USTA repeats call for end of UNE-P and TELRIC

United States Telecom Association (USTA) President Walter McCormick said in a press briefing today the telecom industry should be a key driver of the nation’s overall economic recovery. However, the sector won’t be able to pull itself out of the hole, much less contribute to that recovery, unless the government changes its deflationary policies that are hindering investment.

As evidence of how dire circumstances have become, McCormick pointed to the telecom sector’s three largest equipment vendors – Lucent, Nortel and Alcatel – which collectively have shed about 204,000 jobs. The sector as a whole has lost about 500,000 jobs and about $2 trillion in market value over the past two years.

“You can’t separate what’s happening in the economy from the regulatory environment in which we operate,” McCormick said. “The government has to get the regulatory environment right and we’re optimistic the FCC will take action quickly to do that.”

He added that the investments in new technologies and facilities needed to simulate the economy won’t occur because the current regulatory environment has created such uncertainty that carriers don’t want to risk capital that is very difficult to obtain, or open themselves up to greater scrutiny and potential criticism from shareholders.

“Regulatory reform is central to the recovery of the telcom sector,” he said.

McCormick once again called for the end of the FCC-mandated requirement that incumbent carriers make the unbundled network element platform (UNE-P) available to competitors at TELRIC (total element long run incremental cost) prices, which the Bell companies have maintained represent up to a 60% discount from their actual costs.

When asked why the Bell companies aren’t using UNE-P and TELRIC to compete outside of their regions if it’s such a good deal, McCormick said, “Why not apply it to the railroads, pipelines and airlines too, and it can take down those industries like it has the telecom industry? It has never been applied to any other industry, including other sectors of telecom.”

He added that neither UNE-P nor TELRIC are contained in the Telecom Act, and suggested neither should have a place in what should be a market-driven industry. (UNE-P and TELRIC were inventions of the Reed Hunt commission, which effectively concluded that the three entry modes that are contained in the legislation – facilities buildouts, the resale of incumbent facilities, or the leasing of unbundled network elements – would be inadequate to jump-start local competition).

“The Telecom Act calls for the resale of local telecom services at a negotiated commercial discount and that any discount that is offered to one has to be offered to everyone. We don’t oppose that,” McCormick said.

McCormick was also asked to respond to criticism from AT&T, which has pointed out repeatedly that the Bells complain about UNE-P and TELRIC, but lease long-distance facilities when the need arises, rather than build their own.

“To suggest further investment in long-distance infrastructure is a tremendous red herring,” McCormick said. “Is that what AT&T really wants? Ninety-seven percent of the long-distance fiber that is in the ground is unlit. Do they want more investment, or do they want what’s already in the ground utilized?”

Rick Roscitt, chairman and CEO of equipment vendor ADC Telecommunications, speaking at The Yankee Group Telecom Forum yesterday, agreed with McCormick’s position that telecom policy needs to be reformed. He called the Telecom Act the “B-1 bomber” of public policy.

“The B-1 was rumored to have at least one component in every congressional district in the country,” Roscitt said. “That was good politics, but in the end the plane didn’t perform up to expectations and had to be reengineered to fit a more compelling mission.”

However, Roscitt doesn’t think the existence of UNE-P or TELRIC is causing the problem. Instead, it is the “patchwork of state-by-state roadblocks” that is standing in the way of the industry’s recovery and future growth.

“The viability of the telecom industry is a national issue, so we need national direction,” Roscitt said.

He suggested that the FCC assume the responsibility for setting UNE-P rates, with “significant input” from state commissions. “Fifty state PUCs with an overlay by the FCC and Congress is not a recipe for innovations in public policy, although it’s great for lawyers and lobbyists,” he said.

According to Russell Frisby, president of the Competitive Telecommunications Association (CompTel), UNE-P is fundamental to the development of a competitive market, but is not the root cause of the Bells' financial problems.

"Bell profits are down because competition is actually working," Frisby said.

He added that the Bells should discontinue their monopolistic strategies and bring new innovations to the market if they want to fend off competitive incursions and bring their balance sheets to a healthier state.

"Rather than making the effort to innovate and improve, the Bell companies are trying to hide under the protective wings of the government," Frisby said.

Roscitt also suggested the federal government issue low-interest 30-year long bonds to stimulate investment in the sector. He said such a strategy would finance deployments of broadband services in underserved rural areas by carriers willing to provide them – “They always seem to come up short on these kinds of things,” Roscitt said –and provide financing for competitive carriers committed to building their own facilities.

“That would provide the long-term source of capital these companies need to compete over their own facilities,” he said.