Nightmare on 12th Street: FCC May Revive UNE Regs

by on November 12, 2004 · 8 comments

Like some regulatory Freddy Krueger, it looks like the FCC’s UNE rules just can’t be killed off. Earlier this year, it looked like the rules were doomed when the D.C. Court of Appeals struck down the regs–which require telephone companies to lease network elements to competitors. And only last month, the Supreme Court turned down requests to review the decision. It was widely assumed then that the rules, if not eliminated entirely, would be reduced to a minimal level. Recent news reports, however, now indicate that the Commission may in a few days adopt new rules that retain forced access requirements in certain circumstances, if there is not sufficient competition among telephone companies in a given area. That sounds reasonable, except that “competition” may be defined in an extremely narrow way–perhaps on a block by block basis. Thus, for instance, if there are a slew of competitors offering service on K Street, but none on L Street, the rules would be retained for L Street (even if competitors could easily expand into neigboring areas). Surprisingly, the new rules are being pushed by Chairman Michael Powell, usually seen as key defender of deregulation. We’re still awaiting details on what exactly the new rules will provide, but right now it looks like the UNE horror story will continue for some time to come.

  • Engineer-Poet

    I beg to differ.  For many decades the phone company operated as a regulated monopoly with a guaranteed rate of return.  The copper installed by the Bell System was paid for by the subscribers, who by law had no alternative.

    Now the phone system is deregulated, and technology has created many new uses for that copper.  Who should be able to define how it gets used:  the management of the companies which bought up the Baby Bells, or the people whose money paid for it in the first place?  (The same argument applies to cable services installed under monopoly grants.)  The problem is that the current scheme provides no protection against anti-competitive activities by ILECs, which in turn hamstrings the market and limits the options available to consumers.  The appropriate response is to force the ILECs to divest themselves of their copper and allow any and all comers to provide services over it.  When the monopoly “phone company” just provides copper and services come from a competitive bunch of innovators with no ability to obstruct each other, the public benefit will be maximized.

  • Engineer-Poet

    I beg to differ.  For many decades the phone company operated as a regulated monopoly with a guaranteed rate of return.  The copper installed by the Bell System was paid for by the subscribers, who by law had no alternative.

    Now the phone system is deregulated, and technology has created many new uses for that copper.  Who should be able to define how it gets used:  the management of the companies which bought up the Baby Bells, or the people whose money paid for it in the first place?  (The same argument applies to cable services installed under monopoly grants.)  The problem is that the current scheme provides no protection against anti-competitive activities by ILECs, which in turn hamstrings the market and limits the options available to consumers.  The appropriate response is to force the ILECs to divest themselves of their copper and allow any and all comers to provide services over it.  When the monopoly “phone company” just provides copper and services come from a competitive bunch of innovators with no ability to obstruct each other, the public benefit will be maximized.

  • James Gattuso

    I’ll stick to my guns on this one. First, the plant that built under the days of guaranteed rate of return is largely gone, replaced by new investment. (Here’s a paper I did on this recently, discussing some of the numbers on this: see “Are U.S. Telecom Networks Public Property?” http://www.heritage.org/Research/InternetandTechnology/bg1745.cfm). The more important point, though, it what is best for consumers going forward. Whatever the history, we need policies now that maintain incentives for incumbent LECs, and potential competitors, to invest and build. UNE rules that require LECs to offer their facilities at below-cost rates reduce these incentives (as would separation of the ownerhip and operation of the facilities.)

  • James Gattuso

    I’ll stick to my guns on this one. First, the plant that built under the days of guaranteed rate of return is largely gone, replaced by new investment. (Here’s a paper I did on this recently, discussing some of the numbers on this: see “Are U.S. Telecom Networks Public Property?” http://www.heritage.org/Research/InternetandTec…). The more important point, though, it what is best for consumers going forward. Whatever the history, we need policies now that maintain incentives for incumbent LECs, and potential competitors, to invest and build. UNE rules that require LECs to offer their facilities at below-cost rates reduce these incentives (as would separation of the ownerhip and operation of the facilities.)

  • http://ergosphere.blogspot.com Engineer-Poet

    Let me pose a question which bears on the reasonability of your argument:  was there any meaningful opportunity for companies to set up local wire in competition to the ILECs since deregulation, or was the local loop always a natural monopoly which would stay with the ILECs once established?

    We already know that long distance works fine in a competitive marketplace, and England is proving that breaking the local loop away from BT’s monopoly control yields benefits in other services:

    An eight megabit service has been launched by internet service provider UK Online.

    It is 16 times faster than the average broadband package on the market and will pave the way for services such as video-on-demand and broadband TV.

    The service is possible due to a new regime which allows other operators to use BT’s exchanges and will initially only be available in towns.

    The service is possible due to a decision to loosen BT’s strangle-hold on telephone exchanges.


    Contrast this with the US experience:  for years ILECs charged huge fees for slow T-1 lines, refused to roll out DSL until competition appeared from cable providers even though they’d invented the technology, and sat on ISDN for ages.  Meanwhile, immense amounts of potential bandwidth in the form of dark fiber was and is still going to waste across the nation because people couldn’t get across the last-mile bottleneck without jumping through some ILEC (local loop) or FCC (wireless spectrum) hoop.

  • http://ergosphere.blogspot.com Engineer-Poet

    Let me pose a question which bears on the reasonability of your argument:  was there any meaningful opportunity for companies to set up local wire in competition to the ILECs since deregulation, or was the local loop always a natural monopoly which would stay with the ILECs once established?

    We already know that long distance works fine in a competitive marketplace, and England is proving that breaking the local loop away from BT’s monopoly control yields benefits in other services:

    An eight megabit service has been launched by internet service provider UK Online.

    It is 16 times faster than the average broadband package on the market and will pave the way for services such as video-on-demand and broadband TV.

    The service is possible due to a new regime which allows other operators to use BT’s exchanges and will initially only be available in towns.

    The service is possible due to a decision to loosen BT’s strangle-hold on telephone exchanges.

    Contrast this with the US experience:  for years ILECs charged huge fees for slow T-1 lines, refused to roll out DSL until competition appeared from cable providers even though they’d invented the technology, and sat on ISDN for ages.  Meanwhile, immense amounts of potential bandwidth in the form of dark fiber was and is still going to waste across the nation because people couldn’t get across the last-mile bottleneck without jumping through some ILEC (local loop) or FCC (wireless spectrum) hoop.

  • James Gattuso

    The answer to your question is yes, there were and are competitors in the local loop, although fewer than there would be, I’d argue, because UNE access discouraged investment there. These competitors btw needn’t be new, struggling startups (though some are). Last I heard cable companies are providing service without no LEC loops involved, thank you very much.

    The UK experience is mixed — Britain is hardly the international leader in broadband. That distinction goes to Korea, which rejected forced access for broadband. (Here’s a good piece by Tom Hazlett on that: http://www.manhattan-institute.org/html/_wsj-broadband_miracle.htm).

  • James Gattuso

    The answer to your question is yes, there were and are competitors in the local loop, although fewer than there would be, I’d argue, because UNE access discouraged investment there. These competitors btw needn’t be new, struggling startups (though some are). Last I heard cable companies are providing service without no LEC loops involved, thank you very much.

    The UK experience is mixed — Britain is hardly the international leader in broadband. That distinction goes to Korea, which rejected forced access for broadband. (Here’s a good piece by Tom Hazlett on that: http://www.manhattan-institute.org/html/_wsj-br…).

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