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US: Background on FTTx regulation August 23, 2006

Posted by Jasper in Regulation.
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In a recent post I commented only briefly on the regulatory shift that has occured in the US wrt. the unbundling and mandating access. Below is some background information on that shift.

Regulation in the US is based on the 1996 Telecommunications Act (hereafter ‘the Act’). The aim of the Act is to open up all aspects of telecommunications in the US to competition and to enhance the deployment of advanced telecommunications services. The Act is designed with the long-term aim of gradually replacing industry regulation with market competition.

In August 1996, the Federal Communications Commission (FCC) published the first of three orders to give precise meaning to the Act. The first order – the Interconnect Order – requires the Incumbent Local Exchange Carriers (ILECs) to open their networks to enable competition in local services.

The Order takes as its starting point the philosophy that Competitive Local Exchange Carriers (CLECs) might want to enter the local services market in a variety of ways. For example, they may want to:

  • build their own facilities;
  • rent network elements (such as local loops) from the ILECs; and
  • resell the ILECs’ local services in combination with their own facilities based long-distance services.

The Order does not attempt to favour any one approach; the FCC argues that it is best for the market to decide. At this early stage, the FCC stressed the need for “stepping stones” to competition, i.e. a concept similar to that used in Europe called the “ladder of investment”.

The Order identifies a minimum set of five technically feasible points at which ILECs must offer interconnect. These points are:

  • the line side of a local exchange (for example, the MDF);
  • the network side of a local exchange;
  • the trunk interconnect points of a tandem switch;
  • local exchange cross-connect points; and
  • out-of-band signalling facilities such as signal transfer points.

Given these points of interconnect, it defines six sets of unbundled network elements (UNEs) that the ILECs must offer on a non-discriminatory basis at reasonable prices to CLEC.

However, more recently the US has taken a 180 degree turn. spurred in part by ILECs successfully arguing that they should be treated in a manner similar to cable TV providers (the leading providers of broadband services in the residential sector) who have no obligation to provide UNE from their networks.

As a result of two recent decisions – the Triennial Review Order of 2003 and the review of Section 251 unbundling obligations of 2004 – and findings from a court case on the Triennial Review Order, the FCC now rules that:

  • there is no requirement for an ILEC to supply unbundled elements from its FTTH or fibre to the curb (FTTC) facilities, in particular:
  • New builds. An ILEC is not required to provide non-discriminatory access to a FTTH loop or FTTC loop on an unbundled basis when the ILEC deploys such a loop to an end user’s customer premises that previously has not been served by any loop facility.
  • Overbuilds. An ILEC is not required to provide non-discriminatory access to a FTTH loop or a FTTC loop on an unbundled basis when the incumbent LEC has deployed such a loop parallel to, or in replacement of, an existing copper loop facility.
  • ILECs are no longer obliged to supply UNE platform offerings;
  • ILECS are not required to preserve existing rented local loops or offer rivals substitute products when they replace their copper loop access with fibre; and
  • there is a requirement for ILECs to supply rivals with access to all except the largest office blocks using DS1 or DS3 circuits. However, there is no requirement to offer dark fibre.

These rules are subject to 12-18 months transition periods to give the CLECs time to negotiate commercial terms or make alternative arrangements for supply. During this period, an ILEC is not obliged to supply new UNEs.

In the Triennial Review Order, the FCC emphasises that marketplace realities of robust broadband competition and increasing competition from intermodal sources eliminating unbundling requirements for broadband architectures serving the mass market. The outcome of the Triennial Review Order was therefore the limiting of unbundled access.

More generally, the Commission has endorsed facilities-based competition and only required unbundling where carriers genuinely are impaired without access to particular network elements. According to the FCC, its approach provides the right incentives for both incumbent and competitive LECs to invest rationally in the telecommunications market in the way that best allows for innovation and sustainable competition.

As noted by Commissioner Michael Powell:[8]

Deep fibre networks offer consumers a ‘triple play’ of voice, video and data services and an alternative to cable. By limiting the unbundling obligations of incumbents when they roll out deep fibre networks to residential consumers, we restore the marketplace incentives of carriers to invest in new networks.

However, the move has not been without controversy and there are clear opposing views. For example, Commissioner Michael Copps takes the opposite view:

I don’t believe competitive telecommunications have been faring very well under our watch and this particular proceeding strikes me as yet another in a series of prescriptions this Commission is willing to write to end competitive access to last mile facilities…

The loop represents the prized last mile of communications. Putting it beyond the reach of competitors can only entrench incumbents who already hold sway. Monopoly control of the last mile created all kinds of problems for basic telephone service in the last century, and now we seem bent on replicating that sad story for advanced services in the digital age….

It doesn’t take a compass to see what direction this is heading. With fewer and fewer loops available to competitors, more and more control will be wrestled away from consumers and placed with the entrenched owner of the last mile facility. By shutting off the last mile to competitors, the Commission is not ushering in a new era of broadband. It is returning to the failed and non-competitive policies of the past.

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