State Commissions Give Thumbs Down to Elimination of UNEs and Resale 

August 9, 2018 | by Andrew Regitsky

State Commissions Give Thumbs Down to Elimination of UNEs and Resale 

Comments are streaming in regarding USTelecom’s Petition for Forbearance (Petition) of sections 251(c)(3) and (4) of the 1996 Telecom Act. Such forbearance would free ILECs from the obligations of providing unbundled network elements (UNEs) and total service resale (TSR) at cost-based rates. As USTelecom stated in the Petition: 

Section 10's forbearance criteria are easily met with regard to Section 251(c)'s unbundling and resale provisions and associated obligations. Because of robust intermodal competition, the marketplace is irrevocably open to competition, such that these obligations are no longer necessary to ensure that rates and practices are just, reasonable, and nondiscriminatory, or to protect consumers. Moreover, forbearance furthers the public interest by encouraging facilities-based competition, reducing compliance costs, and freeing capital for use in deploying broadband networks and advanced services to consumers. (USTelecom Petition for Forbearance, filed May 4, 2018, Summary).

To the surprise of no one, UNE and resale providers (ILECs) are extremely supportive of the Petition, while purchasers such as CLECs were extremely negative. CLECs claim that without UNEs and TSR, they could no longer serve many of their small business customers, especially in rural areas where broadband is not widely available.

This Petition puts the FCC in a tough spot. There is little doubt that the telecom industry has changed drastically since 1996 when the 1934 Communications Act was revised to include the UNE and TSR requirements. Certainly, in many metropolitan areas CLECs would do just fine, since the economics exist to build out their networks to customers and make use of available Ethernet services to bolster these networks. Unfortunately, there is also little doubt that in rural parts of the country, small businesses would be hurt if UNEs (especially) are available only at high market prices or not available at all.

On a legal basis, USTelecom made a mistake when it requested forbearance on a nationwide level, since there are many geographic markets where it is simply not justified. The FCC could easily dismiss the Petition on that basis. However, as we all know by now, the Ajit Pai FCC seeks to eliminate regulations whenever possible, and there is a near zero chance it would dismiss the Petition. More likely, we will see an outcome like the one in the Business Data Services (BDS) proceeding, in which deregulation, or in this case forbearance, would be granted on a market-by-market basis based on the level of competition in the market.

Sadly, for CLECs and small businesses, if the Commission uses a horrible competitive market test like it did in the BDS proceeding, which counts potential competition as actual, then UNEs and TSR are doomed almost everywhere. Instead, we wish the agency would listen to the state public utility commissions that filed comments in this proceeding. They were unanimous that UNEs and TSR are still needed. The Public Utility Commission of Ohio put it best:

Ohio, like many other states, still has a significant number of CLECs serving customers within the state. Generally, these companies serve business customers, with a variety of services tailored to meet the customers’ needs. Lacking networks of their own, CLECs must purchase UNEs or complete services for resale to serve their customers. While other services have emerged in recent years that compete with or replace traditional TDM-based (time-division multiplex telecommunications services, the TDM-based UNEs or services purchased from the ILECs by the CLECs remain necessary, in whole or in part, for CLECs to adequately meet the needs of their customers. By ensuring that CLECs have access to the UNEs and services critical to their ability to adequately serve their customers, section 251(c)(3) and (4) of the Act continues to promote competition, and, most important, choices in the telecommunications market. (Comments of Public Utility Commission of Ohio, Docket 18-141, filed August 6, 2018, at pp. 3-4). 

Ohio also demolished the ILEC contention that the Petition should be granted since UNEs and TSR would still be available at market-based rates:

Section 251(c)(3) and (4), and the associated obligations imposed under the Act, provide a baseline or safety net to ensure that all carriers have reasonable market access and operate on a level playing field. This benefits both CLECs and end users. Should the FCC grant the USTelecom petition, CLECs would be forced to negotiate commercial wholesale agreements under section 251(b)(1) without any recourse to state commissions and the associated mediation and arbitration processes. Such a proposition presumes that CLECs have equal bargaining power with ILECs in negotiating these agreements. The Ohio Commission is not convinced that this is currently the case or, given the extended transition period set forth in the modified transition proposal, will be the case by February 4, 2021. Accordingly, the Ohio Commission strongly encourages the FCC to fully investigate and determine whether CLECs truly are at bargaining parity with ILECs before granting any forbearance of section 251(c)(3) and (4) and the associated obligations under sections 251 and 252 under either the original petition or USTelecom’s modified proposal. (Id., at p. 5).

Unfortunately, we are not hopeful the FCC will listen to the state commissions that are much closer to the actual communities that would be impacted by UNE and TSR resale elimination. As stated above, we believe it is much more likely that the Commission will devise a boneheaded market test designed precisely to result in section 251(c) requirements in only a tiny sliver of rural markets. What a shame this would be! Reply comments are due on September 5, 2018.