All-IP Switch by AT&T, Verizon Could Shut Out CLECs

By Ellen Muraskin

Charlie Pagliazzo is vice president of channels and Samuel Kline is senior vice president, corporate strategy, at competitive carrier Granite Telecommunications. Channel Partners spoke with them this week on their work in ensuring that incumbents don’t lock or price CLECs out of access to their customers, once they switch to all-IP networks.

Channel Partners: We’ve heard a lot about competitive carriers’ concerns regarding access to business customers once incumbents switch out of TDM and copper. What’s the latest on Granite’s and Comptel’s activities in support of competitive access to IP networks after incumbents retire their traditional local loop?

Charlie Pagliazzo: We are this Friday meeting with [FCC] Chairman Wheeler and Commissioners [Ajit] Pai,  [Michael] O’Reilly and [Mignon] Clyburn at the commission to discuss this.

Samuel Kline: The issue is, so many of our customers are now served by POTS or DSL or Ethernet over copper.  If whoever owns that wants to upgrade to some other, less expensive facility  — because what they’re basically saying is that it’s too expensive to maintain the copper anymore — we say, Go for it! 

The problem, from our point of view, is them saying that, “Whatever that new facility is, it uses an ‘IP’ protocol. And as soon as you have the word ‘Internet’ in there, it isn’t regulated. And as soon as it isn’t regulated, we don’t have to give it to you anymore.” So — no more competition.

We went to the FCC and said we have a problem with that. We did a fairly exhaustive study, and it turns out that in somewhere between 50 and 80 percent of the country, we, the competitive carriers, are the competition. There is simply nobody else. If we went away, our customers would have no alternate choice.

When they built their networks, the cable guys focused on residential customers, so when you serve businesses, there is [usually] some construction cost to run cable to serve that business. In that study, we looked at cable, and cable falls into three categories in general. The first is areas in which cable companies can serve businesses without construction costs — these are metropolitan areas. The second is areas in which …

… it can be done for a per-business cost of around $3,500 — the pain point we picked as meaningful, because quite often, you can negotiate that amount and find some way to serve the customer at that price. The third category is areas in which construction costs go over $3,500.

In around 30 percent of locations, cable can just serve them. If you’re willing to pay a $3,500 construction cost, you can drive it up to 50 percent of locations. After that, we’re going to assume cable isn’t viable. In those cases, the only solution you have — and for most of our customers, wireless’ data cost is too high when you start to pay by the bit — then you have just the LEC or the Granites — i.e., us, the competitive carriers. So if you try to change the rules so that the competitive carriers go away, you essentially create a monopoly in somewhere between 30 and 80 percent of the country. We went to the FCC with the data.

CP: And their response was … ?

Kline: The FCC said, “We get it. Our intent is certainly not to do away with all the competition.” So they have to come up with some reasonably comparable solution, which is what they had in their new language [in proposals Wheeler released July 10].

CP: That’s due to come under consideration at a commission meeting Aug. 6, for a temporary ruling. Then “special access” — i.e., business telecom services — will be examined more thoroughly at a later date. What would it mean for agents if the FCC voted the “wrong” way?

Kline: Well conceivably, over time, if an agent sells a copper-based service that a competitive carrier gets from one of the LECs, as the LEC replaces it with some other facility, they can, if they desire, put you out of business.

Pagliazzo: Agents need multiple providers in order to come up with the best solutions for their clients. It’s pretty clear what it’s like if you’re an agent of only a Bell company. It’s not a knock, but the agents can speak to the changes they see on a regular basis in their compensation plans  and what they can sell from the Bell companies. The interest here is not only to agents, but to the competitive providers that give agents so many more options than they  would have if it were strictly an AT&T-Verizon party.

CP: I’m sure the competitive carriers point to the [1996] Telecom Act and the rulings on unbundled network elements as a precedent here.

Kline: Sure, but those rulings specifically refer ..

… to TDM.

CP: Yes, but the purpose was the same, wasn’t it?

Kline: Well that’s our argument, and that’s what we went to the FCC for. The problem is that when they wrote these rulings, nobody envisioned IP technology.  In hindsight, they would have worded it a little differently. The FCC, in their wisdom, understood that the intent was to ensure competition, and not to enshrine a particular technology. 

AT&T is sponsoring two trials right now, one in Carbon Hill, Alabama, and one in south Florida, in trying to retire the copper and see how it goes. They have specifically not allowed competitors to be involved. It’s not clear what’s going to happen when this really takes off, which should be in the next year or so.

CP: I saw something in my email today about Canada and competitive access. Do you know if that serves as any predictive model?

Kline: Canada has always lagged us as far as having a serious competitive base. I was in Ottowa last month; they’d like to see a more robust competitive market there, and their CRTC, which is their equivalent of our FCC, is due to rule on stimulating competition.

CP: What should agents do in the time before the FCC rules?

Kline: As quickly as they can, agents should contact the FCC and urge their representatives to contact the FCC. Mention that the idea of maintaining competition and alternate channels is important. Republican commissioners are especially sensitive to the idea of competition. If they make the point that this is the opportunity to maintain competition in the industry, I think that will resonate.

Pagliazzo: Every day we go head-to-head with some of the competitors out there, and we all fight for the same agents and clients. But in this case, you see a significant number of the people who will be displaying at Cloud Partners, for example, as providers, united on this front.