Historians tell us to never ignore their field since history always repeats itself. 

ILECs have a legal responsibility to provide unbundled network elements to requesting CLECs at incremental costs under section 251(c)(3) of the 1996 Act. Originally ILECs were required to provide unbundled loops, switching and transport. In the mid-1990’s a team at CompTel (in which I was part of) developed the requirements for a new ILEC product called the UNE-P. When CLECs purchased the UNE-P, they would lease all the unbundled network elements of an ILEC’s network at incremental costs and use those elements to offer service to customers. UNE-P was attractive to CLECs because it allowed them to enter markets without constructing their own networks and enabled them to utilize the ILEC network at rates significantly lower than available through special access. A little surprisingly to me at the time, the FCC approved the UNE-P because it believed that it would encourage CLECs to build up their networks once they entered a new market.

ILECs, on the other hand loathed the UNE-P. They called it “sham unbundling” and argued that it undercut their special access revenues. ILECs argued that the UNE-P provided a disincentive for CLECs to ever invest in building out their networks since they could always lease the ILEC network piece parts at cheaper rates.

ILECs fought against the UNE-P at the FCC and in the courts for years. Finally, as Verizon notes, the UNE-P was eliminated:

More than 10 years ago the Commission eliminated regulated access to UNE-P and found it created disincentives to infrastructure investment. From 1997 until 2004, the Commission’s rules implementing Section 251 allowed CLECs to lease UNE-P and thus to serve their end-user customers using none of their own facilities. UNE-P—which the D.C. Circuit called a “completely synthetic” form of competition—was supposed to be a transitional tool that led to facilities-based competition. In practice, it became many CLECs’ long-term business plan. After the appellate courts repeatedly rejected these unbundling rules, the Commission in the Triennial Review Remand Order reversed course, concluding ILECs no longer were required by Section 251 to unbundle switching because providers could deploy their own switches and UNE-P was “a disincentive to competitive LECs’ infrastructure investment.” The D.C. Circuit affirmed the Commission’s holding and found CLECs had in fact deployed their own switches, including new advanced switches with greater capacity and broader geographic reach (Comments of Verizon, Docket 15-114, filed June 15, 2015 at p. 2).

While the issue of ILEC bundling under section 251 has long been a flashpoint for industry controversy, there has been relatively little attention paid to the independent unbundling requirements of section 271 of the 1996 Act. Section 271 provided the requirements the old Bell Operating Companies (BOCs) had to meet to obtain FCC approval to enter the long-distance market. Unbundling was one of those requirements. 

However, unlike section 251 unbundling, UNEs were made available to CLECs at market rates through commercial agreements rather than at incremental cost-based rates. Thus, even though it is rarely discussed, a form of the UNE-P is still available today as long as CLECs will pay the market rates offered by RBOCs. That is where the Granite Petition for Declaratory Ruling comes in. Granite requests the Commission to end what it calls the uncertainty over what exactly RBOCs must provide under the unbundling requirements of section 271. Moreover, Granite wants the Commission to use sections 201 and 202 of Title II of the Act to ensure RBOC unbundled prices are just and reasonable. Granite states:

[T]the Commission should issue a declaratory ruling clarifying the manner in which the prohibition on unreasonable discrimination in Section 202(a) of the Act and the prohibition on unjust and unreasonable practices in Section 201 (b) apply to the separation, combination, and commingling of Section 271 UNEs as follows:

1. Where the requested Section 271 UNEs are already combined in a BOC's network for the provision of a telecommunications service~ the BOC may not separate those UNEs unless requested by the competitive LEC or unless the BOC has a reasonable basis for doing so.

2. Where the requested Section 271 UNEs are not already combined in a BOC's network, the BOC must combine those UNEs upon request from the competitive LEC unless the BOC has a reasonable basis for refusing to do so.

3. BOCs are required to commingle or allow competitive LECs to commingle, a Section 27'1 UNE or combination of such UNEs with wholesale services obtained from an incumbent LEC unless the BOC has a reasonable basis for refusing to do so (Granite Petition at p. 2).

Needless to say, the old RBOCs vehemently oppose Granite’s request. They argue that combined elements are already available as a commercial offering at market-based rates. Moreover, sections 201 and 202 do not mandate requirements for any particular service. Finally, they provide several examples over the last few years of FCC statements acknowledging that cost-based UNE rates are not required under section 271. 

The opinion here is that the evidence on this issue is pretty clear and the RBOCs are likely to prevail on this issue at the FCC or, if necessary, in the courts.

However, while an attempt to resurrect the UNE-P is both amusing and astounding, it tells us a lot about the state of the industry these days. That is because many CLECs are desperate to preserve cost-based wholesale service availability for themselves as the industry transitions to fiber. Thus, a backdoor resurrection of the cost-based UNE-P becomes appealing. 

Moreover, the fact that Granite would rely on sections 201 and 202 to support FCC control over RBOC section 271 unbundled prices appears directly related to the Commission’s actions in its Open Internet Order. There, the Commission claims on the one hand that it would forebear from regulating ISP prices under Title II, while at the same time declining to forebear from enforcing sections 201 and 202. 

Obviously CLECs such as Granite believe that those sections enable the FCC to regulate carrier prices even while the Commission claims it will not do so for the Internet. You better believe, however, that the next time an ISP offers new or novel pricing such as a new “data cap” for example, a rival will challenge it as violating section 201 or 202 and seek to have those prices controlled or eliminated. Unfortunately we are at the dawn of the age of Internet litigation with a very uncertain ending.

By Andy Registky, CCMI