There is an important battle currently being waged between ILECs and CLECs regarding the continuing need for ILECs to provide cost-effective wholesale services to replace special access during the transition from the copper circuit switched network to one based on fiber and Internet protocol. The FCC finally waded into this battle in November, when it released a Notice of Proposed Rulemaking (NPRM) in Docket 14-174, tentatively concluding that to receive authority to discontinue, reduce, or impair a legacy copper service that is used as a wholesale input by CLECs, an ILEC must commit to providing CLECs equivalent wholesale access on equivalent rates, terms, and conditions. For more details on this NPRM, please see our December 5, 2014 blog.

It is no secret, however, that ILECs are opposed to providing functionally equivalent fiber-based wholesale services, arguing that in building and operating fiber networks, they do not have a competitive advantage over CLECs. Moreover, ILECs content that they already make Ethernet services available to all customers including CLECs through commercial agreements.

We’ve all heard these arguments before and, at best, tend to accept or reject them depending on our company’s role in the industry. At worst, such arguments are ignored, since we’ve heard them so many times before (or maybe I’m just getting old!).

But what if the debate regarding wholesale services was discussed by someone who can speak for both sides of the industry? Wouldn’t that individual’s experience command more attention?  I think so, that is why I want to highlight a fascinating Declaration made to the FCC on March 26, 2015, by James Butman, the Group President for TDS Telecommunications Corporation (TDS). TDS is a wholly owned subsidiary of Telephone and Data Systems, Inc., that operates as both an ILEC and a CLEC across the country.     

The entire Declaration should be required reading for everyone in our industry and can be found here, but here are some of the highlights:

Both TDS ILEC and TDS CLEC serve business customers that increasingly demand symmetric broadband data services that deliver capacities that range from 5 to100 Mbps of connectivity, and all but the smallest customers view best-efforts broadband service as an inadequate substitute for such symmetric services. TDS has found that its ILEC is able to deploy the facilities needed to provide these services efficiently but its CLEC has been unable to deploy or obtain such facilities on a consistent basis.

TDS ILEC’s advantages as an incumbent cause it to incur significantly lower costs in deploying new loops to commercial buildings than TDS CLEC.

This has left TDS CLEC with no choice but to rely on loops leased from wholesale providers. This was initially a viable strategy. Beginning in 1997 and relying on the FCC’s and state commissions’ initial implementation of the market-opening provisions of the 1996 Act, TDS CLEC aggressively deployed fiber rings and electronics that connected to leased incumbent LEC loops to serve business customers in second- and third-tier Midwestern cities. The resulting competition yielded significant benefits for business customers. But the relentless lobbying machine of the large ILECs eventually resulted in FCC and state commission decisions to increase the price and reduce the availability of regulated wholesale loops needed to serve business customers. By 2004, the regulatory basis for local competition had been severely compromised, making it virtually impossible for CLECs to compete for small- and medium-sized business customers in second- and third-tier markets.

TDS CLEC has tried to adjust to the new environment by testing and studying the existing options for serving business customers that demand symmetric services: (1) purchasing Ethernet from incumbent LECs at unregulated rates, (2) bonding DS1s purchased as UNEs or special access, and (3) providing Ethernet over copper loops leased as UNEs. None of these have proved to be a sustainable way for TDS CLEC to meet the needs of its customers.

Mr. Butman’s analysis highlights the stark reality that competitive carriers are chronically disadvantaged in deploying fiber loops as compared to ILECs and that viable wholesale alternatives for obtaining loops necessary to serve business customers simply do not exist in most locations. If the FCC does not remedy this problem in the near term, competitors like TDS CLEC will exit the market or significantly scale back their presence (TDS Ex Parte in FCC Docket 05-25, filed on March 26, 2015 at pp. 2-3).

Thus, as the FCC tours the country forever basking in congratulations for regulating the Internet and wastes more time and resources on its special access investigation with industry comments now pushed back until July, CLECs are fighting for their lives in an unregulated “wild west” wholesale IP environment. Since industry comments and reply comments have already been filed in Docket 14-174, the Commission should immediately issue an order and bringing certainty to a dangerous time in the industry.

By Andy Regitsky, CCMI