Some consider price hikes, service cutbacks in wake of UNE-P decisions.
While industry experts call their concerns overblown, some alternate local carriers are predicting higher prices and possible service cutbacks while mulling a future without network-sharing regulations that have limited their costs.
A Washington, D.C., appeals court in March had ordered an end to portions of the FCC’s unbundled network elements platform (UNE-P) policy. A string of efforts by competitive local exchange carriers (CLEC), including AT&T, MCI and Sprint, to overturn the ruling have been blocked – the latest being Supreme Court Chief Justice William Rehnquist’s refusal of a petition for a stay of the court’s decision.
UNE-P is a regulation in the Telecommunications Act of 1996 designed to give competitors access to the local-access network, which is dominated by the RBOCs. Under UNE-P, RBOCs were to sell access to their local facilities to CLECs at government-determined rates in exchange for entry into the long-distance business.
Now that UNE-P has been all but dissolved, RBOCs are expected to raise wholesale local facility leasing rates to CLECs, which would raise retail fees. RBOCs and CLECs now will negotiate commercial wholesale arrangements while the FCC considers an alternate regulatory framework.
“We are still sorting out the details of our various business relationships and how those might be impacted,” a Sprint spokesman says. “In general, we don’t think the UNE-P decision will have a significant impact in our overall plans on the business or consumer side, but we haven’t reached a consensus on the details yet.”
MCI says it is too early to say for certain if the decision will affect business service pricing.
“If the FCC’s rules are allowed to lapse and wholesale rates rise, MCI may be forced to raise prices in some markets and pull out of others,” said Stasia Kelly, MCI executive vice president and general counsel, in a written statement.
According to AT&T, the regulatory course undoubtedly will lead to higher prices and then some.
“It confirms that the [Bush] administration has set the industry on a path to higher prices, less competition, fewer jobs and depressed investment,” says a company spokesman. The ruling reportedly already has forced AT&T to consider exiting local service in some states.
Analysts, however, say any price hikes will be negligible and felt mostly by consumers and small to midsize businesses (SMB).
“The number of customers who are affected by these types of relationships are not enormous,” says Thomas Nolle, president of consultancy CIMI. “It tends to be more the SMB than it is the enterprise.”
That’s because CLECs such as AT&T and MCI that serve large companies usually have their own facilities on which to provision services to those companies. Nolle says these carriers have facilities serving corporations in the 150 largest metropolitan areas in the U.S.
On the other hand, smaller businesses and branch offices of larger companies are in the same boat as residential users: If a CLEC provides their local service, it is over lines leased from an RBOC or incumbent LEC.
Observers don’t think any potential price increases will happen overnight because current contracts have to expire.
“I don’t think it’s going to be cataclysmic, only because the incumbents don’t like bad publicity any more than anybody else does,” says Lynda Starr, an analyst at Probe Group.
SBC says it will hold the line on wholesale pricing at least until year-end.
“SBC has committed to no unilateral increase in mass market UNE-P prices, as well as loop and high-capacity transport between SBC’s offices as a result of this ruling,” the RBOC said in a statement.
“We look forward to working with the FCC as the industry transitions to a regulatory model that puts its faith in free markets and consumer choice, where the competitive market – not government rules – will protect consumer prices,” the carrier added.
BellSouth says it also will not move aggressively to hike rates.
“We have offered our wholesale customers an opportunity to lock in today’s rates until the end of the year and set stable rates through 2007 by negotiating and signing a new long-term agreement with us,” says Herschel Abbott, BellSouth vice president of governmental affairs. “We will redouble our efforts to negotiate these agreements.”
Price hikes will vary on a market-by-market basis because the public utility commissions in every state will have a say in what the cost should be, says Ken Twist, an analyst at RHK.
But in the long run, any price increase for anyone will be inconsequential, according to Nolle.
“You’re going to see no significant impact on service pricing,” he says. “Generally speaking, access pricing is going to go down over time because we’re going to transition from circuit-to-packet mode access.”
