In comments filed on December 5^th, CLECs reacted harshly to a Petition for Forbearance filed October 6, 2014 by the United States Telecom Association (US Telecom) in Docket 14-192. In the Petition, the ILEC association argued that some current ILEC regulatory obligations have become obsolete and are now actually hindering deployment of the next-generation Internet protocol (IP) network. Therefore, the Commission should forbear from continuing to enforce these regulations.

Many of these regulations are esoteric holdovers from 20 years ago and their elimination would have little impact on wholesale competition going forward. However, two of USTelecom’s requests, if forbearance is granted, could have significant competitive implications. These include the following regulations:

• The requirement that ILECs provide unbundled 64 kpbs voice channel where it has replaced a copper loop with fiber; and,
• The rules prohibiting the use of contract tariffs to offer special access and high capacity services in the absence of pricing flexibility.       

It is not easy for an applicant to get a forbearance petition approved. For the FCC to grant such a petition, the applicant must satisfy three conditions listed in section 10(a) of the Telecommunications Act:

The Commission must make affirmative determinations that (1) enforcement of the provision or regulation is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory; (2) enforcement of the provision or regulation is not necessary for the protection of consumers; and (3) forbearance from applying the provision or regulation is consistent with the public interest. 

USTelecom argues that forbearance is justified because ILECs are facing ever increasing competition and that such competition is sufficient to keep in check any potential anticompetitive or discriminatory activities. “While cable, wireless and competitive fiber providers are free to focus their expenditures on next-generation networks suited to delivering higher-speed services, ILECs must divert a substantial portion of their expenditures to maintaining legacy networks and fulfilling regulatory mandates whose costs far exceed the benefits.” (USTelecom Petition, p. 3)

CLECs seeks to have the Petition rejected because they believe that while there is some meaningful retail competition in some geographic areas, CLECs are still heavily dependent on ILEC wholesale services to reach end user customers. As Sprint notes:

It is true that competition for certain services (e.g., wireless services) does exist at the retail level. However, at the wholesale level, ILECs -- the RBOCs in particular continue to wield overwhelming market power. ILECs dominate the market for special access services (TDM-based facilities as well as IP-based facilities such as Ethernet) that are critical inputs to broadband services provided by non-ILECs to enterprise customers, and as backhaul for wireless services. ILECs also dominate the provision of IP-based broadband services to enterprise customers because of their access to commercial locations. This dominance has translated into equal dominance in other services.  ILECs and their affiliates now account for approximately 73% of wireless telecommunications operating revenues. (Sprint Comments p. 1).

Now let’s look at the key USTelecom requests that would impact wholesale competition:

First, US Telecom asks the Commission to no longer enforce the requirement that ILECs provide unbundled 64 kpbs voice channels where they replaced a copper loop with fiber. Currently Section 51.319(a)(3)(iii)(C) of the Commission’s rules, requires an ILEC that replaces a copper loop in a fiber-to-the-home (“FTTH”) overbuild situation “shall provide nondiscriminatory access to a 64 kilobits per second transmission path capable of voice grade service over the fiber-to-the-home loop on an unbundled basis.”

USTelecom claims that 64 kbps voice circuits are no longer meaningful for consumers. The association alleges that maintaining these circuits is costly and might require them to support a copper network for years to come, hindering the move to IP. CLECs assert, however, that these copper circuits are used to provide Ethernet over copper (EoC) to their retail customers. Therefore, it would not be in the public interest for the Commission to grant forbearance from this requirement.

Second, USTelecom asserts that the rules prohibiting the use of contract tariffs to offer special access and high capacity services in the absence of pricing flexibility should no longer be enforced. This would enable ILECs to offer contract tariffs to customers in every geographic location, since pricing flexibility prices terms and conditions would not be limited to the Metropolitan Statistical Areas (SMAs) in which the Commission has granted pricing flexibility. USTelecom claims the relief is needed to eliminate barriers to infrastructure investment and competition. Moreover, USTelecom argues that the market is distorted in areas in which ILECs cannot provide tailor-made tariff contracts to meet customer needs while their competitors can.  

CECs contend that USTelecom is seeking pricing flexibility without any demonstration that it has met the competitive trigger needed to obtain Phase I pricing flexibility. CLECs claim that with Phase I pricing flexibility nationwide, ILECs would be able to offer term and volume discounts to lock up customers until ILECs seek to transition them to off-tariff offering when they move to an IP-based fiber network.

The opinion here is that the USTelecom proceeding will not succeed, especially in the near future. That is because the FCC is right in the middle of its Technology Transitions Notice of Proposed Rulemaking (NPRM) and its Special Access Investigation. Since the Commission is currently investigating the wholesale services ILECs must provide to competitors during the transition to the IP network, it is extremely unlikely that it would grant forbearance to ILECs to eliminate 64 kbps voice channels or increase special access pricing options before these proceeding are completed.

So why did USTelecom file a petition that is unlikely to be approved? They did so to bolster the ILEC position in these proceedings. After all, the best defense is a good offense. As ILECs continue to push their case for additional flexibility for their wholesale services, the Commission is less likely to hamstring them with numerous regulatory wholesale regulations and more likely to find a middle ground. Thus, this petition serves more to drive the wholesale regulatory argument rather than winning it.

By Andrew Regitsky, CCMI

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