New Technology, Old Rules?
Wrangle grows over applying Telecom Act to new technology
By Karen Brown
from the May 21, 2001 issue of Broadband Week
SBC Communications Inc.'s new direct fiber connection initiative looks to be the next battleground in the growing debate over whether older regulations should apply to new telco architectures. And the results will have a significant impact on how telcos deploy broadband.
While Bell operators are lobbying to have regulatory restrictions of the 1996 Telecommunications Act lifted from fiber-to-the-curb and other advanced network designs, competitors worry that deregulation will create a fiber barrier between them and consumers.
SBC recently outlined plans to begin using two technologies--passive optical networking and wave division multiplexing--to extend fiber directly into businesses from the remote DSL controllers that are central to its Project Pronto mass market broadband deployment.
The strategy eventually may extend to include new residential developments and apartment buildings, but that depends on the regulatory environment. SBC's chief technology officer, Ross Ireland, says that if regulators decide the fiber-to-the-home architecture must be unbundled or offered for wholesale access for competitors, the resulting loss of potential revenue would not offset the fiber cost or the risk. So the company says it will pursue the technology only if federal regulators allow the system to remain closed to competitors.
"We are struggling a bit on that and frankly, we have got to wait for a signal to say we are open to that," he says. Ireland adds that the Baby Bell has not approached federal regulators about that matter ... yet.
SBC has been involved in a wrangle with regulators for some time over its $6 billion Project Pronto plan to extend the reach of DSL via remote DSL access multiplexers into neighborhoods. The company argues that 1996 Telecommunications Act requirements, which let Baby Bells get into the long distance market as long as they opened central offices to competitive carriers, does not apply to access equipment located outside their central offices.
That battle already has come to a head in Illinois, where state regulators ruled the telecom act did apply to the remote DSLAMs.
"We got a pretty onerous ruling in the state of Illinois," Ireland says. "We have stopped the deployment of Pronto in Illinois. The regulatory ruling required that we unbundle that technology in such a way that frankly it just wasn't economic for us to deploy it under those terms and conditions. We're hopeful that they will come back to us, and in fact ultimately give us an opportunity to build there."
Jason Oxman, legal counsel for competitive DSL provider Covad Communications Inc., says arguments to exempt new technologies from the 1996 law are being heard increasingly on Capitol Hill.
"The answer to that question clearly is 'No' -- Congress had no such intent," Oxman argues. "If they intended that, they certainly would have put it in the Act."
What Congress did intend was for competitors to have access to the core bottleneck monopoly facilities, and those essentially are central offices, colocation facilities and the local loop plant, Oxman says. But recently, the RBOCs increasingly have been arguing that they shouldn't have to give access to new facilities because the equipment was installed post-1996.
"So if a loop is, on Tuesday afternoon, copper all the way from the customer premises to the central office, and on Wednesday morning it is half fiber and half copper, does that mean that the competitors can no longer serve that customer?" Oxman asks. "No, it just means that competitors have to serve that customer via a different technical means and they have to pay a little bit more to the ILECs because the fiber costs a little more to put in the ground. If the ILECs are right and they don't have to provide access to new things they put in the ground, then they would actually be able to systematically cut off access to loops, simply by migrating them to a different architecture. And that's clearly not what Congress intended."
Competitors don't have a problem with ILECs wanting to keep advanced network gear to themselves in a data-only network, according to Jonathan Lee, the Competitive Telecommunications Association's vice president for regulatory affairs.
"The reason we complained about Project Pronto was not because it would provide increased functionality to end users, but rather that it would render obsolete, or wasted, or stranded certain CLEC investments. There is a way for SBC to make these network upgrades in a way that accommodates existing CLEC network infrastructure investment. And that's the way the law says that they have to do it."
Cost
One major argument for cutting competitive access to new technology is the cost of the upgrades. Section 252(d)(II) of the Telecom act calls for unbundled services to be sold for cost plus "reasonable profit." But with regulators ultimately deciding what that profit should be, the RBOCs argue they run the risk of diluting revenue at a time when stockholders are demanding profit.
"A lot of the debate is on how that is determined and what goes into the cost numbers," says Randy Sanders, director of network and technology matters and federal regulatory for BellSouth. "I think the important thing is to be able to make a fair return on our investments. The need for us to have the ability to provide advanced services and advanced networks needs to be as unencumbered as possible because the more regulation you have involved in the process the more it hampers our ability to put the stuff out there because it's already accepted to do, there's already a limited supply."
But Oxman argues the problem is the incumbents are not holding to reason when it comes to profit.
"The problem is the LECs don't want a reasonable profit--they want a monopoly profit," Oxman complains. "They want to go back to the old days of pre-1996, when they were in charge of their networks and there was no unbundling, and nobody could get access to their facilities. They want to essentially price competitors out of the market."
Lynda Starr, vice president of U.S. carrier research for Probe Research, also finds the telco argument unconvincing.
"Once the Bell operators are building them, it doesn't cost them that much more to open it up, and then they recover the cost from the CLEC. They charge them for the space," Starr points out. "They gain the wholesale business that they didn't have before, so it makes up for any kind of loss in traffic that they may have."
Joint venture?
Lee, meanwhile, argues that if cost is such a concern the RBOCs don't seem to be looking for help. He says the incumbents have never turned to competitors to help build the networks and distribute the financial risk.
"If the CLECs--the competitive network operators that interconnect with SBC--if they were given the opportunity to participate as co-ventures in the shared public network, they don't have any problem paying their fair share. They pay it today," Lee says. "It's not like other people are consulted or other people are given the opportunity to share this. The idea that by undertaking this fiber deployment he (Ireland) is really taking his life in his hands with some kind of grave risk to their shareholders is a little bit hard to believe."
BellSouth's Sanders says to his knowledge, no competitive carrier ever has offered to help pay for upgrades. Even if they did, the ownership snarls that could result would make the RBOC wary of such an arrangement.
"And you could see then that if somebody did do that they might exercise their property rights and want to keep one of their competitors off," he speculates. "ILECs are much more regulated than our competitors are. So if you put a highly regulated company together with an unregulated company with joint ownership, it could get weird."
For now, the friction over new services and older regulations shows no sign of ending soon.
"It's always been the RBOCs' idea to resist regulation--to resist having to open their networks," Starr observes. "They will take whatever kind of legislative steps ... you know, get the lawyers out there and fight the action. So I don't think there is anything surprising about this. But the Telecom Act still stands."
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