FCC, ADMINISTRATION PROPOSE LAST-GASP ROUND OF UNE TALKS

Virtually all carriers and telecom organizations quickly agreed last week to the FCC's unanimous request — reportedly at the urging of the White House — to negotiate commercial agreements for unbundled network elements, but many were cynical that such efforts would result in UNE deals.

The letter, signed by all five FCC commissioners, called for a 45-day negotiation period that would be designed to “restore certainty and preserve competition” to the industry, a display of solidarity that stands in stark contrast to the FCC's well-chronicled infighting over UNE rules.

“In the past, the commission has been divided on these issues,” the commissioners wrote in the letter. “Today, we come together with one voice to send a clear and unequivocal signal that the best interests of consumers are served by negotiation.”

All four RBOCs began asking CLECs to negotiate after a U.S. Court of Appeals for the D.C. Circuit decision last month eliminated most UNE rules. However, CLEC organizations advised their members to decline the offers, noting that past negotiations had failed.

“Stay away from these,” Jonathan Lee, senior vice president of regulatory affairs for CompTel/ASCENT, said during a conference call on March 23. “Just run.”

A little more than a week later, CompTel/ASCENT CEO Russell Frisby said his organization would participate in the negotiations. Commercial agreements certainly are preferable, if only because they would save “everybody millions of dollars in lawyers and advertising” accrued annually in the current regulate-and-litigate regime, he said.

But having the certainty of a long-term UNE deal only helps if the price lets CLECs make a profit, Frisby said. “Certainty's important, but we've got to avoid certainty of the grave,” he said.

And that's a sticking point. RBOCs have long maintained that regulatory-based TELRIC pricing of UNEs does not cover their costs. Meanwhile, CLECs can't afford much of an increase in wholesale rates, because “our companies are barely scraping by to make a profit today,” said John Windhausen, president of the Association for Local Telecommunications Services.

RBOCs also are railing against the FCC regulation that allows third-party competitors to “pick and choose” only the aspects of a commercial agreement they like. Tom Tauke, Verizon's senior vice president of public policy and external affairs, has said the pick-and-choose rule precludes incumbents from engaging in the typical give-and-take of business negotiations.

However, Windhausen said the pick-and-choose system protects many CLECs.

“Without pick-and-choose, we're afraid the Bells would cut a very good deal with AT&T and [smaller CLECs] would get stuck with the leftovers,” he said.

Perhaps the greatest hope that the negotiations will be more productive than previous private discussions lies in the presence of the Bush administration.

“Clearly, there's interest by the administration and all five commissioners to see if we can reach a settlement before we resign ourselves to another year and a half of legal battles,” said Andy Lipman, a CLEC attorney with the law firm of Swidler Berlin Shereff Friedman. “It's pretty uncommon to get a request from all five commissioners and the president to do something.”

The administration's primary interest is to ensure that the UNE battle does not result in a number of CLECs going out of business as Bush tries to assure voters that the economy is recovering during his election campaign, according to Andy Regitsky, president of Regitsky & Associates.

Negotiations may be hard, but Blair Levin, managing director for regulatory strategy at Legg Mason, believes the publicly entrenched positions of ILECs and CLECs can be overcome.

“This is not the Middle East,” Levin said. “I know the rhetoric sounds like it is, but it's not. On the basis of what I know, I think deals could be struck.”