The opportunity for CLECs, Part 2

Last time, we started discussing the birth of the unbundled network element-platform, which provided an agreement between the FCC, the Baby Bells, and competitive local exchange carriers like ATT, MCI, and Covad to structure local loop unbundling. However, once technical structures were settled the arguments over the pricing to CLECs continued for years, up until a few weeks ago.

Incumbent carriers wanted to charge CLECs as much as $30 per unbundled network element-platform (UNE-P). The FCC sided with the CLECs, suggesting the UNE-P price was too high and that the FCC should regulate UNE-P pricing. A long legal battle ensued, and last month the FCC lost its bid to regulate UNE-P prices. While the FCC could have appealed to the Supreme Court, it decided against filing an appeal.

Since historical telephony cost accounting allows for about one-third of long-distance service prices to be allocated to local loop costs, this would imply that flat-rate monthly voice long-distance packages or DSL-based broadband bundles should be priced at $90.

How can CLECs like AT&T and MCI make money if their UNE costs $30 and they charge $35 for DSL or local-plus-long-distance packages? The answer is they can’t.

So late last month AT&T announced it was limiting its CLEC service area growth since profitability depends on favorable UNE-P pricing. And MCI cut back its telemarketing efforts that supported MCI’s CLEC market growth.

To our loyal reader, a distressed AT&T employee, and to all others who want locally competitive data and voice, we still offer a glimmer of hope. For example, AT&T is increasing the speed of its VoIP service rollout as one means to counter the loss of the UNE-P legal battle. Its service is provided over cable and DSL broadband connections. MCI and Sprint are pursuing partnerships with cable companies to bring voice into the cable companies’ data and video bundle. And last month Covad (which still substantially relies on UNE-P for its DSL service) completed its acquisition of GoBeam (a VoIP service provider), thereby increasing service revenue opportunity by adding voice to its competitive DSL offering.