FCC review is a split decision

Industry observers are split over whether the unbundling rules the Federal Communications Commission issued Thursday favor incumbent local exchange carriers or their competitors.

While early interpretation viewed the decision as a blow to the ILECs, driving stock prices down, some see it as a win.

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Industry observers are split over whether the unbundling rules the Federal Communications Commission issued Thursday favor incumbent local exchange carriers or their competitors.

While early interpretation viewed the decision as a blow to the ILECs, driving stock prices down, some see it as a win.

“The [regional Bell operating companies] will say they’re not happy because the state regulators will have a role” determining how some of the rules are applied, says Tom Nolle, president of telecom consultancy CIMI. “But realistically they come out of this with the key issue, which is basically universal exemption of new broadband infrastructure from unbundling.”

The momentous decision, one of the most heavily lobbied telecom issues in recent memory, deals with what network elements — broadband facilities, lines and switches — the ILECs have to make available to competitors on a so-called unbundled basis. It further spells out what role states will play in dictating what will be unbundled.

On the national broadband front, the FCC ruled that the ILECs will not have to share new fiber facilities to residential areas or businesses. The ILECs have long complained that the requirement to share new facilities served as a disincentive to build out new plant.

Observers believe this ruling could encourage the ILECs to start investing. But others say there’s no guarantee that will happen, in part because the ILECs might have to get state approval before moving broadband customers from copper networks to fiber.

“The bottom line is this day was supposed to be a day of clarity, with the gun for investment in the broadband market finally going off,” says Matthew Davis, an analyst with The Yankee Group. “But with this decision, the gun’s still pointing up in the air unfired.”

Also on the broadband front, the commission elected to phase out line-sharing over the next three years, a blow to competitive DSL providers such as Covad Communications.

Line-sharing lowers costs for DSL carriers by enabling them to provide service over the same copper loops the ILECs use to provide voice service, rather than having to lease separate loops from the LECs at higher prices.

The ILECs had argued that in the residential broadband market they have to compete with cable companies that don’t have to share lines, so the ruling should be removed to level the playing field. Business DSL lines from Covad and other providers won’t be affected because these lines already rely on loops dedicated exclusively to DSL service and don’t rely on line-sharing.

The switching rub

In terms of switching, FCC Chairman Michael Powell had pushed for lifting the requirement for ILECs to make switch facilities available to competitors as an unbundled element (UNE). But the FCC majority overruled him, retaining the status quo, at least for the near term.

While competitive LECs (CLEC) that rely on UNE switching to deliver service won’t lose that capabilities immediately, the FCC decision contains a sunset clause that would see it phased out over three years if a state finds that competition won’t be hurt by doing so. The FCC will set the standards for determining whether competition will be hurt or not by phasing out UNE switching.