TELRIC tumult

The Federal Communications Commission’s decision to review wholesale rates for access line has the potential to change the economics of UNE-P, which would be welcome relief to the regional Bell operating companies.

The Federal Communications Commission’s decision to review wholesale rates for access line has the potential to change the economics of UNE-P, which would be welcome relief to the regional Bell operating companies.

The FCC launched its first comprehensive review of UNE-P wholesale pricing rules last week. The FCC’s review will seek comments on a number of UNE-related issues and on a proposal to make the pricing rules – called Total Element Long Run Incremental Cost (TELRIC) – more closely match actual traffic routes through the Bells’ networks, according to a story by IDG News Service correspondent Grant Gross.

The FCC’s action comes on the heels of the FCC releasing its final Triennial Review order Aug. 21. A week after that FCC order came out, the four Bells filed court challenges, saying the FCC didn’t go far enough in easing their duties to share parts of the networks with other phone service providers.

Bells were disappointed by the details in the Triennial Review but expected them. They say that by leaving UNE-P largely unchanged, the order discourages investment in next-generation projects, such as FTTP; forces Bells to lower capex – SBC says 2004 spending will be down from 2003’s $5 billion; and costs jobs.

“Every time we lose a few hundred access lines, we have to eliminate a job,” BellSouth Chief Financial Officer Ron Dykes said in an address to investors at a Morgan Stanley conference in Boston last week. “As long as market share is trading hands we’ll see change in our workforce and investment levels.”

BellSouth says its 2003 capex will only be 13% to 14% of revenue, vs. its earlier projection of 15%.

Analysts say the result of the TELRIC review could be a hike in wholesale access line rates.

“That TELRIC reflect ‘real-world’ attributes of the actual cost of the incumbent networks instead of purely hypothetical costs suggests that wholesale rates are likely to rise,” says John Hodulik of UBS Warburg. “An increase in wholesale rates would likely make UNE-P a less attractive business model for long-distance companies such as AT&T, MCI and Sprint. The Bells could see revenue earned from providing wholesale service to roughly 13 million lines rise with the impact falling right to the bottom line. Depending upon the size of the increase, the move could cause competitors to pull back from plans to compete through UNE-P or scale back their efforts, lowering the rate of line loss.”

Probe Group says the rate of RBOC access line losses is roughly 3% per quarter.