The FCC’s failure to publicize rules to guide the industry transition to a fiber-based Internet Protocol (IP) continues to lead to endless arguments between ILECs and CLECs. The latest debate centers on the legitimacy of special construction charges assessed by Verizon on CLECs ordering both Time Division Multiplexed (TDM) and IP-based wholesale services.  

A number of CLECs, including Windstream, XO, Level 3, and CompTel have recently made presentations to the FCC alleging that Verizon is assessing unwarranted and excessive special construction charges on wholesale business services such as DS1, DS3 and Ethernet. They claim that such charges could allow Verizon to introduce backdoor price increases for wholesale services and thereby disadvantage its competitors in the business services market, leading to less choice and higher prices for retail customers. 

 In their meetings with the Commission, XO asserted that,

Verizon has been greatly increasing the frequency of special construction charges for its Ethernet services and, based on fourth quarter 2014 numbers, the percentage of cases where special construction is imposed is more than 80 times higher for Verizon than AT&T. Moreover, XO explained that, over the past several years, the incidence of Verizon special construction charges for TDM special access service orders has been substantially higher than in the period prior to 2012, when special construction charges were very rarely imposed by Verizon… XO noted that the incidence of special construction for TDM services in the case of Verizon is markedly higher than for AT&T (See, CompTel April 23, 2015 Ex Parte Notice in Docket 13-5, p. 1.)

Windstream added that Verizon issued nearly twice as many Ethernet special construction quotes to Windstream in the first quarter of 2015 as compared to the first quarter of 2014.

XO described some of the scenarios in which it claims Verizon is inappropriately assessing special construction charges:  

For example, in response to XO orders for DS1 special access at certain locations where copper is not exhausted, Verizon has informed XO that fulfilling the orders will require special construction charges because the building is converting to fiber-based service or will be FiOS-only going forward. Similarly, XO noted that Verizon, on some occasions where XO seeks to access new buildings, has purported to justify its special construction charges for TDM services on the basis that Verizon is only offering FiOS to such buildings. Through imposition of special construction charges in these and other situations not permitted under its tariffs, Verizon is improperly shifting its fiber construction costs to XO and raising its rates for DS1 and DS3 services (Id, at 1-2).

In light of their concerns, the CLECs urged the Commission to take action to ensure that the incumbent LECs:

(1) Consistently make capacity available to a requesting a wholesale customer without assessing a special construction charge if it would do the same for a retail customer requesting the same level of capacity, and;

(2) Only assess special construction for network facilities when there is no reasonably foreseeable possibility that the network facilities will be used by the incumbent to offer its own services in the future (Id., at 2).

While the data provided by the CLECs appears convincing, there is little doubt that Verizon, once it responds, will provide equally convincing justification for its special construction charges. 

The problem here is not caused by either the ILECs or CLECs, all logically attempting to advantage themselves in the competitive IP business market in the absence of any meaningful rules. Instead, the blame falls at the feet of the FCC. Its failure to develop any rules for the wholesale market, regardless of whether it involves the interconnection between carriers, the availability of wholesale services such as unbundled DS1 and DS3 loops, or the allowed prices of these services, has allowed the IP telecommunications market to become the new Wild West, with Marshall Dillon nowhere to be found. The longer the Commission delays in developing rules for the wholesale market the more dangerous it becomes for CLECs, especially smaller ones with fewer revenue sources. Why the Commission won’t act is simply baffling.

By Andy Regitsky, CCMI