Unbundling policy in the United States: players, outcomes and effects

Communications & Strategies, Jan, 2005 by Johannes M. Bauer

As will be discussed in more detail in the following subsections, "similar" markets are distinguished based on the expected revenue opportunities and/or the likely presence of competitive fiber facilities. The likelihood that "reasonably efficient" competitors will be impaired in these segments is then evaluated. Lastly, the FCC now takes alternative offerings, such as tariffed special access arrangements, into account when assessing impairment. However, the Commission refused to accept special access as a general indicator that new entrants were not impaired. Such a generic rule, as was proposed by major ILECs, would raise several concerns, among them the ability of the ILECs to manipulate competition via these special access tariffs. Thus, availability of tariffed services was not considered a sufficient condition for non-impairment.

Mass market unbundling

In the mass market, comprising of residential and small business customers, after a transition period, only local loops will be available on an unbundled basis (UNE-L). Using the directions provided by the USTA II court, the FCC eliminated its earlier finding of impairment in the (residential and small business) mass market for local circuit switching. As a consequence, the widely used UNE-P platform will no longer be available after the 12 month transition period. Thus, in the future, carriers will either have to deploy some of their own facilities, lease network elements such as switching from other CLECs, or lease them from ILECs, but at non-regulated market prices. In justifying this new finding, the FCC points to recent developments in the mass market. First, it is argued that CLECs have deployed soft switches and packet switches in a growing number of exchanges. Between 1999 and 2003, 500 new switches were installed, bringing the total to 1,200 serving more than 3 million competitive access lines (FCC, 2005, pp. 112-115). The Bell operating Companies (BOCs) submitted evidence showing that competitive switches had been deployed in 137 of the top 150 Metropolitan Statistical Areas. Many of these new switches could be shared with other CLECs, thus reducing their dependence on ILEC switching services. Even though competitive switches are not deployed ubiquitously, they can reach a wide territory as dedicated transport arrangements facilitate the aggregation of traffic for switching in distant wire centers. Weighing all evidence, the FCC argues that the incremental costs of competitive switching do not impair reasonable efficient competitors. According to the Commission, this is demonstrated by the fact that several CLECs, including McLeodUSA, FDN Communications and Cavalier Telephone, use competitive switching in combination with UNE-L. Secondly, the FCC, analyzing alternatives to the "hot cut" process used to transfer lines from an ILEC's switch to that of a CLEC, found that other methods, such as batch cuts, are now available, meaning that CLECs are no longer impaired (6).

As of March 11th, 2005, ILECs are therefore under no obligation to offer unbundled mass market local circuit switching (and thus UNE-P). For existing unbundled switching customers, the FCC adopted a 12-month transition plan. During this period, competitive carriers will not be allowed to add new switching UNEs. Furthermore, UNE-P prices will increase. The FCC declares that, "during the transition period, competitive carriers will retain access to the UNE platform (i.e., the combination of an unbundled loop, unbundled local circuit switching and shared transport) at a rate equal to the higher of (1) the rate at which the requesting carrier leased that combination of elements on June 15th, 2004, plus one dollar, or (2) the rate the state public utility commission establishes, if any, between June 16th, 2004, and the effective date of this Order, for this combination of elements, plus one dollar" (FCC, 2005). The Commission has not released details to substantiate the magnitude of the price increases other than that it will ease the transition by avoiding a rate shock, while protecting the interests of the ILECs where unbundling will be eliminated.