XO, Granite Criticize Proposal to Relieve AT&T, Others of 'Outdated' Regulations

By Josh Long

Later this month, the Federal Communications Commission will vote on an order partially granting a petition that would free AT&T and other phone giants from regulations that have become “outdated,” according to FCC Chairman Tom Wheeler.

“These rules were adopted to protect or expand competition, but technological and market conditions have changed dramatically, making many of these rules outdated,” Wheeler wrote in a Nov. 25 blog. “Removing them will promote the ability of local phone companies to build out broadband and invest in modern and efficient networks.”

Some competitive phone carriers that lease portions of the incumbents’ networks, including Granite Telecommunications and XO Communications, have opposed the requests for relief.

The petition for forbearance was filed by the Washington, D.C.-based United States Telecom Association (USTelecom). The FCC intends to vote on the item during its Dec. 17 meeting.

Wheeler said the petition would particularly benefit the three remaining Baby Bells. They include AT&T, CenturyLink and Verizon, whose operations date back to AT&T’s 1984 divestiture of its local operating companies.

USTelecom President Walter B. McCormick welcomed the development.

“While more remains to be done to update communications regulation to reflect the realities of today and to level the playing field among wireline, wireless and cable competitors, we applaud Chairman Wheeler for recognizing the importance of giving wireline companies greater freedom to compete, innovate and invest their capital efficiently in modern networks,” McCormick said. “We urge the full Commission to adopt the reforms proposed, and to continue to eliminate antiquated requirements that distort the market, ultimately to the detriment of consumers.”

USTelecom’s petition seeks relief from certain obligations under Section 271 of the Telecommunications Act of 1996, which permitted Baby Bells to offer long-distance services if they opened up the local markets to competition. The petition also seeks relief from a “requirement to provide a 64 kilobits per second (Kbps) voice channel over fiber where copper loops are retired,” according to USTelecom’s Nov. 17 filing with the FCC.

CLECs Balk at Request

Granite Telecommunications cited harms that would occur if the Baby Bells or so-called Bell Operating Companies no longer had obligations to provide unbundled network elements (UNEs) and 64 Kbps UNE loops. Through wholesale voice agreements with incumbents, the company serves 86 of the Fortune 100 companies, according to a Nov. 12 FCC filing.

“Granite is able to negotiate viable wholesale voice agreements with BOCs because the Regulatory Backstop limits the extent to which the BOCs can exercise their market power over wholesale business voice services,” the company said in the filing.

But if the relief requested by USTelecom is granted, Granite argued, it would have to …

… purchase nearly all the business-exchange lines on a resale basis under a separate section of federal law, which would render its business model unsustainable.

“Were Granite and other competitive LECs to be foreclosed from offering services provisioned with incumbent LEC wholesale lines, significant consumer welfare loss – estimated at between $4.443 billion and $10.168 billion – would result, and insufficient competitive alternatives are available to ameliorate this harm,” Granite declared.

XO Communications, another competitor in the business market, urged the FCC to deny various portions of the petition; for instance, XO opposed USTelecom’s request that the FCC forbear from applying regulations that bar price-cap local exchange carriers from offering TDM special access services and tariffed enterprise broadband services under contract tariffs.

USTelecom’s petition, XO argued in an FCC filing, seeks to “bypass” a separate FCC review on special access services by asking the agency “to grant pricing flexibility in all locations regardless of whether there is competition in the provision of the affected services.”

USTelecom Responds to Granite Critique

USTelecom recently brushed aside Granite’s criticisms, arguing the FCC has refuted its “imagined ‘regulatory backstop.’”

“UNE-P replacement products are the result of marketplace conditions that have enabled negotiated commercial agreements that serve the best interests of Granite and incumbent providers,” USTelecom wrote in a separate FCC filing. “Regulatory obligations did not cause these agreements, and they do not ‘backstop’ them.”

In support of USTelecom’s petition, Verizon cited plummeting demand for legacy voice services and unbundled analog voice loops.

The “costs of unbundling a 64kbps voice-grade channel over fiber are so high that they threaten to impede ILECs from retiring copper,” the company proclaimed in an FCC filing, and Verizon added “the small subset of customers who still purchase voice-grade only service can continue to obtain that service from other providers or CLECs.”