The UNE Debate

Posted 09/15/2001

The UNE Debate
Florida, New York Latest Sites for Rate Skirmishes

By Kim Sunderland

Florida and New York are two of the latest states grappling with the never-ending controversy regarding rates competitors are charged for unbundled network elements (UNEs).

The Florida Public Service Commission (PSC), which says it's trying to make it easier for telecom companies to enter Florida's local phone markets to offer consumers more choice, ordered BellSouth Telecommunications Inc. to lower its UNE rates. In making its decision, the Florida commissioners went beyond the staff's recommendation, resulting in even lower prices paid by the competitors in many cases.

"We believe [this] decision will go a long way toward determining how quickly companies can come into Florida to compete for local phone service," PSC chairman E. Leon Jacobs Jr. says. "We've started to send the right market signals for competition to flourish. This is one of many steps in an ongoing process."

Specifically, rates are established for leasing separate parts of BellSouth's network. This includes the phone lines from customers' homes to BellSouth's central switching offices and the switches that route calls to their destinations. Rates were established that more accurately reflect their actual costs, Jacobs explained.

The commission isn't stopping there. Later this year, the Florida PSC plans to consider the UNE rates for Sprint-Florida Inc. and Verizon Florida Inc.

The New York State PSC also is evaluating Verizon's UNE rates. This summer, New York PSC Administrative Law Judge Joel A. Linsider recommended the commission consider lowering Verizon's UNE rates and appeared swayed by comments of the state's competitive carriers.

AT&T Corp., for one, contends that competition in New York's local markets is limited and fragile. The company says UNE rates that exceed their costs and permit Verizon to extract excessive revenue from local market entrants will harm local and long-distance customers.

AT&T also charges that Verizon's existing loop rates exceed forward-looking costs by about $7.70 a month in Manhattan and about $6.60 per month in the major cities rate zone, and that switching rates exceed forward-looking economic costs by at least 70 percent.

Likewise, a joint filing by Covad Communications Co. and Rhythms NetConnections Inc. asserts "this proceeding presents the New York Public Service Commission with the opportunity to bring to fruition the pro-competitive policies it has adopted over the years."

Rhythms and Covad warn these pro-competitive efforts would be defeated by a failure to price network elements at cost-based competitive levels. They say that Verizon's study is flawed and incorporates overstated cost estimates that will price competitors out of the market.

In particular, they charge that Verizon's study fallaciously posits two separate networks--one for DSL services and one for all other services. As a result, the charges that apply to DSL competitors are neither efficient nor forward-looking, they say.

The competitors also charge, among other things, that Verizon's study fails to take into account the demand for DSL services; that its loop conditioning charges are designed to recover work that would not occur in a forward-looking environment and that its loop qualification charges grow out of a failure to allow its competitors direct access to its loop qualification data base.

Verizon, on the other hand, says the New York PSC should set new rates on the basis of its studies, which are forward-looking but not speculative or based on "fantasy networks."

The ILEC also says the commission's task is to protect competition, not competitors.

Verizon argues that true competition must be facilities-based and that artificially low UNE rates "will only prolong the CLECs' counterproductive use of--as opposed to interconnection with--Verizon's network."

"Verizon insists that the commission's goal in this proceeding should not simply be to reduce rates, or to artificially stimulate any and all competitive entry." Judge Linsider writes. "Rather, the commission should seek to provide appropriate incentives for true facilities-based competition by avoiding any understatement of UNE costs."

Linsider says the New York commission should use Verizon's cost study in determining the course of UNE rates.

Meanwhile, on the federal level, the U.S. Department of Justice recommended that the FCC investigate UNE rates in Missouri for SBC Communications Inc. before allowing the ILEC to enter long distance in that state. The FCC hopes to get a U.S. Supreme Court review this fall of the 8th U.S. Circuit Court of Appeals' UNE pricing order.

Some industry observers say it's good that the states are taking UNE rates into their own hands, since the issue likely will remain locked up in the courts on the federal level.