Once again, the FCC makes clear it pays to be a large ILEC (Incumbent Local Exchange Carrier) these days.  In a draft Memorandum Opinion and Order (Order) in Docket 18-141, that it will approve at its upcoming July 10, 2019 meeting, the Commission intends to forbear from enforcing the section 251(c)(3) unbundling DS1 and DS3 transport requirements in most counties for price cap ILECs.

The Order will be the Commission’s first official response to the Petition for Forbearance filed by USTelecom on May 4, 2018.  In that Petition, the ILEC association sought relief of all the section 251 unbundling and resale obligations.  Although the current Order involves unbundled transport only, the Commission must act on the remainder of the Petition by August 2, 2019, so an additional order is forthcoming.

The Order is a major win for ILECs which have been grudgingly providing low priced unbundled network elements to their competitors for years, all the while fighting their obligations at the FCC and in the courts.  With the previous majority Democratic FCC, the ILECs would have had no chance for success, however, the current FCC detests regulations and removes them whenever possible.  

In addition, USTelecom shrewdly obtained the Commission’s approval to include data from the Business Data Services (BDS) proceeding in its unbundling proceeding, successfully arguing that UNEs are substitutes for special access services and vice versa.  Once the Commission bought that argument and included the BDS data, the handwriting was on the wall for unbundling.  That is because since the Commission deregulated most ILEC DS1 and DS3 special access obligations, UNEs as substitutes, would be likely to receive similar regulatory treatment.

In the draft Order, the Commision partially grants price cap ILECs forbearance from UNE DS1/DS3 transport obligations between wire centers where, based on its analysis of competitive network deployment, it finds that such obligations are no longer necessary to further the local market opening provisions of the 1996 Telecommunications Act.  Specifically, the Commission grants forbearance from DS1 and DS3 transport unbundling requirements at price cap carrier wire centers where competitive fiber networks are located within a half-mile of the wire center.

This forbearance is conditioned on (1) a six-month transition period during which competitive local exchange carriers (CLECs) can place new orders for DS1 and DS3 unbundled transport; and (2) a concurrent three-year transition period to enable these carriers to arrange for alternative transport options.

The Commission anticipates that after forbearance DS1 and DS3 transport will remain available to CLECs under negotiated agreements between CLECs and ILECs.  However, despite the agency’s assurances that it would ensure prices are fair, negotiated transport prices will surely be higher than the unbundled transport rates available today which are based on long-run incremental costs.

Following forbearance, the availability of UNE DS1/DS3 Transport will continue to be determined on a wire center-to-wire center route basis by examining the classification of the wire center on each end of the desired transport route and determining whether the UNE-triggering wire center is sufficiently near competitive fiber.  Along routes where the UNE-triggering endpoint has nearby competitive fiber, we expect market forces will work to ensure just and reasonable commercial interoffice transport prices in the absence of UNE DS1/DS3 Transport availability...We expect the good faith commercial solutions arising from that framework to work to ensure that BDS transport rates remain just and reasonable without resort to an ex ante regulatory process.  (Draft Order, at para. 59).

The Commission also notes that for CLECs in current interconnection agreements:

Our forbearance is not intended to upset pre-existing interconnection agreements or other contractual arrangements that may currently exist nor pre-existing State-Commission-arbitrated rates during the transition period, which should quell concerns of those fearing near-term price increases for UNE DS1/DS3 Transport
Of course, the transition mechanism we adopt is simply a default process, and competitive LECs and price cap LECs remain free to negotiate different arrangements superseding this transition period and replacing UNE DS1/DS3 Transport arrangements with negotiated commercial arrangements at any earlier time. (Id., note 200.).

Ten or even five years ago, CLECs using UNEs would almost certainly appeal this Order to the circuit courts.  Now, with fewer competitors using unbundled transport, a three-year transition period, and with the Eighth Circuit Court already buying the FCC’s BDS arguments, an appeal is much less likely.

At the same time it released the draft Order, the Commission also released a draft Opinion and Order on Remand in which it reaffirmed its previous findings that price cap ILEC BDS time-division multiplexed (TDM) transport services should not be subject to ex ante pricing or tariff obligations.  The Eighth Circuit had remanded this decision from the BDS Order back to the Commission on procedural grounds.