The FCC claims that state commissions have a better understanding of local markets than the FCC, logic that conveniently justifies pass-the-buck policies.

by Alex Goldman ISP-Planet Associate Editor [October 3, 2003]

The Federal government likes to make impressive sounding policies but not pay for them. (All politicians, Rebpulican and Democrat, are guilty of this.) So-called unfunded manadates force states to pay for—or fail to implement—programs that the government cannot afford. In its triennial review, the FCC adopts this familar pass-the-buck mentality.

Working together
The state Public Service Commissions (PSCs) and Public Utilities Commissions (PUCs) are not blessed with the massive budgets and staff of the FCC. But they are working together. The association of regulators, the National Association of Regulatory Commissioners (NARUC) has formed a Triennial Review Implementation Process Task Force (TRIP task force), chaired by Rebecca "Becky" Klein of the Texas PUC. Rebecca Klein is seen as having views similar to Powell, and as a possible future head of the FCC.

So far, it appears that the TRIP task force has not heard from any CLECs, but its website does feature an inflammatory speech from Judy Walsh, senior vice president for state regulatory policy for SBC (available in full here [.pdf]), in which she tells the task force that it has a unique opportunity to end UNE-P. She says:

I have heard this comment about the FCC purported decision on February 20th—"Oh good, that means that we will keep the UNE-P". But these decisions are not about keeping the UNE-P, which economic experts, and Wall Street recognize is priced well below economic costs in many states. These proceedings are about looking back at the Telecommunications Act of 1996 (FTA) and at the USTA court decision (as informed by the FCC order when it is finally issued) and ruling that the ILEC is not required to provide an element, in this case switching, unless it can be affirmatively proven that the competitor is impaired without it.

The states are already under pressure from the ILECs, and they've barely started doing what the triennial review requires of them. The triennial review requires the states to do a number of studies to see if current line-sharing policies are to have a chance of being retained—some within 90 days, some within 9 months. According to our reading (and with the assistance of documents from the TRIP task force and other experts):

Within 90 days, the state utility commissions must:

• Determine in what areas of the state CLECs are unable to compete without access to DS-1 switching for business services, taking into consideration all costs involved, and also calculating the potential revenues for CLEC-deployed switches, using not actual CLEC business plans but instead taking into account all possible revenues a CLEC might earn by deploying its own switch. This involves creating a theoretical business plan and may require every PSC to hire a telecoms economist.
• Determine a procedure through which ILECs and CLECs can comment on PSC rulings, and schedule hearings.
• NARUC further notes that the state PSCs will have to examine all legal cases they are currently involved in to see how the new rules affect those cases, and that some cases may have to be reopened. Although there is no deadline for this, it clearly has to be done as soon as possible.
• NARUC notes that many interconnection agreements may be affected by the new rules, and that the promulgation of new rules in itself could trigger a "change in law" provision allowing ILECs to renegotiate all current contracts. (See, for example, this note from Covad in its last SEC filing saying that the ILECs may renegotiate all contracts.)

Within 9 months, the state utility commissions must:

• Develop rules so that the "hot cut" process for taking mass market customers off the ILECs analog switches and transferring them to the CLECs is no longer a process filled with delays which cause CLEC customers to cancel up to 50 percent of all orders during this delay alone.
• Determine in which areas CLECs are not impaired with direct access to ILEC switching (assuming that the new "hot cut" process allows CLECs to deploy their own switches to serve the mass market) because there are at least two alternative providers of switching. (The Texas PSC plaintively asked [.pdf], "What should the Commission do in determining whether SWBT's [i.e., SouthWestern Bell Telecom's] hot cut process is adequate for purposes of transitioning customers off UNE-P?")
• Determine which parts of the state contain a sufficient number of wholesale providers of dark fiber so that the ILEC need no longer provide dark fiber as a UNE. Companies that have dark fiber but do not wholesale it, or that are closely related to the ILEC, are not counted. However, some portions of this study must be complete within 90 days.

Analyses are supposed to consider all intermodal alternatives, which, the FCC says, "include, for example, traditional or new cable plant, wireless technologies (satellite, mobile, or fixed), power line (electric grid) technologies, or other technologies not rooted in telephone networks." That's a lot to look at.

Other studies may be required as well. As one industry lawyer told us (asking not to be named), "even a 500 page document with 3000 footnotes can contain ambiguities. In some places, people are reading it and saying, 'okay, so what happens next?'"

We made the call
One state PSC has already reached a decision on one of the 90 day items. The Florida PSC, chaired by Lila Jaber, who is also a member of the TRIP Task Force, decided on September 3, 2003 that CLECs are not impaired without access to DS-1 switches. They did not ask any CLEC (although there was a 21 day comment period).

Instead, the PSC says [.pdf], "our staff made inquiries of Florida's largest ILECs." That is, the PSC called the state's three ILECs (Sprint, Verizon, and Bell South) and asked them what should be done. The ILECs said, not surprisingly, that the PSC should allow them to not share DS-1 switches.

The PSC says, "As suspected, very few DS-1 loops with ULS combinations are being provided in Florida. Verizon and Sprint indicated that they have provisioned no such UNE combinations in their service territories. BellSouth has informed us that they are providing around 70 combinations of high-capacity loops with unbundled local switching to 6 CLECs in Florida. To put the BellSouth data in perspective, BellSouth provides over 7,000 DSI unbundled loops in Florida to 27 CLECs. Based on the very limited demand that exists for the combination of DS-1 loops with unbundled local switching, we believe that CLECs are not impaired absent access to unbundled local switching for business customers served via high-capacity loops, as presumed by the FCC."

Unfortunately, this study, which consisted of three phone calls, did not even consider the possibility that ILECs have prevented CLECs from purchasing unbundled DS-1 switching. But there's not much the PSC can do. They've been asked to do too much.

You get the government you pay for
State PSCs will have to devote a large portion of their limited resources to the studies they've been asked to do. The FCC further asks that the state commissions periodically review the level of competition in each state, as often as every 6 months. Demanding these studies may make the commissioners feel good, but the states will not be able to perform regular studies.

Even the FCC, which has an annual budget of about $200 million, is only asked to review competition every two years, and the 1996 Act every three years. The FCC took six months just to write up the details of its latest decision. It is unreasonable to ask the PSCs to undertake a detailed review which, due the fractal nature of the undertaking ("fractal" means the closer you look the more complicated it gets, so you can spend as much time looking at a single city as you could spend getting an overview of the whole nation), will take as much time as the FCC's broad, generalist, and inadequate review of the state of competition nationwide.

State PSC budgets are far less than $200 million. The Maryland PSC publishes a detailed breakdown of its budget here. The telecommunications division, consisting of 8 people with an annual budget of $579,262 will have to perform all the tasks required by the FCC, with assistance from legal staff and the hearing division ($688,702, 10 people). The entire PSC, which handles all utility regulation (including phone, water, and power), has an annual budget of $12,684,981 and a staff of 142.

The Montana PSC has a budget of only $2,656,348 and a staff of 39 (two of whom are the IT staff). The state has a small population, but a very large geographic area. The Florida PSC, one of the largest in the nation, has a budget of $27,300,573 for fiscal year 2003-2004 to oversee a state whose water and power needs are particularly complex.

The FCC claims to believe that it has set up a system to obtain a very "granular" review of the state of competition in the US, but the fact that the FCC is calling on the states to do something it could not do itself (see Flawed FCC Data Guarantees Flawed Policy) makes the whole set of rules seem like an elaborate passing of the buck to state governments that cannot bear the cost.

Why did the FCC ask that so much be done in 90 days? Perhaps because, given their limited resources, the state commissions might have taken 9 years to complete some of the studies. The unfortunate result is that important decisions will be based on studies that are hasty, consisting of little more than a few phone calls. Uncertainty, which continues to dampen investment in telecoms, will only continue, as these decisions are challenged in court or are found to be vague and require clarification.

—End