State commissioners work to stave off federal preemption

Public utility commissioners from 12 states met with FCC Commissioners Kevin Martin and Kathleen Abernathy today to demonstrate that the unbundled network element platform (UNE-P) is an effective – and necessary – entry tool for competitive carriers that doesn’t harm incumbents, that local competition is taking root and that the states must continue to have a meaningful role in the implementing the Telecom Act.

Some incumbent carriers have called for the FCC to preempt or significantly curtail the authority of state commissions, particularly as it relates to setting UNE-P prices. The incumbents believe that the allegedly uneven manner in which the state commissions apply the TELRIC (total element long run incremental cost) pricing formula in setting wholesale rates has in large measure contributed to the investor uncertainty that has retarded industry growth.

Specifically, incumbents complain that state commissions don’t always apply the TELRIC formula when setting rates, instead backing wholesale rates off established retail rates. In addition, incumbents claim the states do not take into account the cost of back office services that are necessary to provision CLEC orders. This alleged failure would account for much of the disparity between the $50 the incumbents say it costs them to provision a UNE-P line and the $30 estimated by competitive carriers.

The state commissioners said incumbents have nothing to complain – or worry – about. “I don’t know of any state that doesn’t use forward-looking costs that are based on the carriers’ own studies to set UNE-P rates,” said Oregon Commissioner Joan Smith.

Wisconsin Commissioner Joseph Mettner added that rates are set in his state based on the most updated TELRIC metrics, which take into account back office costs, facilities maintenance and the cost of capital. “It’s hard to imagine that incumbents aren’t making a profit,” on UNE-P lines, Mettner said.

Rebecca Klein, chairman of the Texas Public Utility Commission, presented data that indicated robust CLEC penetration in her state, largely because of the availability of the platform. In Texas, CLECs control about 16% of the lines in the state, with two out of every three provisioned via UNE-P. In contrast, just 19% of those lines are facilities-based, while 14% are resold.

In Michigan competitive carriers control about 20% of the lines in the state, a penetration rate that Laura Chappelle, chairman of the state’s public service commission, called “significant.” She urged the FCC to keep the states involved, because UNE-P and TELRIC are working.

“Is the system perfect? No. But is it better than it was two years ago? Absolutely,” Chappelle said. “If we can’t keep things completely as they are, at least don’t put rules in place that would hurt the states’ ability to impact rate-setting.”

Brad Ramsey, general counsel for the National Association of Regulatory Utility Commissioners, said he was encouraged that Martin and Abernathy would take the time to travel to Detroit for today’s meeting when the commission is feverishly trying to conclude its triennial UNE review and wireline and broadband rulemaking proceedings on time.

“This suggests that a preemptive approach may not be in the offing, that the commission is focusing more on the criteria that would apply to UNE-P and hopefully away from preemption,” Ramsay said.

Martin said it was too early to draw such a conclusion, but reminded that the FCC and the states have enjoyed a mutually beneficial “partnership” to date.

“The commission and the states have worked closely together in the past, and it is my hope and expectation that we will continue to work with the states in the future,” Martin said. “In fact, the states have a history of working well with the FCC even when they haven’t agreed with the commission.”