Posted 06/01/2001
DIVIDE &
CONQUER
Local Switching Issue Pits CLEC Against CLEC
By Kim Sunderland
Cash hungry CLECs are turning on their own to retain control of their territories. The result could become a bloody mess.
At the center of the issue is local switching and whether it's an UNE. Some facilities-based CLECs say no. Nonfacilities-based CLECs say yes because it's a necessary element in the UNE-Platform (UNE-P). They say the ILECs must make combined UNEs--a.k.a. the UNE-P--universally available to competitive carriers or residential and small business subscribers will suffer.
While the ILECs legally are obligated to provide the UNE-P in most U.S. markets, the FCC (www.fcc.gov) several months ago established an exception.
The FCC ruled the ILECs have no obligation to provide switching facilities to competitive carriers in the most heavily populated zones of the top 50 metropolitan service areas (MSAs), when those carriers seek to serve customers with more than three access lines.
Competitors say that switching is a key UNE. Without access to switching in these urban markets, competitors say there is no access to the UNE-P. Without access, a market entry strategy essentially is being eradicated.
Genevieve Morelli, Washington telecom counsel with Kelley Drye & Warren LLP (www.kelleydrye.com), says that competitive carriers are lobbying the FCC to lift this restriction.
She says such a limitation has been particularly harmful to small businesses because they tend to have between four and 20 access lines, the very range where the UNE-P would be the most cost-effective means of providing local service.
UNE-P is the most promising vehicle for broad-based competition for residential and small-business subscribers, says Morelli, who with telecom consultant Joseph Gillan, co-founded the Promoting Active Competition Everywhere (PACE) Coalition. PACE is focused on ensuring that competitive telecom services are delivered to residential subscribers and small businesses through use of the UNE-P.
"If the UNE-P is made available on a commercial basis, it explodes the market wide open," Gillan says. "The upside is so great and there's no downside for competitors."
A tug-of-war has ensued between various CLECs over the issue. On the side of facilities-based CLECs is Allegiance Telecom Inc. (www.allegiancetelecom.com). A dozen UNE-P CLECs, all members of PACE, are pulling the rope from the other side.
"It's unfortunate, but this has put a schism in the CLEC community," says Steve Trotman, vice president of industry relations for the Association of Communications Enterprises (ASCENT, www.ascent.org), which represents resellers. "What Allegiance has done is to set a benchmark for limited competition."
Companies aligned with Allegiance include Time Warner Telecom Inc. (www. twtelecom.com); Choice One Communications Inc. (www.choiceonecom.com); and SeeBeyond Technology Corp. (www. seebeyond.com). On the other side of the issue are the 12 PACE members, which include ITC^DeltaCom Inc. (www.itcdelta.com); nii Communications (www. niicommunications.com); Sage Telecom Inc. (www.sagetelecom.com); and Z-Tel Communications Inc. (www.ztel.com).
Earlier this year, competitive carriers and others filed comments with the FCC on the local switching issue. The commission is expected to rule sometime this year on the overall UNE Remand proceeding. The crux of what the commission will decide involves what the proper scope of availability is for local switching, whether it should remain a UNE across the board, or if there should be limits on its availability.
Royce Holland, chairman of the board and CEO of Allegiance, says that his company doesn't consider local switching to be a UNE, at least not for the business market.
"It is very different than an unbundled loop," Holland says. "Other elements meet [the FCC's] 'necessary and impair' standards. My opinion is that the whole UNE-P is resale because there are no facilities involved."
That's bull, says Trotman. "This is not resale. It's totally different."
The UNE-P involves competitors leasing combinations of the UNEs of an ILEC's network. Resale means a competitor is beholding to an ILEC and has to re-sell whatever the ILEC sells, Trotman explains.
Local switching, then, is a UNE that CLECs must have for the UNE-P, which won't work without it.
"Why not get rid of the local loop as a UNE then, since fixed wireless bypasses it?" Trotman quips. "That would be the natural extension of Royce's argument."
Holland, however, says that the Telecommunications Act of 1996 promotes facilities-based competition, and that there is a true bottleneck in the local loop.
Competitors, such as AT&T Corp. (www.att.com), would benefit from UNE-P because they could get into the local market, without building the facilities, which isn't what the act has in mind, Holland says.
According to Trotman, what Holland is saying is that Allegiance would like to have about four competitors in a market all with facilities and substantial capital. This way they could split up the pie five ways and come out on top financially.
That's an easy argument to make considering the volatility on Wall Street for CLECs this year.
"The last thing that an Allegiance or Time Warner Telecom wants to see is an entrepreneur coming into a market with a better business plan," Trotman says. "This is capitalism at its best and it's a lot like what the ILECs do: Go out and find regulatory relief for a marketplace problem."
Holland admits the ILECs probably would go along with Allegiance's suggestion to do away with local switching. But the ILECs, want to eliminate local switching totally, he adds.
The Allegiance plan limits it to residential customers and is more of a compromise, he explains.
Regardless of who CLECs serve and in which markets, they should have access to unbundled local switching and UNE-P, says Ernest B. Kelly III, president of ASCENT.
"Any restrictions placed on these technologies certainly would violate the spirit, if not the letter, of the law," Kelly says.
ASCENT recently conducted a survey to determine the implementation of the UNE-P on a state-by-state basis. The results of the survey show "a disturbing lack of progress by many states in ensuring that the UNE-P is available to competitive carriers," according to Kelly.
In fact, five years after enactment of the Telecom Act, Kelly says that officials in roughly half of the 50 states have yet to take the steps necessary to make the UNE-P "readily and meaningfully available to competitors."
ASCENT has asked the FCC to exert its authority by undertaking an ongoing program to remind the states of the importance of the UNE-P to local competition. The association also wants the FCC to persuade noncompliant states to make the UNE-P available to competitors.
Richard Burk, CEO of nii Communications of San Antonio, Texas, says the problems that competitive carriers face in accessing and using the Bell companies' UNEs are severe.
"Real progress is being made, but only where the [Telecom] Act has been enforced and allowed to work," Burk said, referring to those areas where the incumbents must provide access to the UNE-P.
"Unfortunately," Burk adds, "the Bells seem to think they are entitled to decide where and when that is."
Some sources claim that the Bells are trying to make deals with regulators in which they promise to go into second- and third-tier markets if they aren't forced to unbundle their networks.
The BOCs discredit such claims. In fact, SBC Communications Inc. (www.sbc.com), Verizon Communications Inc. (www. verizon.com), and BellSouth Corp. (www.bellsouth.com) have cited statistics showing that several CLECs are using their own switching facilities to serve customers with less than 20 lines. Therefore, the BOCs claim, the "switch carve-out" is not hindering competition.
But ASCENT says that few CLECs are actually doing this.
Source: Association of Communications Enterprises, ASCENT (www.ascent.org).
