Guess what folks, we are going to have an old-style telecom brawl this summer! The primary ILEC association USTelecom just filed a Petition for Forbearance with the FCC, arguing that section 251(c)(3) of the 1996 Telecom Act, which requires ILECs (the old RBOCs) to provide unbundled network elements (UNEs) to their competitors at cost is no longer necessary in today's ultra-competitive telecom market. In fact, USTelecom claims that competition has grown to such an extent, the section 10 forbearance requirements of the Act are now relevant and (after an 18-month transition) the Commission should no longer enforce their UNE requirements. 

USTelecom is quick to point out that the end of the section 251(c)(3) UNE requirements would not necessarily mean the end of all unbundled network elements. If they choose, ILECs could make their network facilities available to competitors through tariffs or contracts. 

Importantly for them, and almost surely the driving force for this Petition, under this scenario, ILECs would be free to establish higher market-based UNE prices and would not have to continue to provide UNEs at Total Element Long Run Incremental Costs (TELRIC), as is required now. As evidence of this, the Petition would allow ILECs to raise UNE prices by 15 percent the day forbearance is granted. Thus, the 18-month transition would be accompanied by a large up-front price increase.

Here are more details about the Petition: 

To make its case for the forbearance of the UNE requirements, USTelecom claims that the telecom market has become significantly more competitive since the UNE rules became effective in 1996. 

Since the adoption of these mandates, there has been a staggering decline in ILEC switched access voice subscriptions, from 186 million in 2000 to a projected 35 million this year. In residential markets, only 11 percent of U.S. households are projected to have an ILEC switched voice line by the end of this year. Indeed, 60 percent of Americans will have abandoned wire line voice service entirely in favor of wireless alternatives. Of the remaining 40 percent, a majority will obtain service from a non-ILEC- often a cable company or other provider of voice over Internet protocol ("VoiP"). There is also intense competition in the business data services marketplace. That domain is quickly shifting toward packet-based offerings-over which ILECs have never enjoyed any inherent advantages-and the Commission emphasized that even the TDM transport and channel termination service markets also are broadly competitive. As of 2013 (some five years ago now), competitive providers had deployed transport networks in the census blocks housing about 99 percent of business establishments, and the vast majority of locations exhibiting demand were within several hundred feet of competitive fiber. In residential and business markets alike, competition is overwhelmingly facilities-based. There are fewer than half as many unbundled network element ("UNE") loops in use today as in 2005, even as the number of non-ILEC connections has grown rapidly. The Commission's data show that, at year-end 2016, non-ILECs used UNE loops to provision less than four percent of end-user switched access and VoiP lines, and mandatory resale accounted for three percent. (USTelecom Petition for Forbearance, filed May 4, 2018, Summary).

Competition is so widespread the Section 10(a) requirements of the Act come into play. This section states the following:

the Commission shall forbear from applying any regulation or any provision of this chapter to a telecommunications carrier or telecommunications service, or class of telecommunications carriers or telecommunications services, in any or some of its or their geographic markets, if the Commission determines that—

(1) enforcement of such regulation or provision 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 such regulation or provision is not necessary for the protection of consumers; and

(3) forbearance from applying such provision or regulation is consistent with the public interest.

USTelecom argues that the UNE requirements satisfy these requirements: 

Section 10's forbearance criteria are easily met with regard to Section 251(c)'s unbundling and resale provisions and associated obligations. Because of robust intermodal competition, the marketplace is irrevocably open to competition, such that these obligations are no longer necessary to ensure that rates and practices are just, reasonable, and nondiscriminatory, or to protect consumers. Moreover, forbearance furthers the public interest by encouraging facilities-based competition, reducing compliance costs, and freeing capital for use in deploying broadband networks and advanced services to consumers. (USTelecom Petition for Forbearance, filed May 4, 2018, Summary).

As mentioned above, the Petition suggests the elimination of the section 251 requirements after an 18-month transition. Here is how the transition would work.

UNEs ordered prior to the effective date of the order ("embedded base") will be provided via current interconnection agreements and subject to this transition. After the effective date of the order, new orders for service shall be addressed via commercial negotiations or tariffed services where available. 

CLECs may keep in place any of their embedded base of UNEs along with collocation arrangements necessary for access to such UNEs until 18 months from the effective date of the grant of forbearance. 

ILECs may increase rates for their embedded base of UNEs by up to 15 percent on the effective date of the grant of forbearance. 

CLECs must disconnect, without penalty, or transition their embedded base of UNEs to alternative facilities or arrangements within 18 months of the effective date of the grant of forbearance. ILECs may convert any UNEs that remain in place 18 months after the effective date of the order to alternative arrangements offering comparable functionality at the ILEC's then-existing market rates. 

Should the parties' interconnection agreement require the parties to negotiate an amendment to give effect to the forbearance grant, the embedded UNE rates will be subject to true up to the applicable ILEC rate increase (up to 15 percent) upon the amendment of the relevant interconnection agreements. 
The transition is a default process and carriers remain free to negotiate alternative arrangements superseding the transition. 

As you might expect, competitive carriers have not welcomed the potential end of UNEs at TELRIC prices with open arms. Chip Pickering CEO of INCOMPAS stated in a May 4 Press Release:

Big telecom’s ‘competition cut off’ will freeze broadband deployment and burn consumers and small businesses with higher bills. Cutting off access and kicking the little guy where it hurts is a brazen move, and we urge the FCC to reject the measure outright. The facts are clear, where smaller competitors have access and are deploying new networks, big telecom incumbents are forced to upgrade their service and lower prices. USTA’s petition delays the future and will incentivize large incumbent telecom providers to raise rates on older, slower lines for much longer. Wholesale access is a critical bridge to fiber construction and infrastructure investment. The FCC has fully endorsed a broadband deployment agenda to help bring faster speed, lower cost networks to all Americans, including underserved rural communities. Cutting off competition and eliminating a wholesale market that incentivizes new fiber deployment runs counter to the FCC’s goals, and we encourage the Commission to reject the petition. 

The FCC will open a proceeding and announce a schedule for the industry to file comments about this Petition in the next few days. But here is an early prediction. Although a thorough analysis would almost surely demonstrate that while the need for cost-based UNEs is much less pronounced than in 1996, they are still needed in some geographic areas by some competitors, especially new entrants. Nevertheless, this anti-regulation FCC is likely to find that the costs of any UNE regulation outweighs the benefits and therefore, ILECs should be free to offer UNEs at their discretion at any price the market would bear.