FCC Unbundled Network Elements Review Coming Up

Declan McCullagh reports today in a CNET article on the upcoming FCC hearing on "Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers." The FCC is going to reconsider the rules that apply to incumbent local telephone companies regarding when they have to share their own networks with competitors, and at what prices. The process of sharing selected capabilities of a network with competitors is called "unbundling," because the different network capabilities are "unbundled" from each other and leased to competitors at regulated rates.

Section 251 of the 1996 Telecommunications Act gives the FCC the power to decide what parts and capabilities of their networks incumbent providers must unbundle and lease to competitors. The Act contains a general policy of promoting competition. At the same time, competition on the merits of service only happens if a company can gain some competitive advantage from innovation. If an incumbent carrier has to share everything new it comes up with, it has no chance to pull ahead of its competitors on the basis of its improved technology. If companies don't have that chance (coupled with the fact that other companies are going to be trying to do the same thing), then it's not worth their effort to implement the newer technology in the first place. We want new technology. So, where do we draw the lines on requiring incumbent companies to lease their service to competitors?

The FCC needs to come up with some kind of new rule tomorrow. McCullagh explains,

In two different cases, the Supreme Court and three appellate judges have concluded that [former FCC Chairman] Hundt's regulations imposed on the Bell companies go far beyond what Congress said the FCC could do. Now the FCC is under court order to draft more reasonable rules or have them struck down in their entirety--and the deadline is Thursday, the same day as the vote.

There are a lot of people who believe that incumbent telephone service providers are using obsolete equipment and who think that incumbents are hoping hoping for rules that will help them keep some of the monopolistic nature of their incumbency. That may be indeed be a threat. Here's a question, though. If tomorrow's ruling allows ILECs (incumbents) to raise their resale prices, and if that in turn puts a pinch on competitive wireline carriers, doesn't that create additional incentives for intermodal competition through cable systems, wireless systems, and other kinds of technology that don't depend on the relays and pairs of copper wiring owned by the incumbent? Won't 'voice over IP' services only further propel innovation in those technologies? If ILECs truly are obsolete and get too heavy-handed with their pricing in the short term, then we should expect to see intermodal competition take off in the longer term, shouldn't we? Or am I being too optimistic here? I've never been a fan of the ILECs, but I'm trying to see some silver lining around the cloud of potential higher pricing.

McCullagh's article also discusses how the political process at the FCC could affect the rules. Of five commissioners, two seem to oppose dramatically relaxing constraints on incumbents, one strongly favors it, one seems to favor it, and one swing voter favors relaxing constraints at the federal level but wants to allow states to regulate the incumbents more freely. If the swing voter, Kevin Martin, gets his way, the FCC will relax its own restraints on incumbents, but state public utilities commissions will still be able to impose some unbundling requirements even if the FCC does not.

[CNet article] / [FCC meeting agenda] / [FCC Notice of Proposed Rulemaking (PDF)] / [47 U.S.C. § 251]