Unbundling Network Elements in Telecommunications: Impact & Implications

1. TC 310 May 21, 2008 Applying the 1996 Act

2. Current Event • FCC investigating cell phone contract termination • Cancel early • Reduce over time • Take state jurisdiction away • Proposed by Verizon • What concepts can we apply?

3. UNEs • Unbundled Network Elements • What are network element examples? • Importance of UNEs • Economies of scale prohibit entry without • Network effects prohibit entry without • Interconnection not sufficient for competition • Application of strong essential facilities doctrine

4. UNE-L • Refers to just the loop/transport being leased • ILEC offers wholesale loop/transport lines at TELRIC prices • CLEC leases these lines, connects to their own switch. • Just loop leasing requires collocation • Loop/transport known as enhanced extended links • Economically more efficient. • Facilities based competition

5. UNE-P • Refers to the leasing of the entire platform • All elements of the ILEC are leased by CLEC • Leased based competition • Rebranding of ILEC services • Allowed to offer their own pricing platforms • Not offering innovative services • Similar to resale, but.. • Repackaging • Cheaper

6. Advantage UNE-P • UNE-P over UNE-L • UNE-P over Resale • Resale based on ILEC retail pricing • UNE-P based on TELRIC pricing • 1996 Act aimed at UNE-L • Innovative services • UNE-P good for CLECs, bad for ILECs and customers?

7. Fights about UNE • ILECs fight for competition? • UNE-P adds no value, not real competition • No incentive for investment • Hurts ILECs; TELRIC pricing • CLECs • UNE-P allows competition where it would not be • Doesn't hurt ILECs • Near structural separation between retail and wholesale ILEC arms

8. Local Competition Order • 1996 FCC Report and Order, dealing with Act • All elements available for UNE • Challenged • Really resale end around • Failure of impairment standard of section 251 • Impairment sticks • FCC must decide which elements are necessary to competition, will impair CLECs • Court orders FCC to be more specific

9. UNE Remand Order • FCC tries again in 1999 • Removes operator/directory assistance • Adds more specificity to line elements • D.C. District invalidates again • Decision known as USTA I • Unbundling is not without costs • Innovation for ILECs and CLECs suffers • Impairment is a balance to leasing rights, FCC needs to find balance.

10. Triennial Review Order • 2003 FCC attempt to deal with UNE problems • Pushes onto States • Impairment is when non-bundling makes entry uneconomical. • UNE-P favored by States • Hot Cuts are foundation • Too difficult for ILEC to do this without major costs to CLECs and customers

11. USTA II • ILECs argue Triennial Review Order violates USTA I court order • District court sides with ILECs again • Violated obligations by subdelegating • Definition of impairment still in violation of USTAI • FCC makes not of this in the Order • Hot Cut orders do not have empirical support • Supreme Court does not grant certiorari

12. USTA II Repercussions • Switches removed • UNE-P invalidated? • States still applying • Should be preempted, impairment decision of FCC • UNE-L should be expanding • CLECs just leaving • AT&T not seeking further customers following USTA II • ILECs Win • Applies only to circuit-switched networks, old tech

13. Why Important • Battle between FCC and Courts over interpretation • Courts balance FCC against intent of Congress • FCC more competition biased than Congress? • Repercussions are minimal • Signal of phasing out of PSTN • Signal of convergence