U.S. Rep. Billy Tauzin (R.-La.), chairman of the House Energy and Commerce Committee and co-author of the controversial Tauzin-Dingell bill in the 107th Congress, called the implementation of the 1996 Telecommunications Act a “failure” in a letter to the Federal Communications Commission (FCC) this week and urged the FCC to “remove regulatory impediments” to spark investment in the slumping telecom sector.
The FCC is expected to issue a ruling on Feb. 13 that will revise the rules imposed on the regional Bell operating companies (incumbent local exchange carriers, or ILECs) to lease their lines and switching equipment with competitors (competitive local exchange carriers, or CLECs) at steeply discounted rates.
The requirement was mandated under the 1996 Telecommunications Act to foster competition between the former monopoly Bells and rival carriers who wanted to enter the local voice market. The CLECs say the regulations are critical to their continued financial viability after investing $50 billion to enter the telecommunications markets.
The Tauzin-Dingell legislation would have allowed the Bells to limit access of their DSL circuits to competitors and impose a ban on FCC or state regulation of the rates, conditions for, or entry into high-speed Internet service. The bill passed the House but failed to generate any interest in the Senate.
When Tauzin’s legislation failed, the debate moved to the FCC, which is currently considering restructuring its rules as part of the agency’s mandated Triennial Review of telecom policy and regulations. Through a series of well placed leaks and public interviews, FCC Chairman Michael Powell is said to be leaning toward not requiring the Bells to share their lines when they build new networks, but they would be required to continue to share their legacy copper wires.
That plan is in sharp contrast to a trial balloon floated by Powell just two weeks ago that indicated the FCC was considering freeing the Bells of any line sharing requirements.
At the heart of the issue is whether the Bells have met their obligations to remove barriers to entry into the local voice market and did the Telecommunications Act anticipate that the Bells would have to share their lines for advanced voice and data services when it was written six years ago.
The Bells have argued the regulations have put them at a competitive disadvantage with cable companies that are not required to share their lines with rivals. The Bells contend the current rules have stymied investment in new fiber networks and have given the cable companies an unfair advantage in rolling our broadband service. Cable companies currently control almost 70 percent of the U.S. broadband market.
“Congress intended the Telecommunications Act of 1996 to promote choice and competition for local exchange and other services — ultimately through facilities-based competition,” Tauzin wrote in his letter to Powell. “Rather than fostering facilities-based competition, the FCC’s local-competition rules have encouraged CLECs to rely exclusively on networks owned and operated by ILECs to provide services to residential consumers.”
Tauzin said Telecom Act prescribed three methods of competitive entry for CLECs: (1.) reselling an ILECs service; (2.) using a CLEC’s facilities exclusively; and (3.) using a CLEC’s facilities in combination with an ILEC’s facilities through the purchase of unbundled network elements from the ILEC.
But, Tauzin wrote, the FCC “distorted” the Act when it created a fourth method of entry by creating what is known as the unbundled network element platform (UNE-P). Tauzin said that was in essence a “back-doorway” to force the Bells to resell all network elements to competitors. Tauzin characterized this fourth option as a “regulatory fiction.”
“To further exacerbate the problem, the FCC developed a pricing model for the UNE-P that is based on a hypothetical cost model rather than on actual operating costs,” Tauzin said. “The hypothetical model permits CLECs to lease network elements at a price that is lower than what it cost ILECs to purchase and maintain the elements.”
Calling the UNE-P rules a “disincentive” for the CLECs to invest in their own networks, Tauzin added, “No competing carrier has an incentive to risk capital and invest in its own facilities when it can simply lease an ILEC’s network elements at below-cost prices and resell the service.”