A call for change

RBOCs at UBS conference decry UNE-P, call for FCC to rework local competition policy

Want to make an RBOC mad? Whisper this to them: UNE-P.

At last week’s UBS Warburg Global Telecommunications Conference in New York, some RBOC CEOs bemoaned the Federal Communications Commission’s current unbundled network element-platform (UNE-P) rules as harmful to their businesses by forcing them to resell pieces of their local networks to competitors at below cost.

They say UNE-P, as currently applied, will not allow them to afford to invest in new services, such as bundled packages of voice and data applications, and offer them at competitive prices. But as IDG New Service’s Marc Ferranti reported in The Edge last week, the CEOs expect the FCC to alter these and other rules over the next few months.

The FCC has to strike a delicate balance here. Competitive local exchange carriers (CLEC) need UNE-P to enable them to tap regional Bell operating company facilities to offer local services along with the long-distance and data services they have already been providing. And the RBOCs need to open up their local loops to competition, as decreed in the 1996 Telecommunication Act, in order to get into the long-distance market.

But UNE-P has a broader impact on the telecom industry and the economy. The economy is in the tank right now due in large part to sharply reduced capital spending by service providers. SBC Chairman and CEO Ed Whitacre said at last week’s conference that UNE-P is one factor that’s helping to dissuade SBC and other RBOCs from spending on new equipment.

And Verizon CEO Ivan Seidenberg suggested CLECs are actually abusing the UNE-P ruling by using it not to reach a broad range of subscribers, but to skim only the cream-of-the-crop from the RBOC base.

Seidenberg described UNE-P as a “maddening, destructive policy” that will “destroy those who use it anyway” because UNE-P carriers will be unable to control their margins by relying on the facilities of embittered wholesalers. UNE-P will also stunt the growth of the telecom industry and limit user choice, Seidenberg said.

But UNE-P practitioner AT&T says the benefits of the ruling are clear, Ferranti reports. Certain states have seen competition increase and prices go down, according to David Dorman, AT&T chairman and CEO-elect.

In Michigan, AT&T gained 6.5% market share in a five-month period, forcing incumbent SBC to lower prices, Dorman said. In California, SBC preemptively lowered rates right before AT&T came into the market with UNE-P-based offerings, he said.

So exactly how the FCC may alter UNE-P is open to question. The consensus at the UBS conference was that the FCC is likely to lift some, though certainly not all, of the UNE-P requirements.

But because UNE-P has put downward pressure on prices in areas where CLECs have used it to compete, it might be politically difficult for the FCC to justify dramatic changes, according to UBS analysts.

“The Bells have pinned their hopes on the FCC, which in our view will find it difficult to dramatically curtail UNE-P (i.e., raise residential rates for 6.1 million households) given the scandals that have plagued the telecommunications industry,” according to one UBS report circulated at the conference.

The FCC expects to complete its triennial review of UNE-P and issue an order in the first few months of 2003.