Convergence--the melding of multiple networks into one and the bundling of service offerings from one carrier and on one bill--is forever changing telecommunications policy, and will force revamps of federal laws and the official bodies governing them.
"Regulatory changes are a matter of course for the industry, but faster innovation creates industry changes," says Gino O. Picasso, president and COO of ACE*COMM Corp. (www.acecomm.com), a convergent mediation vendor. "The laws on the books no longer apply. Regulators are caught trying to keep pace."
The digitalization of information is driving convergence. It suddenly doesn't matter if video is being delivered over copper twisted pairs, beamed from satellites, through cable, or wirelessly. It's the same content, it's just being moved in different ways and gives the consumer a lot of choice and freedom.
But from the local service provider's perspective, be it a CLEC, BOC or IXC, using converged technologies and offering bundled packages of services aren't as complicated as the rules, regulations and laws surrounding them.
"The question becomes, now that service providers can offer the same content over various forms of media, how do you get to the fairness of selling your wares, in which a company's rise and fall is based on its own merits in the marketplace and not because of some anomaly of antiquated regulation?" asks Ed Young, senior vice president of federal government relations for Verizon Communications (www.verizon.com).
Clearly, the BOCs are the most highly regulated communications companies in the industry. For instance, they wonder why a cable company can offer high-speed broadband services that aren't regulated, but when they offer the same services, they're regulated.
"If companies are providing the same services, the [BOC] preference is that they're not regulated at all," Young submits. "But if you have to be regulated for certain reasons ... how do you regulate so that it's not the vehicle by which companies succeed or fail?"
This isn't a rhetorical quiz; it's a real-life marketplace controversy that will shape future policy.
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| Sean Parham General Bandwidth Inc. |
For instance, there's talk that the BOCs should be split up into separate wholesale and retail operations to deploy their regulated and unregulated services. In this model, the wholesale side continues to provide telephony and to service CLECs. The retail side essentially acts as a direct competitor to the wholesale side and provides broadband data services.
The BOCs are lobbying federal lawmakers to have broadband data services exempted from regulations. But if this were to happen, CLEC sources say the BOCs' incentive to open up local markets would vanish.
Already, the BOCs are investing more in their unregulated business at the detriment of the regulated networks, points out Jeffrey J. Binder, a Washington-based telecom attorney with Dickstein Shapiro Morin & Oshinsky LLP (www.dsmo.com).
"The RBOCs are deploying technology more and more out into the loop, rather than the central office," Binder says. "Deploying DSLAMs out into the loop gives the interconnection advantage to the Bells."
Binder believes that the more the BOCs can do without opening up the local loop, the more that local competition will suffer. "The FCC [www.fcc.gov] and Congress will have to think this through," Binder says. "The more the Bells can provide converging services without regulation, the harder it will be for policy to get us where we need to be."
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| Gino O. Picasso, ACE*COMM Corp. |
Equipment vendors also find the challenges of convergence and telecom policy daunting. "The service providers are all going after the same type of space to combine services into an attractive package to market," explains Sean Parham, vice president of product management for General Bandwidth Inc. (www.genband.com), a voice-over-broadband gateway vendor. "Competition and technology use are all coming together, and it's happening in light of major regulatory changes."
The BOCs, for instance, see new technology and new opportunities, but are saddled with old networks, Parham says. Their networking, people, facilities and switching have been in place for decades. They also are dealing with regulations on how they can compete.
How do you make this happen for a large ILEC customer dealing with these variables?
"We have to go into a highly regulated space, and we have to appear native and behave like an established equipment vendor," Parham explains. "We also have to be able to take the same system and use it in radically new ways for the ILEC to operate as an unregulated CLEC in a highly constrained environment."
Equipment vendors have learned how to operate in both a regulated and unregulated environment, just as the carriers have done. General Bandwidth, for instance, can help a provider deal with copper exhaust--where they're simply running out of wires in the ground. There's an installed base of customers who want more lines, but a carrier simply may not have the facilities to provide them.
So General Bandwidth will install new CPE next to existing infrastructure. Parham says this allows for DSL provisioning and multiplies the number of lines over copper twisted pairs. This can provide more phone lines and more bandwidth.
"If we can't provide the right kind of equipment, they'll limit what and how they provide services," Parham says of local service providers in general. "Our challenge is to be a lot of things to a lot of carriers."
In essence, this affects deployments and advances in technology. That means equipment providers must offer bleeding-edge technology that can also adapt to pre-existing regulatory and physical environments, Parham says.
Picasso of ACE*COMM agrees that the regulatory issues do impact how the network is used, by whom and for how long.
He cites large OSS challenges, the use of different devices and different usage measurements as factors affecting how networks are being built.
Picasso says that ACE*COMM aids the process of convergence by providing one single view of a network through a converged mediation solution that can monitor usage. This information helps an OSS understand it and use it.
"All these converged services pose a great deal of challenges," Picasso says. "Regulations need to be updated as more challenges are presented."
On Capitol Hill, though, that's not likely to happen this year, says Cronan O'Connell, executive director of the Internet Service Provider Business Forum (ISPBF, www.ispbf.org), a trade association for the Internet industry. "I don't think there's anyone on the Hill who will exert the energy on this during 2001. They're going to be more interested in health care and in the proliferation of international enemies," O'Connell predicts. "I don't foresee the Hill wanting to take up the charge on this issue."
She also doesn't see the issue as being a top agenda item for the FCC either. For one thing, when a new commission chairman is appointed this year, the FCC will be in a frozen state while that person develops a new team.
"The RBOCs today can provide voice and data over their facilities and they do it. So give them data relief," O'Connell says. "But make it so that the BOCs remain the carrier of last resort. They continue getting universal service money, which is a nice chunk of change, but they keep the residential customers. They can't offload them."
No one really knows what the BOC T1 lines now carry, O'Connell notes, "and once ATM/IP-based networks take over, there's no way we'll ever know who's violating what rules. There will be no way to prove they've combined both services."
By giving the BOCs data relief and retaining strong enforcement, O'Connell believes the BOCs won't have to be split up into separate companies.
But Binder goes so far as to question the state of competition, whether the Telecommunications Act of 1996 has failed, and if local competition is now a pipe dream.
"The Bells are in long distance. I don't know how policy can help competition now. We're at a critical stage," Binder says. "Verizon and SBC are now supercarriers. We're back to where we started with a monopoly in the local loop. It looks a little gloomy here."
He sees splitting up a BOC as a divestiture revisited, in which the telco must be a wholesale supplier to competitors while also competing with them. That's just unnatural human behavior, Binder says.
There's no model for it having worked, he adds. However, with Pennsylvania regulators having ordered Verizon to separate itself into wholesale and retail arms, and a similar supporting decision by the 6th U.S. Circuit Court of Appeals, there will be some sort of blueprint to refer to during future convergence.
And the CLECs aren't worried about the RBOCs becoming competitors. "We can beat the pants off the RBOCs because CLECs are smarter, faster to market, using advanced technologies, and are more responsive to customer needs," remarks John D. Windhausen Jr., president of ALTS (www.alts.org), the CLECs' trade group. "What we cannot compete with, however, is if the RBOC gives itself privileged access to the necessary facilities and OSSs that are critical to the provision of retail service. The issue is really how separate the RBOC retail affiliate will be from the wholesale owner of the network facilities."
Splitting the RBOC into completely separate wholesale and retail entities would be fair; the RBOC retail unit would avoid regulation, while the wholesale unit would have the maximum incentives to serve all retail providers equally, Windhausen says.
If, however, the RBOC simply creates a so-called "sham" retail subsidiary that is still owned by the wholesale provider, the retail subsidiary would retain significant advantages in the marketplace. This "sham" subsidiary should not be deregulated simply because it changes its name. It should only be freed from regulation if it is spun off without contractual or equity ties to the wholesale provider, Windhausen says.
The separate subsidiary issue is big right now, Verizon's Young says, and it isn't going away. He suggests that the FCC take a step back, allow facilities and spectrum to be used in nondiscriminatory and non-interfering ways, and let the companies arrange carriage and content in arm's length deals on their own.
"Let the marketplace decide who gets carried and who carries what content," Young says.
Is It Time for the FCC to Consider Radical Changes in Intercarrier Compensation?
By Jonathan E. Canis
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| Jonathan E. Canis Attorney at Law Kelly Drye & Warren LLP |
This time last year, I reported that the FCC (www.fcc.gov) was preparing to launch a plenary review of all intercarrier compensation arrangements--a fresh look at how local, long-distance and even Internet carriers trade traffic back and forth, and what they charge for carrying each other's traffic. Rumor was that the FCC would issue a Notice of Inquiry (NOI), a large proceeding that can take years before yielding new rules and policies.
Anyway, the anticipated NOI never saw the light of day--while the FCC did the preliminary work, for whatever reasons the NOI was never issued. Rumors are now circulating that such an NOI is back on the agenda. But it is impossible to say when or even if the FCC will initiate the proceeding. This is especially true with the change of administration in 2001, which will undoubtedly change the FCC's priorities and leadership. Regardless, it may be a good idea for the incoming FCC administration to consider it.
The FCC wants to establish a truly market-based telecom environment, where technology selection, network design, targeted customer markets and product development are governed by considerations of economic and operational efficiency, not arbitrage based on regulatory decisions.
The problem is, you can't reform on a piecemeal basis--like squeezing air around in a balloon. If you eliminate one discrete form of arbitrage, you will only create a new one elsewhere in the market. Only comprehensive reform of intercarrier compensation will eliminate noneconomic arbitrage and put all carriers on equal footing. Such reform is radical, though, and offers something to offend everybody. Some examples:
State Regulators: Currently, there can be huge differences in the prices ILECs charge for the transport and switching of local vs. long-distance traffic. Does anyone really believe it costs an ILEC more to terminate a long-distance call than a local one? Similar disparities are found in the pricing of unbundled network elements (UNE) from state to state. Does anyone really believe it costs SBC Communications Inc. (www.sbc.com) more to provide an unbundled loop in Indiana than it does in Illinois? Economically rational reform would eliminate local/long-distance, interstate/intrastate and state-to-state pricing distinctions, effectively eliminating state jurisdiction over service and UNE rates.
ILECs: All of the big domestic arbitrage opportunities stem from the fact that ILECs charge inflated rates for transporting and switching local traffic. Real reform means ILECs must lose large amounts of access revenues.
ISPs: The FCC has avoided imposing access charges or universal service funding obligations on Internet service providers for years, and with good reason. No regulator wants to be labeled "the one who taxed the Internet."
Consumer Advocates: It costs more to provide telecom service to areas with low population densities and with low volumes of traffic. Economically rational reform will increase rates for rural and residential customers.
Jonathan E. Canis writes a monthly column on regulatory issues. He is an attorney at law with Kelley Drye & Warren LLP, and can be reached at canis@kelleydrye.com.
