State regulators join forces in defense of UNE-P, states' rights

DEARBORN, Mich., Wednesday, Oct. 30 — FCC chairman Michael Powell's office met with disapproval and resistance on Monday, as state regulators from across the nation voiced opposition to any attempt by the FCC to preempt states' rights to legislate critical telecommunications issues within their states. Regulators from a dozen states at a National Association of Regulatory Utility Commissioners ("NARUC") meeting rebuked the recent notion by SBC and other Baby Bells that the Bells are losing money on the unbundled network element platform ("UNE-P").
 

Wisconsin commissioner Joe Mettner said the assertion does not correlate well with the evidence. "There is recovery of costs. In setting costs there is cost of capital consideration. There is profit margin. There is a return on equity," he said. Unbundled network elements can and have been a profit center for the Bell companies, he said. "The idea that they're not recovering even so much as their costs is difficult to accept having looked at the evidence that I have."
 

The unified consensus of the state regulators was that they have been zealous in their states to ensure UNE prices in their states reflected reality. Regulators voiced a coordinated call for the FCC to give UNE-P a chance to work before making further changes. Repeatedly, state regulators said there had seen scant evidence to support Bell company claims that UNE rates did not cover Bell company costs.
 

"California and the other states have a critical role to play in deciding which UNEs should be offered in their individual states in order to promote competition," said Carl Wood, a commissioner from the California Public Utilities Commission. "Given our long history of examining the cost of the phone network, state regulators, we think, are intimately familiar with the conditions in their own local markets. The FCC should not preempt the states in their efforts to implement the Telecommunications Act of 1996." Wood added, "The FCC should not preempt UNEs without input from the states….We think it would be a mistake to make changes that would limit access to UNE or to the switching UNE."
 

"UNE-P is important, there's no doubt about it," said Glen Thomas, chairman of the Pennsylvania Public Utility Commission. He said that nearly half of Pennsylvania's CLECs use UNE-P, "We've talked to several people who truly depend on UNE-P as an initial mode of entry."
 

Michigan Public Service Commissioner David Svanda reported that states have expended great resources reviewing UNE rates and the need for unbundling. As a result, he said the states were better positioned to create the record necessary to reflect real market conditions. Contrary to Bell companies' pleas for removing UNEs, Commissioner Svanda said it is critical for the FCC to provide the maximum flexibility for state action to add to the UNE list.
 

North Dakota Public Service Commissioner Tony Clark reported that 10% of the lines formerly controlled by Qwest Communications were being served by competitors. Clark said that would have been impossible without UNE-P. Clark said that Qwest, as with the other Bell companies, earned a "very healthy" rate of return on investment and equity. He said that in 2001, Qwest had a 26.76% return on investment and that Qwest is recovering the entire stockholder investment in only North Dakota approximately every four years.
 

So what remedy is there for the Baby Bells if they believe they should be charging higher rates? Laura Chappelle, Michigan Public Service Commission chairman, said that if the Bell companies have an issue with the rates they can initiate a full contested rate case. Apparently responding to the recent Baby Bell barrage of anti-UNE legislation TV and newspaper ads, she added "and that really is the court where they prove their claim-not through press releases."
 

Ohio Commissioner Ronda Hartman Fergus the Ohio commissioners were in step with other state commissions and NARUC: "…it's not practical to offer a one-size-fits-all approach to UNE." Fergus said that state commissions should establish specific rates and be able to amend the FCC's list of UNEs when specific cases require it in the same way the FCC's total element long-run incremental cost ("TELRIC") standards are implemented by the states.
 

NARUC reported that the states collectively or individually had made 56 UNE-P pleadings at the FCC. NARUC reported that UNE-P is an increasingly significant part of competition, with 7.7 million lines provided using UNE-P in June 2002, 7.7 million lines in December 2001, and 4.8 million lines in June 2001.
 

The conference was also attended by FCC Commissioners Kevin J. Martin and Kathleen Q. Abernathy who said they wanted the FCC to build as clear a record on the issue as possible.

States represented by state commission members at the meeting included Alaska, California, Georgia, Indiana, Michigan, New Jersey, North Dakota, Ohio, Oregon, Pennsylvania, Texas and Wisconsin.