CLECs Fight to Save Total Service Resale

May 9, 2019 | by Andrew Regitsky

CLECs Fight to Save Total Service Resale

The USTelecom Petition requesting the FCC to forebear from enforcing sections 251(c)(3) and (4) of the Telecommunications Act must be decided by early August. As expected, the requirement that incumbent local exchange companies (ILECs) make unbundled network elements (UNEs) available at long run incremental costs—(c)(3)—has received most of the industry attention. That is because it is the most efficient method for a competitive local exchange company (CLEC) to enter the local exchange market partially using its own facilities along with part(s) of the ILEC’s network, while transitioning completely to its own network as it gains customers.

Section 251(c)(4) which requires ILECs to make available a complete exchange service at price levels with avoided costs removed—Total Service Resale (TSR)—has been deemed much less important than UNEs. After all, using TSR a CLEC can rebrand an ILEC service under its name, but it is much harder to differentiate the attributes of a resold product from its ILEC competitor. And, as noted above, without contributing even a single piece part of one’s own network, it is much more difficult to transition from TSR into a facilities-based provider then when using, for example, only an unbundled ILEC loop.

As justification for its Petition, USTelecom points out that TSR use is declining, and even without section 251(c)(4), resale will still be available, just not at state-mandated prices.

Indeed, just as UNEs are an insignificant source of competition, so too is resale. As of 2016, resold ILEC lines comprised less than three percent of total fixed end-user retail connections. Thus, the elimination of Section 251 (c)(4) resale requirements will have no material adverse effect on competition. And in all events, following forbearance, Section 251(b)(1) will continue to require all local exchange carriers to resell local exchange services without unreasonable or discriminatory conditions or limitations. And Sections 201 and 202, in turn, will further ensure that all carriers' practices are just, reasonable, and not unjustly or unreasonably discriminatory. (USTelecom Petition for Forbearance, filed May 4, 2018, at p. 29).

Despite the industry’s comparative lack of concern over the loss of TSR, some CLECs advocate for its continuation, including Granite Telecommunications, Manhattan Telecommunications and Access One. In a joint April 4, 2019 presentation to the FCC, they make the following arguments for keeping TSR:

The CLECs contend that the continued need for Total Service Resale must be analyzed by using the appropriate service—traditional plain old telephone service (POTS)—using time division multiplexing (TDM). They assert that POTS is still important and only TSR enables meaningful competition for it:

Self-powered copper voice lines provide business and government customers the reliability that they need for a range of critical applications. This reliability is not available from other voice services, including VoIP or wireless services. As a result, the demand for traditional TDM service remains strong among the business and government customers served by resale competitors.

Federal agencies (including DoD and FAA) have stated that they remain critically reliant on traditional TDM service, and multiple federal agency regulations (including DEA, FAA, and FBI) continue to rely on the presence of traditional TDM service; Multiple state public utility commissions and public safety advocates have emphasized that public safety services frequently depend on the ubiquity and unmatched reliability of traditional TDM service. (April 8, 2019 letter from Thomas Jones to FCC, Docket 18-141, p. 3.).

The CLECs claim that ILECs continue to have market power over traditional TDM service:

Only the ILECs own the copper loops needed to provide traditional TDM service. It is highly unlikely that another firm will deploy these facilities in the future. (Id.).

They argue that resale competitors such as themselves, rely on the TSR availability as a necessary protection against ILEC abuse of their market power for TDM service.

It is used as a crucially-important means of balancing bargaining power between ILECs and competitors in commercial wholesale agreement negotiations. It is used as a means of purchasing wholesale services under interconnection agreements governed by Sections 251 and 252. (id., p. 4).

The CLECs state that without TSR at avoided cost prices, the ILECs would have the incentive and ability to reduce competition by increasing wholesale prices for traditional TDM service.

The CLECs are almost certainly correct. Since even if section 251(c)(4) is no longer enforced, ILECs would still have to make their services available for resale. The one key difference of course is that they would be able to negotiate higher prices for themselves. Thus, the battle over TSR is really a battle over market power. Simply put, without TSR, CLECs will not have the market power to negotiate the prices they are receiving today.

In fact, almost the entirety of the USTelecom Petition is over price levels and market power. We hope that the FCC recognizes that in much of the country ILECs are still dominant, and it keeps the section 251(c)(3) and (4) requirements in place where needed.