Federal Communications Commission
Triennial Review Summary
February 2003

The Federal Communications Commission yesterday adopted its Order in the seminal proceeding that defines what Unbundled Network Elements (“UNEs”) are available to competitive carriers.  UNEs are pieces of the networks of the Bell telephone companies and other incumbent local exchange carriers (“ILECs”) that must be made available to competitors at favorable rates.  This Order follows an unprecedented contentious proceeding at the FCC.  In a rare development, four of the five Commissioners dissented on various parts of the Order.

Although the FCC adopted the Order yesterday, large segments must still be written, and it likely will take 1-2 months before the FCC releases the full text of the Order.  It is very important to realize that the Commission's broad policy choices were announced today — many absolutely critical details will remain unknown until the full text of the Order is released.  Once it is, we anticipate that a large number of carriers, state regulators and others will seek reconsideration of, or appeal, various segments of the Order.  Below, we list the highlights of the decision, based on press releases issued by the FCC and oral statements made today by FCC Commissioners and Staff. 

The “Impairment” Standard

• A requesting carrier is impaired when lack of access to an ILEC UNE poses a barrier or barriers to entry, including operational and economic barriers, which are likely to make entry into a market uneconomic.  Such barriers include scale economies, sunk costs, first-mover advantages, and barriers within the control of the ILEC.  The Commission’s unbundling analysis specifically considers market-specific variations, including considerations of customer class, geography, and service.  

Broadband Loop Unbundling

• While the details remain unclear, the Order appears to adopt substantial portions of the High Tech Broadband Coalition's (“HTBC”) broadband proposal set forth in its February 7, 2003 ex parte filing – Commissioner Martin stated that this proposal has been adopted “in total.” 
• ILECs must continue to provide unbundled access to copper loops and copper portions of hybrid fiber/copper loops.
  • ILECs must receive state regulatory approval before retiring any existing copper loops or subloops.
• New Fiber to the Home (“FTTH”) loops are exempt from unbundling.
  • FTTH loops that replace existing copper loops, will be exempt from unbundling if the ILECs keep in place the copper loops that have been replaced by FTTH.
  • If the old copper loops are retired, ILECs must provide access to “a transmission path suitable for providing narrowband service.”
• For hybrid fiber/copper loops, “[t]here are no unbundling requirements for packet-switching features, functions and capabilities of incumbent LEC loops.”
  • ILECs must continue to provide unbundled access to “a voice-grade equivalent channel and high capacity loops utilizing TDM technology, such as DS1s and DS3s.” 
  • This aspect of the FCC’s Order is still very unclear, and we will have to wait until the full text of the Order is issued to fully understand what these new rules mean.
• Line sharing (the ability of data carriers to purchase only the high-bandwidth portion of a loop at a discounted price) is eliminated over a 3-year transition period:
  • Data carriers can continue to add new customers to line share loops for the first year only.
  • Over the 3-year transition period, the line sharing discount will be phased out, requiring the carrier to pay the full cost of the loop.  

Unbundled Local Loops

• SONET-speed (“OCn”) loops are eliminated.
• Maintains DS1, DS3, and dark fiber loops, except where triggers are met as applied in state proceedings. 
  • States can remove DS1, DS3, and dark fiber loops based on a customer location-specific analysis and determining that “wholesale competitive alternatives” are available.
  • Dark fiber and DS3 loops can be eliminated by a state commission if it conducts a customer location-specific review and determines that loop facilities have been self-deployed by non-ILECs.

Unbundled Transport

• SONET-speed (“OCn”) transport UNEs are eliminated.
• Maintains access to DS-1, DS-3 and dark fiber transport (i.e., makes a finding of impairment), but subject to a 2 part test: 
  • First test addresses whether wholesale alternatives exist on a route-by-route basis;
  • Second test addresses whether self-provisioning is feasible (DS-1 transport is not subject to this test).
  • State commissions to conduct proceedings to apply these tests and determine whether DS-3 and dark fiber transport UNEs remain available.
• We will have to wait for the full text of the order to see if other terms or restrictions are added to this test.

Other UNEs Eliminated

• Packet Switching (which had been available in limited circumstances).
• Signaling Networks:  now only available with unbundled local switching – eliminated as a stand-alone UNE and where local switching is eliminated.
• Call-Related Databases (LIDB, AIN, CNAM, number portability, Toll Free Calling, OS/DA databases):  now only available with unbundled local switching – eliminated as stand-alone UNEs and where local switching is eliminated.
  •  ILECs remain obligated to provide unbundled access to 911 and E-911 databases.

EELs

• Competitive carriers may order new “enhanced extended links” (“EELs”) (combinations of loops and transport) to the extent that the requested UNEs are subject to unbundling.
• In order to be eligible to obtain EELs, competitive carriers will have to meet certain criteria, and ILECs may audit compliance with such criteria once per year, at the ILEC’s expense.
  • We will have to wait for the full text to be released before we know what these criteria are – prior to this order, competitive carriers had to demonstrate that they would use the EELs to provide some measure of local voice traffic.
• Competitive carriers are permitted to connect – or “co-mingle” – EELs with ILEC Special Access services;  this resolves an ongoing dispute that had severely impaired competitive carrier’s ability to obtain EELs.

UNE-P (The Unbundled Network Element Platform)

• Larger Business Customers: The Order eliminates unbundled switching to provide service to customers served by high capacity lines (DS-1 and above).  State commissions may overcome this and retain local switching for high capacity customers if the states make an affirmative determination within 90 days after the Order takes effect.
• Mass Market—Small Business and Residential Customers:  Maintains access to unbundled switching for mass market customers.
  • State commissions must conduct their own review to determine whether there is “economic” or “operational” impairment, and whether the local switching UNE should be eliminated for providing service to these mass market customers.
    • State commissions have 9 months to conduct proceedings to make impairment findings; Commissioner Martin indicated that a batch “hot-cut” process and the existence of a wholesale switching market must be key inquiries of the state proceedings.
  • Even if the state commission finds no impairment (and thus eliminates the local switching UNE), the FCC sets forth a 3-year period for carriers to transition off of UNE-P.

TELRIC

• TELRIC is the FCC-mandated formula for computing the prices of ILEC Unbundled Network Elements;  the FCC has adopted two changes to its TELRIC rules:
  • Opens the door for ILECs to utilize a higher cost of capital input in establishing TELRIC rates for UNEs
  • Clarifies that use of accelerated depreciation may be appropriate for calculating some or all UNE prices.
  • Depending on how these changes are written, and how they are implemented by state regulators, these changes, together, could lead to higher UNE rates.

“No Facilities” Issue

• The FCC rules attempt to address CLEC complaints that ILECs have refused to provision UNEs by claiming that no facilities are available
• ILECs are required to make routine network modifications to UNEs requested by CLECs,  including deploying multiplexers to existing loop facilities, and undertaking the other activities that ILECs make for their own retail customers, where the requested facility has already been constructed. 
• ILECs need not construct transmission facilities so that requesting carriers can access them as UNEs at cost-based rates, but it clarifies that the ILEC’s unbundling obligation includes all existing facilities deployed in the network.


The Role of Existing Interconnection Agreements and Further Notice of Proposed Rulemaking

• The FCC affirms that its decisions will not override the Change of Law provisions of existing interconnection agreements.
  • If the terms of an existing interconnection agreement require amendment before the FCC’s rules are incorporated, that process must be observed before the FCC’s new rules affect the parties to the agreement.
• The FCC will start a new proceeding to determine whether its current “pick and choose” rules should be modified.
  • These rules allow competitive carriers to add to their interconnection agreements by selecting portions of other carriers’ interconnection agreements.
  • The FCC will tentatively conclude that such modification is warranted to promote more meaningful negotiations between ILECs and competitive carriers.

Other Pending FCC Proceedings Considering Further Deregulation

• In his separate statement, Commissioner Copps urged competitive carriers to be diligent for further FCC action, noting two open proceedings that raise the possibility of further deregulation of ILECs:
  • A proceeding that has asked whether ILECs are nondominant in the provision of broadband services.
  • A proceeding that has asked whether broadband services should be reclassified as non-Telecommunications services, which could remove them from most regulation.