Achieving Competition in the Local Loop

Achieving Competition in the Local Loop:

The Case for Structural Separation

by Rick Casey

A non-technical paper submitted to the 1999 Student Paper Competition

sponsored by the International Communications Association

in the topic category Status of Public Policy

January 26, 1999

 

 

Table of Contents

Executive Summary

Section 1: Introduction

Section 2: U.S. Telecommunications Policy and the Local Loop




• Section 2.1 Events Prior to the 96 Act
  
• Section 2.2 The Telecommunications Act of 1996
  
• Section 2.2.1 The Components of Local Competition
  

Section 3: Current State of Local Competition




• Section 3.1 Market Trends
  
• Section 3.1.1 Anecdotal Evidence
  
• Section 3.1.2 Evidence from the FCC 2nd Survey
  
• Section 3.1.3 New products and services from CLECs
  
• Section 3.2 Policy Trends
  
• Section 3.2.1 Trends among the ILECs
  
• Section 3.2.2 Trends among State PUCs
  

Section 4: The Case for Structural Separation




• Section 4.1 Reasons for and against separation
  
• Section 4.2 The natural monopoly question
  
• Section 4.3 The Illinois NOI
  

Section 5: Conclusions




• Section 5.1 Policy objectives of structural separation
  

Epilogue

Glossary

Appendix I

Appendix II

References

Websites

Endnotes

Executive Summary

This paper examines the current state of competition in the local loop (as of fall 1998) from a public policy perspective. The thesis is that one of the central policy aims of the 1996 Telecommunication Act, to develop competition in the local exchange market, is failing. The reasons for this failure suggest how the policy could be revised. The history of the legal and regulatory changes concerning competition in the local exchange market is reviewed, which illustrates the difficulty of this issue.

Current data from the FCC and a survey of the literature document the lack of competition in this market since the 96 Act. The lack of competition and the numerous legal challenges from the incumbent local exchange carriers suggest reconsidering how the local competition regulations are constructed. The most radical solution (but perhaps the correct one) would be new legislation that requires structural separation of the regional Bell operating companies into separate companies that maintain the local loop infrastructure and that provide local exchange service.

Section 1: Introduction

In a way, opening the local loop to sustainable competition may be viewed as the culmination of regulation of the telecommunications industry. If successful, this will be a crowning achievement in the long, contested history of telecommunications regulation; however, success is far from assured. Indeed, it is still an open question if providing local telecommunication services is a normative, natural monopoly; if so, structural separation of the phone companies could become an issue once again.

In a bold and innovative move, the Congress ruled in the 1996 Telecommunications Act that the local loop should be opened up "...on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory." The FCC has attempted to carry out this mandate by defining what unbundled elements are and carefully guiding the state PUCs in the pricing of them. However, these policies have become mired in a host of difficulties, resulting in little competition in the local loop. This paperís thesis is that the policies meant to stimulate local competition are fundamentally flawed and need to be reconsidered. In particular, we will examine a proposed radical solution to the problem: structural separation of the Regional Bell Operating Companies (RBOCs).

Solving the local loop problem is the sine qua non for achieving the full potential social benefits of telecommunications. This is particularly true for the Internet, which is rapidly achieving de facto status as the only viable long term platform for a global network. Until end consumers, residential and business, enjoy a high bandwidth connection to the Internet, it will be hobbled and underutilized. It is also clear that an unfettered laissez faire market solution under current conditions could result in a very undesirable imbalance of access. This would have disturbing long term implications for creating social unrest as we enter the 21^st century in an overcrowded world. As such, overcoming the local loop barrier should remain a vital goal of both U.S. and foreign telecommunications regulatory policy.

Section 2: U.S. Telecommunications Policy and the Local Loop

Section 2.1 Events Prior to the 96 Act

Opening the local loop to competition was a fundamental justification underpinning the 1984 Modified Final Judgement (MFJ), the antitrust case that divested AT&T of its Regional Bell Operating Companies (RBOC). Twenty-two existing regional operating companies within the AT&T organization were grouped into the seven RBOCs to create companies of more competitive size. The other conditions that were considered necessary to apply to the RBOCs to foster competitive markets in local exchange services were:

• Adopt price cap regulations to encourage innovation


• Lower barriers to entry sufficiently to attract firms to compete


• Prevent predatory pricing


• Prevent cross-subsidization of services


• Ensure that competing firms could offer services of equivalent quality

These conditions were the reason the RBOCs were prevented from being allowed to enter long distance service or from offering information services over their networks. The FCC and the Court wished to preserve these more lucrative markets for emerging competitors. It would be far easier, however, to keep the RBOCs out of certain markets than to entice other firms to enter theirís.

The Computer Inquiries were a series of three investigations by the FCC in 1970, 1980 and 1985 into how the use of digital computers should be regulated. This was caused by the inevitable conflict between the direction of telecommunication technology and the 1956 Consent Decree, where AT&T had agreed not to enter the data services industry. By the 1960s, computers were blurring the distinction between communications and data services. Though barred from entering "enhanced services" (i.e., computer-aided services), telecommunications equipment was becoming more digital for its superior characteristics; additionally, markets were demanding the new information features possible with digital systems. Naturally, the phone companies desired to enter these profitable markets, and it was inefficient from a technical standpoint to totally prevent them from doing so. Thus, the FCC was forced into regulatory decisions on whether and how AT&T and the RBOCs be allowed to enter the "enhanced services" markets.

The FCC and the state PUCs agonized over the dilemma of how to separate communication services from data services, which was necessary to detect cross-subsidization of services and discriminatory access. This was evident in how their decisions changed over the course of the three inquiries. The First Computer Inquiry (1970) ruled that all telephone companies wishing to offer "enhanced services" (i.e. data processing) must do so through separate business organizations on the basis that cost allocation accounting methods were insufficient to detect cross-subsidization and discriminatory access. In the Second Computer Inquiry (1980), the FCC continued its structural separation policy, but restricted it to the Bell companies and exempted all other carriers, which went unchallenged. After the 1984 divestiture, AT&T was free to enter any market, but the divested RBOCs could still not offer enhanced services because they had inherited AT&Tís monopoly power for local telephone service. In January 1984 the FCC began investigation into how the Computer II rules should be applied in light of the AT&T divestiture. The BOCs naturally argued that structural separation was unnecessary, which the FCC rejected. Structural separation, the FCC stated, was the only effective means of detecting and preventing cross-subsidization by the BOCs, and protecting its captive markets from monopolistic pricing. Thus it was quite a surprise when the FCC issued its Third Computer Inquiry in August 1985 that they reversed their requirement for structural separation for the RBOCs, based on the following reasoning:

• Structural regulation was too costly compared to its benefits


• It was an inefficient use of resources from a technical standpoint


• There were insufficient competitors offering similar services


• Divestiture had lessened the BOCís ability to cross-subsidize


• Political pressure and state PUCs could keep down local phone rates


• The threat of discriminatory access had diminished


• Growth of local competition to bypass the local exchange had significantly increased.

The Third Computer Inquiry was swiftly challenged in the California vs FCC case, brought by a broad coalition of industry groups and state PUCs, united in their opposition to the RBOCs to enter the enhanced services market without structural separation. The court decided in their favor, reversing the FCC Order on many points because the FCC was "arbitrary and capricious" in its actions and did not provide sufficient evidence for its decisions. However, the court let stand the FCC order not to require structural separation on the grounds that the record supported the FCCís claim that structural separation would be too costly and that technical advances improved the ability to detect discriminatory access.

Section 2.2 The Telecommunications Act of 1996

The 1996 Telecommunications Act (hereafter, the Act) was the FCCís break with the past. It ended an era of shielded monopolies to provide phone services, and began an era of open competition ñ at least, such was the goal. How was this to be accomplished? The FCC envisioned three paths of entry into local markets by competitors:

• full facilities-based entry


• purchase of unbundled network elements (UNEs)


• resale of the incumbent's retail services

None of these avenues have developed to any significant extent, as we will see. This three-pronged strategy for opening competition in the local loop is part of a long range vision of an intelligent, open network of the future, called ONA, or Open Network Architecture. By stimulating local competition through UNEs, the FCC aims to prod the ILECs towards innovation towards the distant goals of ONA.

Section 2.2.1 The Components of Local Competition

The principle components of the 96 Act pertaining to competition in the local loop are Unbundled Network Elements (UNEs), Open Network Architecture (ONA) and the Local Competition Order.

Unbundled Network Elements are meant to be technically feasible points of interconnection through which competitors can reach consumers. They are defined as:

Specfic Interconnection Points in UNEs

1. Network interface devices


2. Local loops


3. Local and tandem switches


4. Interoffice transmission facilities


5. Signaling and call-related database facilities


6. Operations support systems


7. Directory assistance facilities

This was an ambitious attempt by the FCC to explicitly instruct the ILECs how new competitors requesting access to the phone network be allowed to do so. In practice, this has proven difficult, as we examine in Section 4.

Open Network Architecture is a regulatory goal of the FCC first mentioned in Computer Inquiry III. It is a grand vision of a uniform, open, interconnection network in place of the previously closed, isolated PSTN. Though still a lofty future goal, ONA is quite significant now because it grants the RBOCs "structural relief" from offering enhanced services through a separate corporation. This relief continues as long as the RBOCs file plans on a regular basis with their customers and the FCC about how they plan to open their networks over time. The first plans were filed in February 1988; descriptions of ONA services are published periodically by Bellcore. The purpose of ONA is to unbundle network services located at the switch to allow their use by competing firms wishing to interconnect. In practice, this also has not worked out well. The FCC has allowed ONA requirements to become diluted upon petition from the RBOCs. As such, ONA is not much of an issue until the problems of establishing local competition have been settled, although they should be discussed in parallel for technical compatibility as local competition evolves.

The Local Competition Order is the FCCís implementation of the part of the 96 Act directing the opening up of local competition. This is the fundamental document containing the specific details by which the FCC directed the state PUCs to implement the new law, including technical details concerning interconnection, resale of services, UNEs, obligations of the LECs, reciprocal compensation rules, pricing guidelines, and other details. It was a remarkable feat to have published such complex regulations barely eight months after the 96 Act. However, such haste may be part of the reason the Order has had such difficulties in its implementation, as discussed below.

Section 3: Current State of Local Competition

Section 3.1 Market Trends

Section 3.1.1 Anecdotal Evidence

Since the 96 Act, there is mounting evidence that its policies for encouraging local competition are failing to produce results:

...outside of a few small start-ups...the leasing approach just hasnít worked out as planned...because, the would-be providers [of local exchange services] complain the local phone monopolies charge too steep a price to lease the lines.





The Telecom Act of 1996 was supposed to promote competition, thereby benefitting consumers. Instead,...big businesses ñ not consumers ñ are the only real beneficiaries of the Act...





The Telecommunications Act of 1996 was designed to open the local loop to competition, but progress toward that end has been slowed in a regulatory, legal, and technical morass.

The real activity among CLECs since the 96 Act has been in mergers and acquisitions, driven by the need to become as large as competitor as possible before entering the ILEC local exchange markets. But such activity is a tempest in a teacup compared to the market reality: the total market revenue of all CLECs in 1997 was $3.7 billion compared to the $100 billion total market. Moreover, the structure of the CLEC market itself is quite skewed. The top three firms ñ WorldCom, TCG and MCI Local Services ñ held 44 percent of revenues, and just 12 companies created 70 percent of CLEC revenues.

Given these results, the following considerations come to mind:

1. Has enough time elapsed for the policies to have had their effect?


2. If not, how much more time will be necessary?


3. What kind of data should be collected to track the effects of the policy?


4. If enough time has passed, how should the policies be corrected?

Question 1 turns on economic conditions and investment cycles: have economic conditions have been favorable for investment, and has the market for investment in local exchange service passed through enough cycles to observe its behavior? Generally, economic conditions in the U.S. have been very good between 1996 and 1998; the is overwhelming evidence in the GDP growth rates, low inflation, low unemployment and performance of telecommunication stocks speaks to that. The essential nature of local phone service invalidates a business cycle model for estimating investment in its infrastructure. Thus, Question 2 is unavoidably political in nature; enough time will have passed for observing a policyís success or failure when enough people feel the impulse to act its current results. Question 3 is quite legitimate, and the FCC is attempting to address it, as we discuss in the next section. Question 4 is addressed in our conclusion.

Section 3.1.2 Evidence from the FCC 2^nd Survey

To better understand how competition is evolving in the local loop, the FCC began to solicit data on a voluntary basis from telephone companies using a short survey form. The FCC is conducting surveys of local competition because it

...requires timely and reliable information on the pace and extent of development of local competition in different geographic markets to evaluate the effectiveness of decisions taken to implement the pro-competition provisions and to achieve the universal service goals of the 1996 Act.

The surveys are an attempt by the FCC to measure quantitatively the extent of competition between CLECs and ILECs in the local loop. Three surveys were conducted between February and October 1998. Since the data are voluntary, the responses were somewhat erratic, but the FCC has collected the raw data into several files and made them available at their website. The file from the second survey that contained more responses than others was chosen to summarize, shown in the following table. These data represent four of the five ILECs and three major CLECs, a total of over 118 million phone lines, creating a regionally diverse and substantial sample of the nation's total phone lines.

		TOTALS	PERCENTAGE OF TOTAL LINES IN SERVICE
Total Lines for Resale	Residential	596,548	0.50%
	Non-residential	1,021,155	0.86%
	Total	1,617,703	1.36%
Unbundled Network Element Lines	Residential	0	0.00%
	Non-residential	11,612	0.01%
	Total	161,928	0.14%
Total Lines in Service	Residential	67,239,144	56.58%
	Non-residential	34,411,924	28.96%
	Total	118,833,323	100.00%

As the data show, resale services and UNEs are present in less than 1 percent of the serviced lines. The highest category is in business resale services, as one would expect since this is the easiest path of entry for a new competitor ñ and here the total is just 0.86 per cent of all lines in service in this sample. CLEC competition has just 0.50 per cent of residential lines. This is hard evidence that local competition has barely begun, indeed almost non-existent, at a national level at this time. Though these data are not a statistically rigorous survey, the sample size is certainly sufficient to indicate the character of the market.

Section 3.1.3 New products and services from CLECs

There is limited evidence that new products and services are appearing that would make facilities based entry easier for CLECs. This is indicative that, over time, competitive pressures can provide for innovation, just the kinds of results policy makers were seeking in the 96 Act. New products for CLECs alone, however, are clearly not having any significant impact in creating competitive conditions in the local loop, except perhaps for tapping business markets in large urban areas. The recent purchase of TCI, the nationís largest cable company, by AT&T signifies the most serious attempt thus far by a long distance carrier to enter the local exchange market; however, no local exchange services are expected from this merger until late 1999 at the earliest. Until competitive conditions exist on a nationwide scale, however, we can expect few product and service innovations for society at large. This market evidence is supported by theoretical research that suggests CLECs will adopt strategies that delay such investment beyond what is socially desirable.

 

 

Section 3.2 Policy Trends

Section 3.2.1 Trends among the ILECs

The ILECs have attempted to evade the requirements placed on them under 96 Act, from avoiding interconnection to entering interLATA long distance services ; a veritable forest of lawsuits have been filed by ILECs at what seems every possible opportunity. Such actions suggest a conscious strategy of the ILECs is to avoid the 96 Act by all legal means. In the interest of not wasting resources on legal matters, it would certainly seem that the FCC would benefit the country by revising the local competition orders to reduce or preempt legal challenges from the ILECs.

Section 271 is the part of the 96 Act that stipulates the conditions that ILECs must satisfy to demonstrate that competitive market conditions exist in their local areas. They are not allowed to enter the long distance (interLATA) markets until they have met this requirement. To date, none of the ILECs have yet qualified, though many applications have been filed. For example, Bell Southís recent application for qualification was denied and it highly likely the same story holds true for every ILEC in the country. It would indeed seem the ILECs find it either impossible or highly undesirable to satisfy the requirements, and as such represent a significant problem with local competition policy.

Section 3.2.2 Trends among state PUCs

The FCC has adopted a difficult strategy to implement the Local Competition Order in that it is dependent on the states to implement their order, yet contains many specific guidelines. This has resulted in uneven implementation of the Act across states, placing the ILECs in very difficult situation of trying to operate across states and yet comply with varying regulation. One of the more striking examples has been the direction taken Wyomingís PUC by allowing in-state pricing to rise to unprecedented levels, provoking local consumer protest.

Section 4: The Case for Structural Separation

Section 4.1 Reasons for and against separation

Given the results of the past two years, one must conclude that competition in the local loop is not being achieved at an acceptable pace. From current observations, there is nothing on the horizon that will cause such conditions to change in the foreseeable future; the danger is that current policies could freeze competition in the local loop indefinitely. The "local bypass" envisioned by cable and wireless services has not had a significant effect in local exchange markets. The reason for this, of course, is the control that the ILECs have over essential resources in the local loop. Though the 96 Act attempted to create competition in the local exchange market with explicit instructions how the ILECs must allow interconnection, it would appear these are necessary but not sufficient conditions to foster competitive market conditions. The current situation is an undesirable morass of regulatory challenges, confusion at the state PUC level, and rising consumer dissatisfaction with local service, particularly faster Internet connections.

Overly complex regulations suggest that an initial premise was allowed into the rules that should not be there. In this case, the faulty premise appears to be the dual role of engaging in regulated and unregulated services which the ILECs have been allowed to play in the 96 Act and its subsequent implementation. This was, of course, what the ILECs desired and lobbied for during the construction of the legislation: to maintain their common carrier and universal service responsibilities, but open their networks just enough to be considered competitors instead of monopolists. This approach seems fundamentally flawed. It creates a conflict of interest for an ILEC to favor its own retail services and discourage its wholesale services to CLECs desiring interconnection.

Under the 96 Act and the FCCís Local Competition Order, the ILECs have forestalled competition in the local loop through legal challenges, have been able to feign cooperative behavior with the CLECs due to the complexity, vagueness and incomplete nature of the guidelines, while at the same time claiming competitive conditions exist and petitioning for access to long distance markets. In the meantime, society at large is losing out on the benefits that telecommunications technology could offer, a tremendous opportunity cost.

The question of structural separation for the RBOCs bears reconsideration. Structural separation of the ILECs, of course, is not to be taken lightly, as the separation of AT&T in 1984 showed. Inflicting this on the ILECs could have negative results in terms of consumer confusion, disrupted services and or higher prices for local service; however, much has been learned on all sides since the 96 Act. If properly done, it is possible that structural separation could more effectively achieve the elusive goal of competition. Obviously, such a drastic action should not be attempted without a thorough analysis that clearly justifies it. Any reasonable analysis considering structural separation of the ILECs would need to examine the following factors that would argue against separation. This paper did not focus on this area, but certainly these and other possible factors would need to be considered:

• The cost to the ILECs and special financing considerations


• Effect on Universal Service Fund for loss of cross-subsidization


• Consumer confusion


• Disruption of service

 

Section 4.2 The natural monopoly question

Scholars are divided on the question whether local exchange carriers constitute a natural monopoly. Prior to the 96 Act, there was enthusiastic support for the idea that simply legislating competition would unleash pent-up competitive forces in the local exchange market. This school of thought dismisses the idea that the local loop is a natural monopoly:

When coupled with unbundling of the local exchange, removal of the interLATA restriction will create a framework that allows market forces to determine whether services are offered by an integrated or a nonintegrated entity and how different services are priced.

Others are not so sure, particularly the CLECs trying to enter the LEC markets for the last two years:

...perhaps the only way [the CLECs] will get equal access to the local networks...[is to] create ... a separate wholesale operation that would sell or lease parts of their local networks to all carriers, including their former parent.

One characteristic of a natural monopoly is that it is the outcome of an unregulated market. A simple mental experiment suggests the RBOCs are indeed natural monopolies. Imagine that in the next instant that all RBOCs have all restrictions on them lifted, including access to long distance markets. Could anyone seriously doubt that the RBOCs would use their control of local access to their own advantage, refuse interconnection to competitors just as AT&T did earlier in this century?

Another characteristic of a natural monopoly is that it is the most efficient market structure. There is a case to be made that this is true for the local loop. No one realistically expects new competitors to lay new lines to connect end consumers to the CO (Central Office). The sunk investment in the physical plant of the local loop is perhaps the greatest barrier to entry the ILECs possess. Since it would clearly be inefficient for new entrants to install new lines, this supports the natural monopoly hypothesis.

If the local loop is a natural monopoly, then separating the local exchange into distinct retail and wholesale operations, where the wholesale operation remains a regulated monopoly, should create more competitive conditions for CLECs wishing to enter the market. This experiment may have already been successfully demonstrated. Southern New England Telecommunications Corporation, the ILEC serving most of Connecticut, voluntarily split itself into retail and wholesale entities in order to qualify for access to interLATA markets. Moreover, they appear to be doing quite well, as they were recently acquired by SBC Communications Inc. of San Antonio, Texas. This example of structural separation in action is strong evidence the approach can work, and should be studied for its research contributions to any structural separation order.

The "final mile" in the local loop ñ commonly the twisted pair wiring connecting consumers to the CO ñ is the singlemost part of the system that is most clearly qualifies as a natural monopoly. How far into the switching network the natural monopoly dividing line should be drawn for purposes of structural separation is difficult to answer, no doubt; but this appears be the weak point in the FCC mandate attempting to create competitive conditions. It simply did not go far enough in sorting out the knotty technical details involved. The legacy OSS systems which are so critical for customer service and support is an item particularly mentioned by protesting CLECs. Converting legacy OSS systems would be costly indeed, and could only be done gradually over time, but if such issues are the real barriers to local competition, then that fact needs to be faced. Even if such conversions were not enforced, at least the reasons for the lack of local competition would be better understood.

Section 4.3 The Illinois NOI

There is currently an open Notice of Inquiry by the Illinois Commerce Commission to investigate the question of requiring structural separation of Ameritech Illinois. Very little has been decided at this point, and the staff of the Illinois Commission have not taken a stand on many of the questions they have raised. They are proceeding cautiously on this explosive topic.

Ameritech (unsurprisingly) strongly opposes the measure on legal and policy grounds, arguing that the FCC does not have the legal authority to order such separation, that the 96 Act never intended this, that the plan in not financially viable and, in general, is poor public policy. The comments of AT&T, WorldCom and MCI, among others (also unsurprisingly) strongly favor the notion, but not as proposed by LCI, and go into detailed suggestions for improving how structural separation should occur. In general, the comments supporting the NOI suggest that

• local competition under current policy is a failure


• structural separation is needed to remove the conflict of interest on the part of the ILEC offering interconnection to CLECs


• structural separation is highly complex, and will require thorough analysis of where to divide network components.

If the Illinois Commerce Commission proceeds beyond the NOI stage, it will be interesting indeed to observe what transpires. Should structural separation proceed and produce the desired results, this would be strong evidence for the FCC to launch its own NOI for structural separation at the national level for all ILECs.

Section 5 : Conclusions

Section 5.1 : Policy objectives of structural separation

The following points are suggested as improvements to local competition policy, based on the experiences of the past two years. These are not suggested to be a final answer to the difficult questions involved, but a beginning framework for reexamining the 96 Act and the Local Competition Order.

• Remove the monopoly power of the ILECs through total structural separation into retail and wholesale entities (no shared facilities, contracts, employees, brand name, etc.) where the wholesale entity maintains local loop infrastructure and the retail entity markets local exchange services.


• Simplify and reduce the need for regulation by clearly separating regulated and unregulated activities between the wholesale and retail entities.


• Conduct thorough analyses of the complex technical issues involved, providing realistic and adequate deadlines for this.


• Expedite competitive entry by removing the ability of the retail entity to inhibit CLECs access to customers.


• Use of cost-based (TELRIC) price cap pricing for the wholesale entity.


• Separate the retail and wholesale operations where it makes technical sense, not gloss over this vitally important aspect.


• Once structurally separate, grant the retail entity immediate access to interLATA markets as an incentive to achieve structural separation.


• Establish rules for measuring competitive market conditions, allowing pricing retail services to be deregulated when this occurs, but re-regulated if competitive conditions lapse.


• Regulate pricing of the wholesale services using price caps.


• Strive for rules that encourage high quality customer service by the wholesale entity.


• Include consideration of universal service, access charges and reciprocal payments.

The final aim of the Telecommunications Act of 1996 was to reduce the need for regulation by achieving true competition. Achieving true competition has turned out to be more difficult than expected, but that should not deter policy makers and the market participants from recognizing mistakes and correcting them in pursuit of this final goal.

Epilogue

As this paper was in final editing for submission, the Supreme Court made two very significant decisions concerning local exchange market competition that deserve mention (the rulings were so recent the case texts and full citations could not be obtained). On January 19, 1999 the Court ruled against SBC Communications, U S West, and Bell Atlantic against a challenge they had brought against entering the long distance market. On January 25, in an even more significant case, the Court reversed a circuit court decision that had been brought by "the Bells and GTE" against the FCC, claiming the FCC had overstepped its authority in drafting local competion regulations. Such definitive rulings from the highest court indeed suggest that our hypothesis ñ that competition in the local loop deserves careful regulatory reconsideration ñ is necessary and correct. A laissez faire approach handled only by the private sector, such as the ILECs have been arguing in case upon case, is simply inappropriate to be the sole governing force of the vital public nature that telecommunications networks will play in the future of our country.

GLOSSARY

Belcore A reseach institute that serves the ILEC community, which resulted from the 1984 MFJ.




CLEC Competitive Local Exchange Carriers. Any Local Exchange Carrier that is not an Incumbant Local Exchange Carrier.




ILEC Incumbent Local Exchange Carrier. All RBOCs were defined as Incumbant Local Exchange Carriers by definition in the MFJ.




IXC Interexchange Carriers. Firms offering long distance service between LATAs.




LATA Local Area Transport and Access Area. The boundaries within which the RBOCs could offer local phone service, beyond which was considered long distance.




LEC Local Exchange Carriers. Firms offering local phone service within a LATA.




MFJ Modified Final Judgement of the historic 1984 anti-trust case that split AT&T into a long distance company and the RBOCs.




NOI Notice Of Inquiry. An official announcement made by the FCC or a state PUC about a policy change under consideration in order to solicit comments from affected parties.




OSS Operations, Systems and Support. Hardware/software systems created and still maintained by Bellcore for the ILECs through which they enter new customer orders and provide customer service.




PSTN Public Switched Telephone Network




RBOC Regional Bell Operating Company. The seven holding companies (now five) which operated AT&Tís local phone service, divided along contiguous geographic regions, and which control access to long distance services.




TELRIC Total Element Long Range Incremental Cost. An economic method of estimating future ("forward looking") costs of industrial equipment, used in all telecommunications cost models.





 

APPENDIX I

The 1996 Telcommunications Act

The part of the Act which defines unbundled network elements is in ß 251(c)(3), quoted as follows:

UNBUNDLED ACCESS. The duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory. An incumbent local exchange carrier shall provide such unbundled network elements in a manner that allows requesting carriers to combine such elements in order to provide such telecommunications service.

APPENDIX II

This appendix contains a sample form of the FCC Local Competition survey and a summary of the data collected with it from August 31 to October 20, 1998. The form is an Excel spreadsheet which respondents replied to voluntarily. (See the Websites appendix for description of the file obtained from the FCC website.) The summary file is printed in Appendix 2. What was summarized are lines 3, 4 and 6 from Part B as shown in the survey form, quoted here:

B. Lines you own or lease from a non-communications carrier that you provide to another communications carrier, categorized by:





3. Total Service Resale, as defined in 47 U.S.C. ß251.




4. UNE, as defined in 47 U.S.C. ß251.




5. Other arrangements.




6. Total lines in service.

Answers to these questions are the vital evidence of local competition as defined by the 96 Act. Question 5 was omitted in the summary because it contained no data. The horizontal lines 1.B.3-6 in the survey were transposed to columns in the summarized data shown in Appendix 2 in order to view the data with one company per row.

References

Aron, Debra, Ken Dunmore and Frank Pampush. "The Impact of Unbundled Network Elements and the Internet on Telecommunications Access Infrastructure". unpublished document. Harvard Information Infrastructure Project. December 4, 1997. http://ksgwww.harvard.edu/iip/iicompol/Papers/Pampush.html





Chan, Shirley. "NorthPoint Goes Turbo Speed With Lucent Laying the Groundwork". Lucent Magazine. Oct 1998. Corporate publication from Lucent Technologies, Inc.





Gai, Silvano. Internetworking Ipv6 With Cisco Routers. McGraw Hill . 1998.





Krattenmaker, Thomas G. Telecommunications Law and Policy, 2^nd ed. Carolina Academic Press. Chapel Hill, NC. 1998.





Mehta, N. "Cut The Connection". Wall Street Journal. Sept 21, 1998.





Noll, A. Michael. "The Telecom Act of 1996: Two Years Later." Telecommunications Online. July 1998. <http://www.telecoms-mag.com/issues/199807/tcs/noll.htm>





Perrin, Sterling. "The Market: Prospects, Problems and Opportunities." Telecommunications Online. September 1998. <http://www.telecoms-mag.com/issues/199809/tcs/perrin.htm>





Teece, David J. "Telecommunications in Transition: Unbundling, Reintegration, and Competition" MichiganTelecommunications Technical Law Review. 4 (1995). http://www.law.umich.edu/mttlr/VolOne/teece.html





Vogelsang, Ingo and Bridger M. Mitchell. Telecommunications Competition: The Last Ten Miles. The AEI Press. Washington, D.C. 1997.





Wall Street Journal. "AT&Tís Cuts Are Just the First Shot in the Telecomm Wars". Jan 4, 1996. page A2.





Ziegler, Bart. "What Ever Happened to Competition for Local Phone Service? Itís Simple Economics". Wall Street Journal. Sept 21, 1998.

Websites

http://www.fcc.gov/ccb/local_competition/survey/responses




The FCC webpage for responses to three surveys by the Common Carrier Bureau on the State of Local Competition. My data were contained in file lecpub98.zip, the responses to the Second Survey received between 8/31/98 - 10/20/98. Of the seven or so files representing disparate responses collected in this period, this file appeared to contain the most data, and so was selected to summarize. The other files could be included later, but I doubt they would change the general results of the summary.

http://www.icc.state.il.us/icc/Telecom/98NOI

The site for the Illinois Commerce Commisionís Notice of Inquiry concerning the Structural Separation of Ameritech Illinois, plus numerous comments filed by interested parties.