Oct 25, 2004 12:00 PM,

CLECS WAIT FOR DECEMBER VOTE

by Donny Jackson

After a rash of unfavorable news during the last month, CLEC officials say the fate of their industry largely depends on the FCC requiring ILECs to unbundle DS-1 and DS-3 loops at prices significantly lower than current special-access rates.

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Most CLEC officials have dismissed any possibility that competitive carriers will be able to make a long-term impact in the low-cost residential market. As expected, the Supreme Court decision not to hear an appeal of last year's unbundled network element (UNE) rules came shortly after a majority of FCC commissioners voted to prohibit states from using criteria in long-distance entry obligations to require RBOCs to provide UNEs at regulated rates.

And providing residential voice after ILECs build new fiber-based networks may be even more challenging. FCC rules require incumbents to reserve a 64 kb/s channel — enough bandwidth for legacy voice operations — in fiber loops so competitors could continue offering voice in developed neighborhoods, but several CLEC representatives said the voice channel may have little value when voice-over-IP (VoIP) services require almost 90 kb/s and the FCC removed RBOC obligations to provide TDM capability in packet-based networks.

SBC Communications cited this last stipulation as the reason Chairman and CEO Ed Whitacre felt comfortable announcing that “the shovel is in the ground” for the carrier's $18 billion Project Lightspeed fiber buildout (see story, page 10).

But CLECs are concerned. Jason Oxman, general counsel for the Association for Local Telecommunications Services, called the ruling a “true gift” to RBOCs and questioned “What will be left?” when the FCC issues permanent UNE rules — likely in December.

Jake Jennings, senior vice president of regulatory and industry affairs for NuVox Communications, said ILECs could interpret the latest rulings as a blanket freedom from unbundling. FCC commissioners have indicated they intend to protect facilities-based CLECs' access to DS-1 and DS-3 loops that are used to serve small and medium-sized enterprises.

“We're counting on that support,” Jennings said.

When it issues permanent UNE rules, the FCC needs to clearly indicate that CLECs have access to DS-1 and DS-3 loops at TELRIC rates, Jennings said. Without that statement, the CLEC industry could disappear quickly, several competitive carrier sources said privately.

At least CLECs' argument for impairment in this market is stronger than it is in the residential market, Jennings said.

“Cable is not submitting competing bids for business customers,” he said.

RBOCs have argued that many CLECs have competed effectively in the enterprise arena by leasing loops at unregulated, special-access rates. But MCI attorney Curtis Groves said that competition was based on the premise that all CLECs competing in the enterprise space would have to pay the same special-access fees to an RBOC; by contrast, the RBOC now is a competitor in the enterprise market and can undercut CLEC prices.

“And the mere risk of a price squeeze will impair CLECs' ability to enter into long-term contracts with enterprise customers,” Groves said.

CLECs' Slippery Path

Oct. 8: Initial published reports indicate an FCC majority vote to prohibit states from using Section 271 long-distance obligations to require RBOCs to unbundle new fiber networks.
Oct. 12: Supreme Court decides against hearing appeal of D.C. Circuit ruling that eliminated most UNE rules.
Oct. 14: FCC approves FTTC deregulation and states that ILECs do not have to provide TDM capabilities to competitors in new packet-based networks.
Dec. 14: FCC to vote on permanent UNE rules, according to FCC Chairman Michael Powell.
Jan. 4: First day the D.C. Circuit would consider RBOC mandamus petition regarding interim UNE rules. No action expected if the FCC approves legally sustainable permanent UNE rules in December.