FCC rulings could hurt CLECs, help large users

Regulatory rulings expected any day on a pair of furiously debated telecom issues might spell bad news for consumers and small business but wind up indirectly benefiting large companies.

A consensus is building among telecom experts that the Federal Communications Commission will move as soon as this week to phase out unbundled network element-platform (UNE-P) rules and slap restrictions on broadband line-sharing in an effort to encourage the regional Bell operating companies to invest in their networks.

A Q&A on the Triennial Review and UNE.

While both decisions would be bitter setbacks for competitive local exchange carriers, they could be a boon for enterprise business users by forcing CLECs to focus more on such customers and spur the RBOCs to invest in fiber infrastructure, experts say. Providers that use low-cost UNE-P to serve the consumer and small-business market will be forced to redraw their business plans if UNE-P is phased out, this theory holds, and enterprise customers would be prominent in those new plans.

“Look at AT&T, for example,” says John Malone, CEO of consulting firm The Eastern Management Group. “They have been making a big UNE-P push. With UNE-P gone, they may find themselves looking at how to do a better job of serving their enterprise customers.”

Easing regulations on the RBOCs also could encourage them to deploy more advanced network services based on fiber, says Berge Ayvazian, a senior research fellow with The Yankee Group. More fiber in RBOC networks would benefit companies by making high-speed connections available to more office buildings, and to more remote workers.

Of course there is a flip side to doing away with regulations that help CLECs make money. In a less-friendly regulatory environment, fewer CLECs will survive, Ayvazian says. “Enterprise customers can expect to see fewer companies out there,” he says.

UNE-P is bundles of UNEs that RBOCs must make available to competitive carriers at wholesale rates. UNEs include elements such as local loops, switching and transport between central offices. Every three years the FCC reviews its UNE policy in a process known as the Triennial Review.

UNE-P has become a bone of contention between CLECs, such as AT&T and WorldCom, and the RBOCs – Verizon, SBC, BellSouth and Qwest.

The CLECs say they need UNE-P to compete with the RBOCs in the local voice market.

The RBOCs say UNE-P is unfair because the RBOCs must sell them to the CLECs at steep discounts that don’t take into account the true cost of network equipment for the RBOCs. The RBOCs also say that the low cost of UNE-P discourages competitors from investing in their own network equipment.

Media reports based on information from anonymous FCC insiders indicate that the FCC will recommend phasing out UNE-P when it delivers its preliminary report on the Triennial Review, which could be as early as this week.

While speculation runs rampant, users aren’t sure that lightening the regulatory load on the RBOCs will benefit anyone.

“My big complaint with companies like Verizon is their poor service delivery,” says Paul Lourd, director of IT for UST, a Greenwich, Conn., holding company for several tobacco and wine subsidiaries.

Lourd says the RBOCs still have too much control over last-mile access and that regulatory bodies need to keep a close rein on the RBOCs to ensure quality service.

“When you get outside the major metro areas, like we are, there’s just not a lot of last-mile choice,” he says.

Eliminating UNE-P would have little direct effect on large business customers because such customers typically use Special Access services ranging from DS-1s to DS-3s and not UNE-P.

While eliminating UNE-P could benefit large customers by making such customers more attractive prospects to CLECs, it also could result in some CLECs going out of business. Aside from AT&T and WorldCom, the majority of the UNE-P CLECs are small, regional providers whose demise wouldn’t hurt large-business users.

But some of the CLECs, including WorldCom and AT&T, serve a mix of residential and business users, so large-business users could find themselves with fewer choices when it comes to picking a telecom provider, Ayvazian says.

The only other way the FCC’s Triennial Review might affect large companies is if the commission makes Special Access services an UNE. Currently the RBOCs don’t have to sell Special Access services to other providers at wholesale rates, forcing CLECs to build their own high-speed networks, or lease them from other CLECs. It’s unlikely, however, that the FCC will add Special Access to the UNE list, Eastern Management’s Malone says.

“They’re looking to reduce the number of UNEs – not increase them,” he says.

Broadband is the other front where the RBOCs and their competitors are battling.

Current FCC rules require the RBOCs to let competitive DSL providers offer data services over a local loop, even if the RBOC also is providing voice over that loop, in a process known as line-sharing. Media reports based on information from FCC insiders indicate the FCC will continue to enforce line-sharing over the RBOCs’ existing networks, but won’t force the RBOCs to share space with competitors on new networks the RBOCs build.

But even if the RBOCs get a break from the FCC on line-sharing, there’s no guarantee they’ll suddenly throw billions of dollars into new network deployments, says Lynda Starr, an analyst with Probe Research.

“You hear the RBOCs say UNEs hinder their network deployments,” she says. “But then you look at how they’re cutting [capital expenditures] and UNEs seem to play a very small role in that. I doubt they’re going to open up their wallets after this process.”