In a highly anticipated decision, the FCC in December adopted new rules under which the four major regional local exchange companies must offer unbundled network elements to competitors at discounted rates. 

In its fourth attempt to set lawful rules for competition since the inception of the Telecommunications Act of 1996, the FCC decided that the Baby Bells should continue to provide discounted network access to competitors that serve business customers where the Commission deems competition is lacking and rivals would be impaired without it. Under the new rules, government mandated discounts on network elements for the residential market will end after a 12-month transition plan.

Specifically, the Commission's new rules release incumbent local exchange carriers from all obligations to provide competitors with unbundled access to mass market local circuit switching. During the 12-month transition period, competitors will be allowed to keep already leased UNEs at current rates plus one dollar.

For high-capacity loops, the agency ruled that competitive LECs are impaired without access to DS3-capacity loops, except in any building within the service area of a wire center containing 38,000 or more business lines and 4 or more fiber-based co-locators. Similarly, the Commission says CLECs are impaired without access to DS1-capacity loops except in any building within the service area of a wire center containing 60,000 or more business lines and 4 or more fiber-based co-locators. Essentially, this means competitors will continue to be able to lease lines at discounted rates to serve businesses in all but the most competitive areas. In a reported statement, Chairman Powell stated that competitors will still be able to serve business customers with lines leased at discounted rates in all but about 47 of 11,000 wire centers served by the Bells. However, Commission democrats argued that this decision puts much of the top 50 markets off limits to competitors.

Similarly, the Commission set specific benchmarks in terms of number of lines and competitors by wire center to determine where discounts must still be applied to dedicated interoffice transport.

In areas where discounts on high-capacity loops and dedicated interoffice transport will be phased out, a 12-month transition period also applies, during which the Bells may implement a 15% price increase.

Bells and competitors alike expressed disappointment when the details of the new rules were released. AT&T's response indicated that Chairman Powell had flip-flopped on the issue. Committing just four months ago to protect facilities-based competition and the investment of competitors, Powell's affirmative vote on the new rules "delivers the facilities-based industry a staggering blow and fails to secure access to monopoly facilities essential to competition," said AT&T vice president of law & director of federal government affairs, Len Cali.  "And in a bitter irony," continues Cali, "the FCC uses collocation investments made by the CLECs for the purpose of obtaining access to UNEs as a trigger to deny them access to those very same UNEs."

BellSouth, meanwhile, expressed "extreme disappointment" in the new tests to assess impairment in the business market. While three previous attempts over nearly ten years to set rules for local competition have been thrown out by federal courts, Herschel Abbott, BellSouth vice president – government affairs, hinted at further litigation, stating that the rules do not appear to follow the court's order to take into consideration potential competition as well as actual competition.

News & Stuff

In late December 2004 the FCC released data on the state of local telephone competition in the U.S.  The following statistics reflect a twelve-month time period ending on June 30, 2004 and contain information filed by carriers as required by the FCC.

• Total CLEC end-user switched access lines increased by 7% during the first half of 2004, from 29.8 million to 32.0 million lines.  By comparison, they increased by 10% during the preceding six months, from 27.0 to 29.8 million lines.  For the full twelve-month period ending June 30, 2004, CLEC end-user lines increased by 19%

• End-user customers obtained local telephone service by utilizing approximately 148.1 million incumbent local exchange carrier (ILEC) switched access lines, 32.0 million competitive local exchange carrier (CLEC) switched access lines, and 167.3 million mobile wireless telephone service subscriptions.

• About 17.8% of the 180.1 million total end-user switched access lines (or 32.0 million lines) were reported by CLECs at end of June 2004, compared to 16.3% (or 29.8 million lines) in December 2003.

• Nationwide, mobile wireless telephone subscribers increased 7% during the first half of 2004 from 157.0 million to 167.3 million.  For the full twelve-month period ending June 30, 2004, mobile wireless subscribers increased by 13%.

• CLECs reported 20.8 million (or 15%) of the 135.4 million lines that served residential and small business end users and 11.2 million (or 25%) of the 44.6 million lines that served medium and large business, institutional, and government customers.

• Local telephone service by CLECs was provided over 3.3 million coaxial cable connections at the end of June 2004.  These lines represent about 45% of the 7.5 million switched access lines that CLECs reported providing over their own local loop facilities, about 10% of all switched access lines that CLECs reported, and about 2% of total switched access lines.

• CLECs reported providing about 23% of switched access lines over their own local loop facilities.   To serve the remainder, CLECs resold the services of other carriers or used unbundled network element (UNE) loops that they leased from other carriers

• ILECs reported providing about 13% more UNE loops with switching (referred to as the UNE-Platform) to unaffiliated carriers at the end of June 2004 than they reported six months earlier (17.1 million compared to 15.2 million) and about 1% more UNE loops without switching (about 4.3 million).

• At least one CLEC reported switched access lines in service in all 50 states, the District of Columbia, and Puerto Rico.   In 29 states, ten or more CLECs reported serving local telephone service customers

Pennsylvania to Lead Nation in Broadband Deployment

Pennsylvania Governor Edward Rendell signed into law in early December 2004 new telecommunications legislation. The new law will benefit consumers, schools and communities throughout the state by requiring accelerated deployment of a universally available broadband telecommunications network in Pennsylvania. Specifically, the new law:

• Ensures the deployment of high-speed broadband services before the previously established 2015 deadline.  In some rural areas, broadband will be universally available by the end of 2008.

• Provides financial assistance to school districts to support the goal of ensuring that every school in the Commonwealth has access to broadband and high-speed Internet service.

• Establishes a special program to help communities aggregate the demand for broadband service and requires local telephone companies to respond to the demand for service in a more timely fashion.

• Makes it easier for more low-income Pennsylvanians to enroll in federal Lifeline service

• Protects access to basic telephone services even in the most rural and economically depressed areas of the state.

• Limits the price increases for basic service, particularly in harder to serve rural areas.

• Ensures that the PUC retains its authority to oversee the quality of local telephone service.

Verizon Rate Increase Approved in Michigan

Verizon North Inc. and Verizon North Systems filed a notice with the Michigan Public Service Commission (MPSC) in early September of last year.  The filing proposed a .64 percent increase in 12 rates for business and residential local exchange services.

In December, the MPSC approved the rate increase stating that the requirements of the Michigan Telecommunication Act (MTA), which allows rate increases that do not exceed the consumer price index, minus 1 percent, were met. 

Decision to Adopt New Wholesale Rates for SBC Stands

In late December, the Public Utilities Commission of Ohio (PUCO) upheld its decision to allow SBC Ohio to adopt a new wholesale rate to charge its competitors for use of two-wire analog unbundled loops.

As reported in the December 2004 issue of Updates, the Commission adopted a statewide weighted average for the two-wire analog loop of $12.80.  The rate increase is contingent upon the results of the compliance run, which are due to the Commission by mid January 2005.  Parties involved in the proceedings will have until the 21^st of January 2005 to comment on the results of the compliance run.

Sprint-Nextel Merger of Equals

In mid-December 2004 Sprint and Nextel Communication Inc, announced, with the approval of their boards of directors, a merger of equals.  The new Sprint Nextel, as the company will be called, has a total equity value of nearly $70 billion and serves more than 35 million wireless subscribers on its network, and an additional 5 million via partners and affiliates, making the company the third largest wireless firm.

Though the merger is certain to bring changes, it's likely to be some time before consumers will see differences in their service.  Because of the substantial disparity in the two companies' networks (Nextel uses a system known as iDEN, which only works with Motorola phones and can't provide high-speed Web access, while Sprint uses a more common system called CDMA which allows it to work with a variety of phones and promotes features like Web browsing and video) consumers will have to wait till sometime later in 2005 to see improvements in their service. Once the companies begin sharing some of the 50,000 cell towers they will now collectively have, upgrades will include giving customers of each company push-to-talk access to those of the other and creating a hybrid Motorola phone that would work on both companies' systems. 

By 2007, the two companies pledge a "full marriage" of their technologies.  Sprint Nextel will utilize the current Sprint CDMA system and a new network currently being built which will offer higher-speed wireless Internet access for phones and laptops. 

The merger is expected to close in the second half of 2005, pending regulatory and shareholder approval.  Sprint Nextel will house its executive headquarters in Reston, VA, and its operational headquarters in Overland Park, KS.

Qwest OneFlex Offered Nationwide 

Qwest's VoIP service, OneFlex, continues to expand and is now offered nationwide.  With this latest expansion OneFlex is now available in more than 100 cities including but not limited to Cleveland, Miami, Detroit, Atlanta and Indianapolis.

Covad Communications Offers VoIP to the Masses 

Covad Communications, a California based CLEC, announced in early December 2004, that with the acquisition of GoBeam it is now able to offer VoIP service in 125 major metropolitan markets nationwide, covering more than 900 cities. 

Covad iPBX, which works with existing PBXs and vPBXs, is a network-based service that eliminates the need for separate switches.  The VoIP service, along with data, is offered over Covad's national DSL network.

Z-Tel Communications Enters the VoIP Race 

Z-Tel Communications has turned to Voice over Internet Protocol to deliver its business and residential voice services.  The company has installed a VoIP network in Tampa and will add service in New York City by mid January with plans to add Atlanta shortly there after.

Relying on reselling local access circuits purchased from Bell companies as Z-Tel has in the past, became a liability when federal rules requiring the Bell companies to resell their lines at a discount were overturned.

Z-Tel will change its name to Trinsic shortly after the 1^st of the year, and will use Cisco Systems' softswitches and Integral Access PurePacket broadband access platforms to deliver the VoIP service. 

AT&T CallVantage

AT&T's VoIP Service, CallVantage received several enhancements in mid-December geared toward attracting families as subscribers.  Some of the new enhancements immediately available to users are: ‘CallVantage Plus,' the industry's first sub-account capability which provides up to nine distinctive telephone numbers along with the ability to manage each separately while sharing the same line.  CallVantage Plus will cost an additional $7.49 per user; ‘2^nd Line,' service may be added and must mirror the primary line's service plan; ‘Call Filtering,' provides the ability to direct calls based on who is calling.  The cost for adding this feature is $1.99 a month; and ‘Record & Send,' allows users to record a message and send it to as many as 20 phone numbers.  This feature will cost $.49 per use.

In addition to the aforementioned features AT&T is adding some new service enhancements at no additional charge.  These include ‘Fax and Modem Support' and ‘Safe Forward Number,' which will automatically redirect calls to a prescribed location when there is an interruption in service due to conditions such as a commercial power outage.

AT&T first introduced CallVantage in March 2004.  Currently the VoIP service is available in 170 markets in 39 states and Washington D.C.

California PUC Petitions Court to Overturn FCC Ruling

The state of California is filing an appeal with the U.S. Court of Appeals for the Ninth Circuit to see if the "FCC acted ‘arbitrarily, capriciously and contrary to law' in ruling that it had exclusive jurisdiction over voice service and facilities based providers."

In November the FCC ruled that New Jersey based Vonage Holding Corporation's VoIP services were exempt from state and local regulations and tariffs.  The company's broadband phone network was deemed "interstate" in nature thus protecting it from regulation by individual states. 

While it isn't surprising that the appeal was filed, some individuals, like Internet telephony pioneer Jeff Pulver, are worried that "continued legal uncertainty surrounding VoIP regulation could dampen innovation and investor interest..." While Pulver feels it is unlikely that the FCC ruling will be overturned he said, "the ‘lingering threat' of a possible court reversal was bad for business."

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