A policy change at the FCC

The lack of Powell’s backing doesn’t doom the order – orders all have the same legal effect once they’re passed. It is ironic, though, that the first cohesive policy statement on unbundling issued by Powell’s FCC was architected by somebody other than Powell. Are we looking at a change in leadership at the FCC in the future? Could be.

On Aug. 21, the FCC finally issued its written order on unbundled network elements. The order, first voted on in February, appears to signal a critical shift in FCC policy.

From the signing of the Telecom Act in 1996, the FCC’s policy could be summed up as “Make every element in the regional Bell operating companies’ networks available to competitors at very low rates, forever and ever.” Federal courts threw out every FCC order on UNEs because the orders essentially gave competitors unlimited and perpetual right to pieces of RBOC infrastructure. Under Chairman Michael Powell, the FCC seemed committed to having competitors build their own networks – known as “facility competition.” But how the goal of facility competition reconciled with the requirement that the RBOCs offer elements of their networks to competitors never was explained.

In this order, the FCC sets a firm policy. UNEs are transient assistance provided to competitors to overcome the market-entry problems associated with local access, such as high entry price, sunk costs, low early ROI, credibility and economies of scale. According to the policy, these problems are not, and cannot be, perpetual. A competitor eventually can stand on its own, or it’s not a competitor. UNEs can assist competitors in the early market-entry period, but eventually must be withdrawn.

Nowhere is this new policy more clear than in the FCC’s comments on the controversial “hot-cut” issue. Competitors have argued that they need to purchase UNE-platform (UNE-P) from the RBOCs because the process of transferring a customer’s service between the RBOC and a facility-based competitor is just too time-consuming and expensive. A technician essentially has to unhook the customer loop from one switch and cut it over to another. During this period, the customer’s service is still active (“hot”), so there will be an interruption. With UNE-P, the RBOC continues to be the real provider of the service at the technical level, and there is no “cut” to connect the customer to a different switch, no interruption and no switching cost. This hot-cut issue is probably the most durable justification for UNE-P.

In its order, the FCC acknowledges that the faults in the hot-cut process have impaired competition. But rather than using that to justify perpetual UNE-P, the FCC has ordered the states to put into place procedures to reduce the problem of hot cuts and thus remove the impairment.

But the order goes further. If the states say competitive impairment still exists after hot cuts are fixed, they must wade through a series of tests to prove the impairment is real. If the states still believe impairment exists, they then must consider if a specific, temporary use of unbundling could bridge the competitor into facilities-based operation. Again, the mandate to the states is to fix impairment problems, not just unbundle in response to impairment. This is a very large policy shift.

Any objective reading of the order will show that it’s not as simple as “UNE-P stays, but broadband doesn’t have to be unbundled,” which was the knee-jerk reaction of most to the February announcement. UNE-P decisions are made at the state level, but within the framework of specific tests to justify why unbundling is needed, and after the states have ordered all possible corrective measures to remove impairment and bridge competitors to facility competition.

But whose order is it? Chairman Powell issued what is becoming his traditional whiny dissent. Every other commissioner dissented from at least part of the order – except Kevin Martin, the architect of the compromise that got the order passed in the first place. The lack of Powell’s backing doesn’t doom the order – orders all have the same legal effect once they’re passed. It is ironic, though, that the first cohesive policy statement on unbundling issued by Powell’s FCC was architected by somebody other than Powell.

Are we looking at a change in leadership at the FCC in the future? Could be.