ILECs Win Freedom from Providing Cost-Based Unbundled Analog Loops and Resale to Competitors
August 8, 2019 | by Andrew Regitsky
This FCC favors large established companies. Preferring market solutions, it also tries to eliminate as much regulation as possible. Put those two inescapable facts together and we have the ingredients for the latest big win for price cap ILECs. In a Memorandum Opinion and Order (Order) released on August 2, 2019 in Docket 18-141, the Commission responded to a 2018 USTelecom Petition for Declaratory Ruling (Petition), on the last day legally permissible, by forbearing from enforcing sections 251(c)(3) and (4) of the Telecom Act requiring price cap ILECs to provide cost-based unbundled voice grade analog loops and total service resale (TST).
ILECs must still provide unbundled broadband loops under section 251(c)(3) at cost-based rates since USTelecom withdrew that portion of its Petition.
Under section 10 of the Telecommunications Act, the FCC is required to forbear from enforcing a specific requirement of the Act if all the following conditions are met:
- Enforcement of the requirement is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory;
- Enforcement of that requirement is not necessary for the protection of consumers; and
- Forbearance from applying that requirement is consistent with the public interest.
In the case of the USTelecom Petition, the agency explained its forebearance decision:
The communications marketplace has transformed over the past twenty years, with consumers migrating away from plain old telephone service provided over copper wires by their local telephone company toward newer, any-distance voice services provided over next-generation networks by cable, mobile and fixed wireless, and over-the-top VoIP providers. In fact, according to the FCC’s latest published data, of the nearly 455 million active voice subscriptions in the United States, only 55.8 million were provided by incumbent LECs.
Rather than providing a foothold for new entrants into the voice marketplace, these decades-old requirements have become a vice, trapping incumbent LECs into preserving and prolonging dependence on outdated technologies and services and artificially delaying the migration to next-generation networks and services that benefit American consumers and businesses. The Order therefore relieves incumbent LECs of these requirements and, in turn, eliminates costly mandates that deter investment by incumbent LECs and competitive LECs alike and accelerates the transition to next-generation networks and services. (FCC News Release, August 2, 2019)
Over the protests of CLECs who sought a longer transition, the elimination of unbundled loops and TSR will take place under a three-year transition schedule. CLECs will be permitted to order new unbundled analog loops and TST for an additional six months after the effective date of this order. The Commission believes this “will enable competitive LECs to continue to execute short-term business plans and honor contractual obligations with new or existing customers, including small businesses, while they determine which alternative voice service option will best serve their customers’ needs.”
The agency will also immediately begin a three-year grandfathering period for all CLEC customers. During the three years all unbundled analog loops must be transitioned to alternative arrangements.
It is also important to note that the transition period for Puerto Rico will be five years instead of three to account for the devastation to communications infrastructure that resulted from the 2017 hurricanes.
The Commission points out that CLECs are not locked into the transition period. They are free to negotiate different prices, terms and conditions with ILECs.
The practical effect from this Order is that CLECs will pay higher prices for analog loops and resale. Almost all price cap ILECs will continue to offer unbundled voice grade loops at market-based prices on a wholesale basis. That is because it is better to maintain revenues for these services rather than lose them completely.
Similarly, resale of a company’s services will still be required for all LECs under section 251(b)(1) of the Act. The difference is that the carrier providing the resold service can set its own prices, and they will almost certainly be higher than if avoided costs were removed.
Unfortunately for CLECs, the Commission believes their individual cost increases are outweighed by the collective costs to the industry if ILECs are forced to continue to meet these “outdated” unbundling and resale obligations.
Even to the extent that alternative arrangements for competitive LECs result in them paying somewhat higher prices than they are paying today for the inputs they use to provide voice service, this does not persuade us that it would result in unjust or unreasonable charges. What is necessary to ensure just and reasonable rates can account for a range of policy concerns, including balancing competing policy considerations. Although some commenters focus on the rates for wholesale service inputs, our concern is not for the fate of particular competitors but of competition and, more fundamentally, end users. In light of the available alternative voice service options, we are not persuaded that forbearance will result in unjust or unreasonable voice service rates. We decline to maintain inefficient network use merely because removing a legacy unbundling obligation that no longer serves the purpose for which it was adopted would harm the profits of a competitive LEC operating an outmoded business model. (Order at para. 26).
The Order is effective immediately. ILECs have been fighting for this result since 1996. It took them 23 years, but they have finally won.