Report: FCC Competition Rules Hurting Consumers

Consumer costs associated with low federal unbundled network element (UNE) and UNE-P (platform) rules imposed by the Federal Communications Commission (FCC) significantly outstrip any consumer benefits, according to a new study released Monday by the Competitive Enterprise Institute (CEI) and the New Millennium Research Council (NMRC).

The report by Stephen B. Pociask, president of the IT public policy firm TeleNomic Research, shows that current UNE and UNE-P rules cost the average American household more than $100 each annually, versus actual per-household savings that would result under a regulatory structure permitting greater competition.

Pociasek said the benefits gained by consumers as a result of current local competition policies are estimated to be more than $11 per household each year.

The report comes at a time when the FCC is poised to release its final report and orders relating to its Feb. 20 decision to require the Baby Bells to continue to share their local copper wires with independent local exchange carriers (ILECs). The ruling also freed the Bells from having to share their high-speed fiber lines with broadband competitors.

The Telecom Act of 1996 required the Bells to “unbundled” parts of their networks and make them available to ILECs. The Act was intended to create local telephone competition. In May 2000, a federal appeals court overturned the FCC’s UNE rules and required the agency to reissue rules by Feb. 20 based on market conditions.

The Bells argued that the local competition regulations have put them at a competitive disadvantage with cable companies that are not required to share their lines with rivals. They also contend the current rules have stymied investment in new fiber networks and have given the cable companies an unfair advantage in rolling out broadband service. Cable companies currently control almost 70 percent of the U.S. broadband market.

The FCC ultimately decided not to free the Bells from local competition rules and to let the states decide when unbundling sould occur.

“If low UNE and UNE-P prices were intended to save consumers money, they have been a dismal failure,” Pociask writes in the new report. “Because UNE-P regulations are usurping market forces and harming facility-based competitive and incumbent carriers, these regulations have created more harm than good for consumers. The report also shows that competitive carriers are abandoning their facility investments in favor of leasing network elements from incumbents at predatory prices.”

The report says that in December 2000, 37 percent of CLEC lines were UNE-based. Today, according to Pociask, 80 percent of CLEC lines are UNE-based.

“If UNE prices are being set below costs, these prices are by definition predatory prices,” the report states. “If wholesale prices are predatory, then CLECs will not investment in telephone infrastructure, because the CLEC’s cost of investment exceeds the ILECs’ (i.e., the Bells) wholesale prices.”

Solveig Singleton, senior policy analyst at CEI, added, “This study provides significant empirical evidence that UNE pricing fosters the dependence on the lonely, aging, local phone network, rather than real competition between different networks. Competition is about real choices for consumers, and regulators will find it increasingly hard to deny that endlessly repackaging the same service will get us there.”

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