CALIFORNIA ORDER FANS PACKET-SWITCH DEBATE

A California dispute delaying Verizon Communications' efforts to deploy packet switches in the state could portend a period of significant confusion as carriers, regulators and the court system seek to establish some sense of order as the unbundled network element regime remains in flux.

California's Public Utility Commission voted 3-2 to approve a temporary restraining order requiring Verizon to provide unbundled switching to AT&T and other CLECs if it proceeded with plans to deploy five Nortel packet switches in the state. Verizon Pacific region President Tim McCallion said the ILEC did not design its network to enable packet switches to be shared with CLECs and would halt deployment of the switches until the commission rules that unbundling is not required.

“This PUC ruling is something we cannot comply with” McCallion said. “We're not prepared to build the system that way, and we wouldn't, for economic reasons.”

McCallion said the restraining order was “in clear contradiction to established FCC policy” that packet switches are not subject to TELRIC-priced unbundling. During the Sept. 23 meeting, CPUC Commissioner Geoffrey Brown agreed that this assessment is correct but said it does not supersede the need for Verizon to uphold its obligations under the existing interconnection agreement.

“Although I would concede that packet switching is not an unbundled element at this time, the fact of the matter is that there is an interconnection agreement,” Brown said. “They had an interconnection agreement that described the functionality — not the technology — and that is what I think is controlling in this situation and why AT&T is likely to prevail.”

But fellow Commissioner Susan Kennedy noted that the FCC has consistently ruled that packet switches do not have to be unbundled at TELRIC rates while stating that she does not believe AT&T will prevail because the interconnection agreement is not relevant to the argument.

“The interconnection agreement comes into play if and only if there has been a change of law that triggers its mandatory negotiation provisions,” Kennedy said. “The applicable law, Section 251 of the federal Telecommunications Act, has not changed nor has the FCC's interpretation of that section.”

McCallion acknowledged that Verizon customers would not receive any new service offering when the packet switches are deployed — a circumstance Brown noted during his speech in support of granting the temporary restraining order. However, McCallion said deploying the packet switch within the ILEC's legacy copper network was expected to be a key component of the transition to fiber-to-the premise (FTTP) deployments Verizon has announced in the former GTE territory.

McCallion said he believes the temporary restraining order “sends a very bad message” to incumbents wanting to invest in California, but a Verizon spokesman said the carrier would not be altering its FTTP plans because of the ruling.

Analysts and legal experts disagreed whether the FCC policies would preclude the California PUC from making the temporary restraining order a permanent ruling. However, there was consensus that the ultimate decision on the matter could impact future network investments.

If regulators side with CLECs, incumbents may decline to deploy more efficient packet switches. If the incumbents emerge victorious in the matter, ILECs might deploy packet switches primarily to ensure that they get to charge CLECs resale rates instead of lower TELRIC rates — and have less incentive to build new fiber networks at the same time.

“It definitely has competitive implications,” said Jessica Zufolo, senior policy director of Medley Global Directors. “The question is: How long is UNE-P going to be around for?”

Currently, the FCC's interim rules face two court challenges from RBOCs — a mandamus-petition proceeding in which the final briefs were filed last week, and a more conventional appeal that also was filed last week.

Zufolo said the U.S. Court of Appeals for the D.C. Circuit might decide to wait until after the FCC's December meeting — Chairman Michael Powell's target date for adopting permanent UNE rules — before ruling on the mandamus petition. This timetable would show deference to the FCC and provide “leverage” that could encourage commissioners to work harder to adopt legally sustainable rules, she said.