CompTel Urges FCC to Support CLEC Access to High-Capacity Loops, Transport

Denying CLECs UNE access to high capacity DS-1 and DS-3 loops and transport serving business customers would cost U.S. businesses about $130 billion the next 10 years and deprive the economy of more than 426,000 new jobs, CompTel/Ascent said in a study Wed. It urged the FCC and the Bush Administration to “quickly reinstate their support for policies promoting the availability of high capacity UNE loops and transport for facilities-based CLECs.” “If the Commission is serious about encouraging facilities-based competition, it should not retreat on its promises to ensure competitors have access to loops and other vital network elements,” said CompTel CEO Russell Frisby. The Bells blasted the study.

Eliminating UNE access as now proposed would force competitors to rely exclusively on special access rates that would cost business customers $130 billion in higher prices and reduced services the next 10 years, the study said. It estimated business would directly pay about $105 billion in higher rates and another $25 billion for additional services because of the increased costs. “It is likely that much of the local telephone competition presently serving business customers would evaporate, mirroring the retrenchment we have already seen in competitive service to mass market customers that followed the roll-back of UNE-P access,” the study said.

CompTel said extra costs assumed by businesses and loss of competitive alternatives would lead to more job losses. Citing estimates by the Commerce Dept.’s Bureau of Economic Analysis that every additional $1 million in telecom activity creates 17.5 new jobs, CompTel said: “A loss of $130 billion in telecom activity translates into 426,000 jobs that could be created over 10 years by reducing the economic drag of higher phone bills.”

CompTel said facilities-based competitors serving the business market had made “substantial investments” in voice and data switches as well as interoffice transport facilities. But it said CLECs still must lease ILEC loop and transport facilities at network edges to connect enterprise business customer locations to the core of their networks. “This is because competitive facilities do not yet extend throughout the ILECs’ serving areas to reach all wire centers and all customer locations,” the study said. “By cutting off access to high-capacity loops, the FCC will effectively strand billions of dollars invested by facilities-based competitors,” Frisby said.

“Special access has not been an effective substitute,” the study said, because: (1) DS-1 and DS-3 special access is usually priced at “a substantial non- cost-based premium to the equivalent UNE services.” Frisby said the Bells earn rates of return “well over 40%” on special access rates. The study said such prices both limited the part of the commercial market that competitors had been able to serve and “forced these customers to pay excessive rates that have repressed their demand.” (2) “Many CLECs have been forced to rely on special access to connect to high volume commercial customers… as the only available alternative,” the study said. It said UNE access often had been “difficult to obtain until relatively recently” and “even when high-capacity UNEs have been made available, they have not been provisioned in a timely fashion or with reliability necessary to make them acceptable for mission-critical enterprise applications.”

(3) Special access’s “premium price ensures that its use is limited to only the highest margin customers, denying the majority of enterprise customers the benefits of competition,” the study said, saying the premium paid for special access compared to UNE rates was “typically over 100%.” (4) Absent the preservation and expansion of UNE access, special access will become “an even less attractive option for providing competitive access to high capacity services,” the study said. It said as the Commission grants the sunset of the separate subsidiary requirements and additional pricing flexibility, the ILECs will be able to more effectively engage in selective predatory pricing against CLECs. Although a strong imputation rule would help mitigate the risk from such anticompetitive behavior, it will not eliminate it.”

The Bells criticized the study. “Our DS-1 special access prices are declining faster now than when they were price regulated,” a BellSouth spokesman said, calling that “clear evidence of competition.” He said “the blanket unbundling that crated the UNE-P was a failure and there is every reason to think blanket unbundling of the things CompTel is concerned about would end up at the same place.” An SBC spokesman referred to his company ex parte filing with the FCC last week saying more than 3/4 of the 511,000 DS-1 loops and 97% of DS-3 loops SBC sells to CLECs are sold as special access, not UNEs.

Confronting the CompTel findings, BellSouth and SBC referred to a study recently conducted by independent economists for the U.S. Chamber of Commerce. That study estimated that reforming unbundling rules would generate more than 200,000 jobs over 5 years, while boosting capital investment by nearly $60 billion. That and other studies “show that market competition is what benefits the economy, not more regulation,” the BellSouth spokesman said.

“There will be no impact on business if the FCC correctly decides not to reimpose unbundling requirements on high capacity facilities,” said Verizon Senior Vp- Deputy Gen. Counsel Michael Glover: “The reality is that other carriers already are competing successfully using a combination of their own facilities and leased facilities purchased at volume and term discounts.” Qwest Public Policy Pres. Steve Davis said CompTel members had “no right to purchase facilities at below cost prices where they can build their own, or where other facilities are available. Today, those conditions exist almost everywhere.” He said CompTel was “mired in the past,” while CLECs were “moving forward. To date Qwest has successfully negotiated over 2 dozens commercial agreements with CLECs… and [is] currently negotiating with many others.”