Posted 06/2000
Bell Bargaining
One-State-at-a-Time Becomes Passe
By Kim Sunderland
'In-region' for the Bells doesn't just mean within one state anymore. Recent line sharing and OSS testing deals prove the Bells now would rather go regionwide in an attempt to speed the regulatory process and hasten their entry into long-distance service provisioning.
So far, the CLECs aren't complaining.
"Together, these agreements put CLECs like Rhythms in an advantageous position to deploy line sharing and to bring the benefits of DSL services over shared lines to customers," says Jeff Blumenfeld, chief legal officer for Rhythms NetConnections Inc. (www.rhythms.net). "It's a very good deal."
US WEST Inc. (www.uswest.com), for instance, cut a deal with Rhythms and 12 other CLECs to share phone lines regionally for the simultaneous provisioning of voice and data traffic. The RBOC also is involved in a first-ever regionwide OSS test (see "Regionwide OSS Test Exceeds Expectations," page 16).
The multicompany, regionwide line-sharing agreement also was the first of its kind in the United States and will speed and broaden availability of high-speed Internet and broadband services to more consumers in US WEST's 14-state territory, says John Kelley, president of wholesale markets for US WEST.
In addition to Rhythms, the dozen other CLECs in the line-sharing deal are: Arrival Communications (www.arrival.com); @Link Networks Inc. (www.atlinknetworks.com); BridgeBand Communications Inc. (www.bridgeband.com); Contact Communications (www.contactcommunications.com); Covad Communications Group Inc. (www.covad.com); CDS Networks Inc. (www.cdsnetworks.com); Jato Communications Corp. (www.jatocommunications.com); Montana Wireless Inc.; MULTIBAND Communications Inc.; New Edge Networks (www.newedgenetworks.com); NorthPoint Communications Group Inc. (www.northpoint.net); and Western Telephone Integrated Communications Inc.
The interim line-sharing agreement with the telco is similar to the deal US WEST cut separately with Rhythms. Under that agreement, the CLEC agreed to pay no monthly charge to use US WEST's existing voice lines to provide DSL services throughout US WEST's region. US WEST's deal also includes a no-charge line-sharing rate that's effective immediately through the end of the year and which may be extended until June 1, 2001, if certain contingencies are met.
The agreement provides deployment schedules, ordering procedures and network architecture choices critical for the CLECs to provide effective line-shared services, Blumenfeld says.
"This is a significant step forward in actually getting what we're entitled to in US WEST's 14 states," Blumenfeld adds. "This agreement advances the specifics of what we'll get without having 14 states' checklists and approvals to go through."
"The joint efforts of the competitive carriers and US WEST have resulted in US WEST becoming the first incumbent phone company to enter a written agreement to share lines on a regionwide basis," says Clay Deanhardt, senior counsel for Covad. "This agreement proves that the FCC's line- sharing mandate is clearly executable by the ILECs. Not only will this agreement provide consumers with greater choice in DSL service providers, but we also expect line sharing to result in more competitive DSL pricing and faster installations."
So it looks good for US WEST.
"This agreement underscores our willingness to go the extra mile in opening up our network to competitors," Kelley says. "It comes at a time when demand for high-speed Internet access has never been greater."
It also comes at a crucial time for US WEST, which has a proposed merger pending with Qwest Communications International Inc. (www.qwest.com). In exchange for paying nothing to US WEST for sharing its lines for a set amount of time, Rhythms pledged withdrawal of its opposition to the merger. Such merger support, coupled with the expected successful completion of its regionwide OSS test, gives US WEST reason to believe it can nail down regionwide approval to provide long-distance services.
"I don't see a real downside to this," says Mitchell F. Brecher, a telecom attorney and partner in the Washington offices of Greenberg Traurig (www.gtlaw.com). "Of course, these types of arrangements will be an important aspect of US WEST [Section] 271 applications. With the impending acquisition by Qwest and the requisite divestiture of Qwest's in-region long-distance operations, I expect to see US WEST begin to seek 271 authority in its states as soon as it can convince the state commissions to endorse its applications. Obviously, the line-sharing arrangement will be an important aspect of those efforts."
This line-sharing agreement, or one similar to it, was mandated by the FCC (www.fcc.gov) under its 1999 order requiring all incumbents to provide line sharing to competitors by this month, notes Dena Alo-Colbeck, director of public policy for regulatory consultants Miller Isar (www.millerisar.com).
The FCC ordered the nation's ILECs to allow CLECs to offer DSL services by June 2000 on the same ILEC telephone lines that already carry voice services. The FCC ruling gives customers the ability to order DSL services without losing their voice carrier or having to install a second line.
In its order, the FCC seemed to like the idea of setting a line-sharing charge at zero, but instead opted to leave the actual pricing to the states. Over the next several months, the state commissions will determine those permanent, cost-based line-sharing rates. Some states already have done so, Alo-Colbeck says.
Under the agreement, the CLECs can choose one of two interim monthly loop cost options. The two interim options are either a flat cost of $5.40, or a tiered cost of zero, which is subject to a future increase to $8.25 based on the timing of the proposed US WEST merger with Qwest.
In each case, all interim prices are subject to a "true-up"--meaning that once permanent prices are set in each state, the permanent price will be applied retroactively to April 24, 2000, Deanhardt explains.
US WEST and the CLECs subject to this agreement plan to continue negotiating permanent prices for line sharing. If they can't negotiate them, the companies have agreed to ask each state commission to establish permanent rates.
The deployment schedule implements line sharing in some 350 US WEST COs throughout the company's 14-state region by the end of July. Competitors began submitting orders in those offices where the necessary equipment was installed in mid-May.
BellSouth Corp. (www.bellsouth.com) is taking a similar track. This spring the telco agreed to share telephone lines throughout its nine-state region with Covad.
The line-sharing agreement--a first for BellSouth--calls for the incumbent to provide Covad access to the high-frequency portion of BellSouth's local telephone lines at interim rates. Those rates also will be subject to a true-up once a final agreement on pricing is reached between the two companies, or when permanent line-sharing prices are set by state regulators.
Jere Drummond, vice chairman of BellSouth, says this agreement will speed and broaden the availability of high-speed Internet and broadband services throughout BellSouth's region, and underscores BellSouth's commitment to open up its network at each of its 1,700 COs.
When the FCC ordered line sharing, BellSouth wanted sufficient standards developed to prevent the voice portion of a customer's line from being degraded by traffic on the data portion of the line served by a high-speed Internet access provider, such as Covad.
But under this new agreement, BellSouth has assurance its voice service will not be adversely affected by Covad's data service when Covad and BellSouth are sharing a line, Drummond says.
Also under the agreement, Covad agrees to pay BellSouth interim rates for line sharing as a UNE. The rates are subject to a true-up that will come after BellSouth submits cost studies to state commissions that justify the rates BellSouth is charging Covad for line sharing.
And this looks good for BellSouth, too.
"BellSouth will doubtless use this agreement to bolster its claims of compliance with the market-opening provisions of the Telecommunications Act of 1996 in applications for interLATA entry in its region," Alo-Colbeck says. "Georgia, Louisiana, Florida and Kentucky are currently examining the carrier's operations support systems and its compliance with the Act's 14-point checklist."
Considering Workability
Can this Reader's Digest version of line-sharing pacts work successfully for the CLECs? In addition to CLEC support, state regulators also seem to like it because it cuts down on negotiations, mediation and legal finagling. And such line-sharing arrangements are meeting federal requirements.
So, what's the drawback?
"It's hard to find any dark aspect or downside to the line-sharing agreements so far," says James Bradford Ramsay, general counsel for the National Association of Regulatory Utility Commissioners (www.naruc.org). "I just want to be sure an appropriate amount of joint and common costs are ultimately included in the line-sharing 'fees.'"
One state commission engineer, who wishes to remain anonymous, says the concept of line sharing is great, but "the only question I have is related to the pricing, and whether the carrier is double-recovering its investment, or how that should be treated."
For instance, if a Bell company is getting $15 from the end user and another $10 from the data carrier, aren't they recovering more than the cost of the loop? "I don't know if any jurisdictions have looked at that," he says.
In the US WEST line-sharing deal, all the prices and conditions are the same. So basically, those CLECs got the same deal that Rhythms got.
"So long as carriers have the right to litigate or arbitrate the permanent rates in state proceedings, the arrangement gives those carriers who wish to use line sharing to offer DSL sooner rather than later an option for immediate service," Brecher says.
We can expect more of the same. Frank Paganelli, Rhythms' assistant general counsel, says Rhythms eventually will try to get zero-priced line-shared loops in BellSouth's territory as well.
