INTERVIEW: FCC Chairman Michael Powell

Posted: 04/2002

FCC Chairman Michael Powell

By Fred Dawson & Kim Sunderland

IN ADVANCE OF FCC CHAIRMAN Michael K. Powell’s keynote presentation in March at the Competitive Telecommunications Association PHONE+ editor at large Fred Dawson and contributing writer Kim Sunderland spoke to the head of the nation’s telecommunications regulatory body regardingcompetition and regulation. The following is a partial transcript of that discussion concerning Powell’s views on
UNE-P.

Q: [Something] that you’ve alluded to in the past with regard to your leanings towards facilities-based competition, is the phenomenon of the unbundled network and, of course, the BOCs’ ongoing strident resistance to that concept but nonetheless doing it because they have to in order to get their 271, etc. Nonetheless, there seems to be a growing urge on their part to come back and say, “This is just wrong; it doesn’t work. We support facilities-based competition.” Yet what we’re seeing in the marketplace is that the whole UNE-P concept is starting to be embraced out there, and it’s starting to generate some business. How do you look at it now that it’s had some time to gestate and percolate out in the marketplace? Might it do something to foster competition, to really move things ahead? Or is it kind of in the way?

A:
I guess the accurate answer is “neither”

really because, you know, sometimes I think we overgeneralize. You know, “is unbundling a good thing or a bad thing?” Well to some degree, of course, it’s a good thing. The real issues are about how many things and how deeply you do that. If you have a preference for facilities-based competition, and

I make no apologies for being committed to that because I think it’s important to give consumers a truly differentiated choice, an opportunity for innovation. I think it’s an important and viable competitive threat that there are other infrastructures competing with the phone systems so that the phone system can’t [dominate] … we wring our hands about the proposition of being so reliant on the big bad incumbent for our facilities and the price is never low enough and they won’t let us go to the bathroom when we’re there connecting. You know there’s a million ways to Sunday to get beaten up by an incumbent that’s not particularly interested in helping you compete.

What we see is that you can get real heat on them though when somebody is less dependent on their competitor. So I think the more facilities that you can bring to the party, the more long-term viability you have as a competitor; it’s better for consumers and less dependent on the incumbent to sort of help mitigate their ability to frustrate the objective. So I actually think it’s a very pro-competitive position.

Now we have never suggested, and I think it’s kind of hyperbole to suggest, that somehow there should never be any unbundling, at least in this period of time, to any element of an infrastructure. I think that usually what’s really being argued over is how many pieces and at what price.

At one end you sort of have a UNE-P notion, which is sort of basically everything reassembled, and really is not functionally different from reselling service. It’s actually sort of a legal construct right? I mean they’re elements but they’re immediately reassembled so they’re not really elements but they’re … the only thing it is the price issue. You get basically the incumbent’s network for a cheaper price than you would get it by calling it resale and being something different.

So I think what we have to look at, and I don’t think there’s anything remarkable about this because I think the statute is very precise in saying that we have to, because it says that unbundled network elements have to be “necessary” or “impair.” And, we’ve already been remanded once by the court for not being fully faithful to that point. So we will always be in the area of “does an entrant really need this element” or “can they go get it themselves?” I don’t think anybody should have to argue about the proposition that if you can go get it yourself at a reasonable price and availability, why should you get to get it from a competitor? Why shouldn’t you have to go out in the market and get it? I think the statute says that, and I think that’s what we wrestle with.

The other thing I would say, and I know I’m being long-winded, but the problem I think we have in the law is we’re always looking for a one-size-fits-all solution. The truth to it is the case for something like UNE-P is more compelling for certain kinds of markets and business models than it is for others. And what we’re trying to do in our proceedings, like nondominance, is to try to create more granularity in our policy judgments. So I’m not embracing this but, for example, you might make a very compelling case that if you’re trying to serve residential consumers you ought to have easy use of UNE-P platform. But if you’re competing with high-volume business customers why should you? I mean, that is a very competitive market with many assets available; it’s a very different context.

Part of what I think is policy’s problem right now is it always wants the same rules for all of that. The problem is the circumstances aren’t the same for all of that. So we end up being driven by the lowest common denominator, which I think ought to upset both incumbents and CLECs depending on which common denominator you pick. So if I had my way, we’d have much more precision and I’d be able to say, “In these kinds of markets, where this kind of carrier has this kind of dominance, we’ll tend toward greater access to infrastructure because it’s more difficult. But where we see situations where we think carriers can bring their own facilities to the party and there’s no real barrier other than they’d like to have a cheaper deal — you know that’s not our business to do, to favor your model over someone else. You’ve got to go to the marketplace to solve that problem yourself.”

Q:
Do you think you have the latitude under the laws that now exist to make those kinds of distinctions?

A:
We think so. I think the only fair thing to say is that we think we have more than we’ve ever explored. And so what we’re doing is initiating the kinds of proceedings that allow us to ask those questions and develop answers to that. I think that inside the building there’s sort of an impulse that believes that we can. But we need to ask those questions and get a record and examine how it would be done. We couldn’t do it precipitously. But look, we did it in long distance. We needed dominance and nondominance as principles for whether you had to tariff or not tariff. Isn’t that kind of what we’re about? Isn’t that kind of, for example, even the incumbents’ argument? You might say, “well, we’re dominant after this, but not dominant after this, shouldn’t we have different treatment?” Without agreeing with their argument or not, you can agree with the construct. You know, what is the government’s justification if you weren’t a dominant carrier for compelling access to your investment? The government, I think, would have a duty to answer that question.

Q:
Getting to that point I guess requires a certain amount of cooperation at the state level, too, given the uniform way in which tariffs are applied?

A:
Yes, I think that one of the most under-reported and under-understood challenges and a problem in this area is federalism. That there is no single federal policy that in and of itself solves all of these problems because many of these areas are vested and, arguably rightfully so, depending on your view, in other jurisdictional authorities. [For example,] universal service issues about what retail costs are permissible. You know the federal government doesn’t regulate local retail rates for telephone service, the state governments do. And in any economic system, every part of the price chain matters.

So, for example, there’s been talk for years about rate rebalancing. I happen to believe strongly if a state doesn’t take on seriously the question about how to examine the issues of rate rebalancing, it’s all for naught. You don’t know how many competitors are going to find a way to compete successfully if they can’t get their retail rate at some level of economic reasonableness because then that puts pressure on, or will make the wholesale rate confiscatorally cheap (Laughs) in order to compensate for what’s really the problem, which is a retail rate that’s too constrained. See California energy crisis 19 … you know …

That’s kind of the stress on the system. Universal service issues, rate-rebalancing issues, all kinds of other issues of reform, are ones that really respectfully are in the states’ jurisdictions. So there are tensions, which are healthy, and we work really closely with them.