing networks required no new investment for voice service, this draconian formula was arguably appropriate to spur voice telephony competition.

The FCC, however, applied its regulatory scheme by default to broadband data networks requiring massive new capital investments, which turned its vision into our current nightmare of bankruptcies and massive job losses. Meanwhile, cable deregulation was applied by default to cable broadband. Cable companies invested in networks not subject to rate regulation or forced sharing. This regulatory inconsistency defines the broadband status quo, which deters incumbents and competitors from investing in the high-cost residential networks of the future, while it protects cable from competition in residential broadband.

Because competitive broadband networks are vital to America's economy and security, the FCC needs to abandon its "ILEC bad/CLEC good" worldview in favor of a new pro-investment agenda that benefits everyone:

ILEC risk should be rewarded. For broadband services such as DSL, low TELRIC pricing deprives incumbents of any incentive to make network investments. Pricing must change to make unbundling and resale at least potentially profitable.

Competitors should either bear their fair share of network costs or invest in their own technologies.

The FCC should unbundle only those UNEs necessary to sustain, or prevent impairment of, competition.

The FCC should recognize that cable dominates the residential broadband market and cease protecting that dominance through heavy-handed ILEC regulation.

While current pricing and network-sharing policies discourage new investment in America's telecommunications networks, international competitors are building out fiber-rich broadband networks to get a jump on tomorrow. If we cannot find a more rational course soon, the next information revolution will happen somewhere else.

Should RBOCs be required to provide unbundled DSL access? No.

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