USTA calls for the end of UNE-P, TELRIC

United States Telecom Association (USTA) President Walter McCormick said in a press briefing today that the FCC should abandon its policy that forces incumbent carriers to unbundle their network facilities and make them available to competitors at below-cost prices mandated by the TELRIC formula.

As an alternative, McCormick urged the FCC to foster local competition by adopting a wholesale pricing strategy that would allow competitors leasing facilities in bulk quantities to receive staggered discounts based on quantity. He said this was the strategy the long-distance sector used to stimulate competition.

McCormick added that wholesale rates should be set high enough to let incumbent carriers make a reasonable return on their investment and allow competitive carriers to have the proper incentive to invest in their own facilities.

He called the FCC’s unbundled network element platform (UNE-P) and TELRIC policies a “house of cards that will eventually collapse.”

McCormick said USTA member companies have been working Capitol Hill for the past two weeks and have received a “very favorable response” to the message. He said 60 members of the House have signed a letter to the FCC that urges the commission to alter its UNEP and TELRIC policies.

Congress and the Bush administration understand there can be no general economic recovery in the U.S. unless the telecommunications sector recovers as well, he said. That wouldn’t happen until carriers again become willing to invest in their networks. And that investment won’t occur as long as the UNE-P and TELRIC policies are in place, he added.

“Companies can’t sell their principle products at prices that are below cost and remain in business,” McCormick said.

BellSouth’s average cost per line is $51.30. Yet a competitor can lease that same line on average for $24.38 based on the TELRIC formula. The situation is the same for the other RBOCs: Qwest’s is $50.17/$23.97; SBC’s is $49.83/$17.50; Verizon’s is $51.30/$20.23.

“This is an unsustainable model. You can’t invest in your network or offer service if you can’t recover your costs,” McCormick said.

Wall Street has taken note, McCormick said. “UBS Warburg recently downgraded Verizon, SBC and BellSouth because they believe the profitability of the Bell companies cannot be sustained under UNE-P.”

The FCC’s UNE-P and TELRIC policies have created “parasites that are content to feed off and weaken the host,” he said.

When asked how he would respond to CLECs who argue that elimination of UNE-P and TELRIC would force them out of business, McCormick said competitive carriers have no plans to invest in people or equipment and are satisfied to lease network facilities that are below the incumbent’s cost, and far below what it would cost them if they were to build their own.

As evidence, McCormick pointed to New York State, where he claims AT&T and WorldCom have a combined 1 million customers, but none on their own facilities.

“As a result, there will be no economic growth if Congress and the FCC stay with the UNEP and TELRIC policies,” McCormick said. “Until the FCC acts, economic growth will remain depressed.”

McCormick added that the recent Supreme Court ruling that affirmed TELRIC shouldn’t impede its elimination.

“The Supreme Court didn’t rule on the wisdom of TELRIC, only the FCC’s power to set it,” he said. “This is a policy issue. And it’s a bad policy.”

A spokeswoman for AT&T described the Bells as “chameleon-like” because they are “once again changing their arguments for why they need regulatory intervention.” The Bells first sought broadband deregulation, and then shifted strategy by suggesting they shouldn’t have to share their voice networks, she said.

“Now they've had an epiphany and want to share their voice networks, but only at prices too high to allow for competition,” she said in a statement. “If UNE pricing is so low, why aren't the Bells using it to compete against one another? The Bell's have done a great job of confusing the issues, but they should spend the time competing and not complaining.”

Lawrence J. Spiwak, president of the Washington-based Phoenix Center for Advanced Legal and Economic Policy Studies, said in a prepared statement that McCormick sounded like “a bad used car salesman.”

“He claims that he is selling you the car for ‘one dollar above his invoice’ but everyone knows that the real invoice reflecting his true (and lower) costs is in the backroom with the manager,” Spiwak said.

Spiwak added that no state public utility commission has found any rate for UNEs to be below cost and said the Supreme Court has found state ratemaking proceedings to be “smoothly running affairs” open to public participation.

Consequently, “Mr. McCormick’s complaints lack any analytical credibility,” said Spiwak.

H. Russell Frisby, Jr., president of CompTel, suggested McCormick hit the history books.

“He has forgotten that competitive carriers have invested millions of dollars in the sector,” Frisby said. “And we said three years ago that this issue is about price, not Section 271.”

The Bells believe they have a “divine right” to charge monopoly rates, Frisby said. “This is a Bell attempt to further gouge consumers and [retail and wholesale] customers.”

When asked whether the root cause of the pricing problem is at the state level, where commissions unevenly apply the TELRIC formula, Frisby, who previously served a three-year term on the Maryland Public Service Commission said, “State commissions are fair. Besides, the Bells are usually one of the biggest companies in the state. The commissions aren’t going to attack them willy nilly.”