The FCC's Triennial Review Order: A "Brief" Summary

On Aug. 21, 2003, the Federal Communications Commission (the “FCC” or ”Commission”) released the text of its controversial and long-delayed decision in its Triennial Review proceeding, formally called “Report and Order and Order on Remand and Further Notice of Proposed Rulemaking” in CC Docket Nos. 01-338, 96-98 and 98-147 (the “Order”).  This memorandum outlines only the basic holdings of the Order and it does not attempt to provide a detailed analysis of each of the Commission’s various rulings in the Order.

Our purpose in providing this summary is to inform our clients and friends of this development in the telecommunications industry. It is not intended, nor should it be used, as a substitute for specific legal advice since legal counsel may only be given in response to inquiries regarding particular situations. 

In an effort to constrain somewhat the length of this document, this memorandum does not address the first four sections of the Order: Introduction, Executive Summary, Background and Market Evolution. Instead, we begin this summary by reviewing the Commission’s general principles of unbundling, as contained in Section V of the Order, and proceed by addressing each of the subsequent sections of the Order.

The Order is scheduled to become effective 30 days after publication in the Federal Register, pending Office of Management and Budget approval. The Commission will publish a document in the Federal Register announcing the effective date of these rules.

SECTION V: PRINCIPLES OF UNBUNDLING

The Commission set out the general principles of unbundling that it applied in the Order. By implication, the Commission expects state commissions to apply these standards when they make their determinations that are required by the Order.

Network Element Defined. The FCC reaffirmed its earlier interpretation of the definition of “network element” as requiring an ILEC to “make available to requesting carriers network elements that are capable of being used in the provision of a telecommunications service.” The Commission specifically rejected the view that network elements can be only physical facilities or pieces of equipment, finding instead that a network element can include mere features, functions and capabilities of physical facilities such as a portion of the available bandwidth of a loop. The FCC also found that even if an ILEC did not actually use the capability provided, the ILEC still had to provide access to such capabilities. In evaluating impairment under Section 251(d)(2), the FCC found it necessary to determine whether a carrier’s failure to provide a certain capability would impair a requesting carrier’s ability to provide the telecommunications service that such requesting carrier seeks to offer.

The Impair Standard. The Commission found that a requesting carrier is impaired when lack of access to an ILEC's network element poses a barrier or barriers to entry, including operational and economic barriers that are likely to make entry into a market uneconomic. One must ask first whether potential revenues from entering a market exceed the costs of entry while considering any countervailing advantages that the new entrant may have. Then, the analysis requires consideration of relevant barriers to entry and an examination of whether entry has already occurred in a market without reliance on the ILEC’s networks.

Barriers to Entry. The Commission found the following barriers to entry relevant to any impairment analysis: scale economies, sunk costs, first mover advantages, absolute cost advantages, and barriers within the control of the ILEC.  With respect to scale economies, one must consider whether the cost differences caused by scale economies are sufficiently large and persistent, alone or in combination with other factors, to be likely to make entry uneconomic. With respect to sunk costs, it is a matter of ascertaining the absolute amount of such sunk costs. The Commission identified the following first mover advantages as relevant:  preferential access to buildings, access to rights-of-way, the higher risk of new entrants’ failure, the existence of substantial sunk capacity possessed by an ILEC, operational difficulties faced by new entrants that have been resolved earlier by an ILEC when it built out its network as a monopolist, consumers’ reluctance to switch carriers, and advertising and brand name preferences. In weighing these first mover advantages, the Commission said it would also consider countervailing advantages of new entrants, such as the fact new entrants can design new networks and may be able to offer higher quality services because they are relying exclusively on new equipment. It is necessary to evaluate the magnitude of any absolute cost advantages that an ILEC may enjoy and whether the relative magnitude of those cost advantages would raise an entrant’s costs above revenues. Finally, with respect to barriers within the control of the ILEC, the Commission expressed an intent to evaluate whether unbundling a network element for any technical or operational barriers within the control of the ILEC might give a requesting carrier an opportunity to compete by curing the operational or technical problem.

Evaluation of Evidence of Impairment. The Commission found that actual marketplace evidence is the most persuasive and useful evidence of impairment. In particular, it should be determined whether, based on granular evidence, new entrants provide retail services in the relevant market using non-ILEC facilities.  In weighing this evidence, one must consider how extensively carriers have been able to deploy such alternatives, to serve what extent of the market, and how mature and stable that market is. However, the Commission indicated that such evidence alone cannot support a finding of no impairment and that evidence of the deployment of alternative facilities or the availability of “non-UNE alternatives" from the ILEC alone means that a market is contestable.

In this portion of the Order, the Commission stated that the existence of non-UNE alternatives from ILECs (such as tariffed services or resold retail services) have little bearing on determining impairment. The Commission rejected the notion that alternative deployment is irrelevant unless access is available to requesting carriers on a wholesale basis, or that it is irrelevant unless carriers have been able to serve customers profitably over those facilities. In evaluating the profitability of alternative deployment, the Commission suggested evaluating also whether any over-capacity exists in the market, whether facilities-based carriers are still deploying capacity, and the scope of economies in providing multiple services.

Correspondingly, if the marketplace evidence shows that new entrants have not widely deployed alternatives, then it may be appropriate to evaluate whether barriers to entry prevent that deployment. Just as with respect to whether deployment exists, the lack of any entry will be probative, but not necessarily dispositive, requiring an evaluation of whether it will be necessary to evaluate what circumstances may have contributed to this lack of entry, such as whether the market is nascent or whether past unbundling practices may have discouraged entry. Additionally, intermodal alternatives must be evaluated to ascertain if these alternatives permit a requesting carrier to serve the market either through self-provisioning or by obtaining capacity on a wholesale basis. It is also important to determine whether these intermodal alternatives are comparable in cost, quality, and maturity to ILEC services. These intermodal alternatives will also need to be evaluated as to whether they are limited to one or a few carriers, either because of historical economic characteristics or legal restrictions, and whether the technology contributes to a wholesale market by providing access to customers. Again, however, the existence or lack thereof of intermodal alternatives is not dispositive, but only probative as to whether impairment exists.

Although less compelling that marketplace evidence, other evidence that may be considered in evaluating impairment includes costs studies, business case analyses and modeling, if such evidence provides sufficient granularity to determine whether competitors can serve the market without access to the UNE in question. Also pertinent to an impairment analysis is evidence of the revenue opportunities available to carriers. In this case, all of the potential revenue opportunities from services that may be offered over the facilities should be considered while also factoring in limitations on the ability to provide multiple services, such as diseconomies of scope in production, management and advertising.  Also relevant to the analysis is whether new entrants can provide retail and wholesale services over non-incumbent facilities. The Commission reiterated its view that little weight should be given to evidence that requesting carriers are using ILEC tariffed services such as special access or resale of ILEC retail services.

Granularity Approach. The Commission decided that in order to address the need for granularity as required by appellate courts, it will consider the effects on customer class, geography, and service in evaluating the existence of impairment.  When evaluating individual network elements, the FCC said it also will take into consideration the types and capacities of facilities.

Customer Class Granularity. With respect to customer class, the Commission recognized three broad classes of customers to be recognized as major market segments: mass-market, small and medium enterprise and large enterprise. Mass-market customers consist of residential customers and very small business customers, which typically purchase only basic POTS and a few vertical features. Small and medium enterprise customers purchase larger packages of services and are more often willing to enter into term agreements; reliability and quality of service are important to them. Larger enterprise customers demand extensive, sophisticated packages of services; these customers often expect guarantees of service quality and reliability.

Geographic Granularity. With respect to geographic granularity, the Commission simply stated that it would establish unbundling requirements where it could do so on a national basis, but that it might need to establish more discrete geographic requirements. To effectuate this, the Commission said it planned to delegate authority to the state commissions to establish smaller areas.

Services Granularity.  In considering the services for which unbundling obligations should apply, the Commission determined that unbundling obligations apply only when requesting carriers seek to use those elements to compete against those services that have traditionally been the exclusive domain of ILECs. (It should be noted that this “definition” might serve as the basis for arguments that interexchange carriers seeking to provide services are entitled to use of UNEs rather than exchange access to provide such services.) Thus, in order to gain access to UNEs, carriers must provide qualifying services using the UNE to which they seek access.  Qualifying services include local exchange service, such as POTS, and access services, such as xDSL and high capacity circuits. However, once a requesting carrier has obtained access to a UNE, it may use it to provide any additional services, including non-qualifying services and information services. Finally, the Commission reaffirmed its earlier decision that only carriers offering services for hire could gain access to UNEs, thus barring such access to carriers providing only private carrier or information services.

Other Matters. The Commission reaffirmed its prior “necessary” standard as to when access to proprietary network elements is required. That standard dictates unbundling of proprietary network elements when, after considering the availability of alternative elements outside the incumbent’s network including self-provisioning by a requesting carrier or acquiring from a third party, lack of access to that element would, as a practical, economic, and operational matter, preclude a requesting carrier from offering the services it seeks. Moreover, in discussing its adherence to the requirement to impose unbundling “at a minimum,” the Commission explained that it was not imposing unbundling to any circumstance where it had not found impairment, but nevertheless held that it could do so under appropriate circumstances.

Role of the States. The FCC ruled that states retain authority to establish unbundling requirements under state laws so long as they do not conflict with the Act or its purposes or “substantially prevent” FCC implementation of its rules   The FCC found that uniform national rules for “some” UNEs are appropriate. For example, the states do not have independent authority to “create, modify or eliminate unbundling obligations.” The Order limits state authority to specific areas and UNEs and provides federal guidelines to be applied by the states in the execution of their authority pursuant to federal law.

If a state fails to perform the granular inquiry an aggrieved party may petition the FCC to step into the state’s role. The FCC will issue a public notice seeking comment; will rule on the petition within 90 days of public notice; and if it agrees that the state has failed to act, the FCC will conduct proceeding and make necessary decisions with nine months of assuming responsibility (except it will do so within 90 days where it assumes responsibility for DS1 and higher switching decisions).

States may act only to extent consistent with FCC rules. If a party believes a state unbundling decision is inconsistent with these rules (for example, a decision under state law requiring unbundling of a UNE for which the FCC has found no impairment), it may seek a declaratory ruling from FCC.  State requirements that are inconsistent with this Order must amend rules or alter decisions to conform to these FCC rules.

SECTION VI: UNBUNDLING REQUIREMENTS

Loops. Based on a finding that the various types of loop facilities typically serve distinct classes of customers, the Commission conducted separate loop impairment analyses of the various loop types and capacity levels, as well as the relevant customer class (mass market and the enterprise market). The Commission also required greater unbundling for legacy copper facilities and more limited unbundling for next-generation network facilities.  Moreover, in addition to the barriers a new entrant faces in deploying loops, the Commission considered the revenue potential associated with a particular loop capacity in determining the degree to which an entrant is impaired in deploying a particular loop capacity.

Mass Market Loops

Legacy Networks

Stand-Alone Copper Loops. The FCC found that requesting carriers are generally impaired on a national basis without unbundled access to an ILEC’s copper loop (including ISDN and xDSL loops) for both narrowband and broadband services. The Commission also readopted the ILECs’ line conditioning obligations for xDSL services and line sharing.

Line Splitting.  The Commission reaffirmed that an ILEC may permit a competing carrier to engage in line splitting where a competing carrier purchases the whole loop and provides its own splitter to be collocated in the central office (including UNE-P line splitting), and also adopted new line-splitting specific rules related to ILEC OSS and CLEC access to test access points.

Copper Subloops. An ILEC must provide unbundled access to its copper subloops but, unlike prior to the Order, an ILEC need not provide access to its fiber feeder loop plant except where necessary to provide unbundled access to TDM-based capabilities of their hybrid loops. The lack of access to fiber feeder calls into question the benefit of the availability of the subloop. The Commission said it expects that ILECs will develop wholesale service offerings for access to their fiber feeder to ensure CLECs have access to copper subloops. In this regard, the Order appears to contemplate that an ILEC could develop telecommunications services similar to special access services to provide access to the fiber feeder plant.

High-Frequency Portion of the Loop (Line Sharing). The Commission declined to require line sharing except on a specified grandfathered basis and phased out line sharing over three years. The Commission determined that its previous Line Sharing Order failed to consider all potential revenues from the loop and that CLECs are now able to obtain the HFPL from other CLECs through line splitting. If a state commission decision requires line sharing obligations contrary to the Act, any party may seek a declaratory ruling from the Commission. 

Grandfathered line-sharing. The Commission grandfathered all existing line sharing arrangements unless the CLEC, or its successor or assign, discontinues providing xDSL service to the particular end-user customer, during which time the ILEC is required to charge the same price for access to the HFPL as before the Order. Although the text of the Order indicates that the grandfathering provision would extend only to the next biennial review, the rules clearly state that the grandfathered line-shared lines would extend until the end-user customer cancels or otherwise discontinues its subscription to the DSL service.

Line Sharing Transition. In order to minimize disruption to the customers that obtain xDSL service through line shared loops and provide a reasonable “glide path” to CLECs currently availing themselves of this UNE, the Commission established the following three-year transition period for line sharing: 

First year: A CLEC may continue to obtain new line sharing customers at 25 percent of the state-approved recurring rate or rate in existing interconnection agreement for stand-alone copper loops.

Second year:  A CLEC may not obtain new line sharing customers and the recurring charge for access to the existing line shared customers increases to 50 percent of the state-approved recurring rate or rate in existing interconnection agreement for stand-alone copper loops.

Third year:  The recurring charge for line shared customers obtained during the first year increases to 75 percent of the state-approved recurring rate or rate in existing interconnection agreement for stand-alone copper loops.

Next-Generation Networks

FTTH Loops. The FCC found that a requesting carrier is not impaired without access to fiber to the home (“FTTH”) loops, defined as loops consisting entirely of fiber optic cable (and attached electronics) that connects a customer’s premises with a wire center. An ILEC does not have to offer unbundled access to newly deployed or “greenfield” fiber loops. However, in fiber loop overbuild situations where the ILEC elects to retire existing copper (“brownfield loops”), the ILEC must offer unbundled access to the fiber loops, but for the provision of narrowband services only (64 kbps transmission path).

Retirement of Copper Loops. The Commission refused to impose a blanket prohibition on the ability of an ILEC to retire copper loops or subloops it has replaced with FTTH loops and, contrary to what seemed to be included in the Commission’s prior press releases, rejected parties’ proposals to require an ILEC to obtain affirmative regulatory approval prior to such retirement.  The Commission did modify its network modification notification rules to require an ILEC to provide notice of the retirement of copper loops and subloops at least 91 days prior to their planned retirement date and permit parties to file objections to the notice.  An ILEC is also required to comply with any applicable state requirements. Note:  It is not clear whether only state laws/requirements in effect as of the Order will apply, as opposed to any new state requirements.

Hybrid Loops for Broadband Services. The Commission refused to require ILECs to unbundle next-generation network, packetized capabilities of their hybrid loops to enable carriers to provide broadband services to the mass market. However, an ILEC must provide unbundled access to a complete transmission path over its TDM networks, including DS1 and DS3 loops.  Note: the rules state that an ILEC must provide access to DS1 or DS3 capacity “where impairment has been found to exist,” indicating that if the state commission finds that a CLEC is not impaired without access to DS1 and DS3 loops, these facilities will not be available as an alternative access to hybrid loops.

Hybrid Loops for Narrowband Services. An ILEC is required to provide an entire non-packetized transmission path capable of voice-grade service between the central office and customer’s premises, although the unbundling obligations are again limited to TDM-based features, functions, and capabilities of the hybrid loops. Alternatively, an ILEC can provide access to a homerun copper loop, if available.

Enterprise Market Loops. The FCC conducted an impairment analysis for high-capacity loops and determined that:  (i) no impairment exists on a nationwide basis for the highest-capacity loops (OCn loops); and (ii) requesting carriers are impaired on a location-by-location basis nationwide without unbundled access to ILEC dark fiber, DS3, and DS1 loops. The FCC delegated to state commissions the authority to make findings of fact that there is no impairment for dark fiber, DS3, and DS1 loops.

Impairment Analysis. The FCC found that the economics of serving enterprise customers depends on the location of a facility, as well as Other factors are the ability to obtain reasonable and timely access to a customer’s premises and in obtaining rights of way from local authority. In conducting the impairment analysis, the FCC will give substantial weight to the cost of constructing a loop facility in relation to the ability of the competitive carrier to recover these costs over time (whether traffic  volume and associated revenue potential allow a customer to earn a return necessary to sustain operations at that location). The FCC identified the following factors to consider in conducting an impairment analysis for various types of high capacity loops:

• whether CLECs have self-deployed loops on either an intermodal or intramodal basis to enterprise customers; and
• where there are wholesale alternatives to ILEC loops to provision high-capacity loops.

Dark Fiber Loops. On a national basis, the FCC found that requesting carriers are impaired at most customer locations without access to dark fiber loops. Since some competitive carriers have self-deployed dark fiber, the FCC delegated authority to the states to analyze specific evidence of loop deployment on a customer location basis, applying a uniform national self-provisioning trigger to determine customer locations where CLECs are not impaired without access to ILEC unbundled dark fiber loops.

OCn Loops. The FCC found that requesting carriers are not impaired on a nationwide basis without access to unbundled “lit” OCn loops, because barriers to deployment of such loops can be overcome though self-deployment at the OC3 and above level, the use of unbundled dark fiber, or the use of “lit” DS3s.

DS3 loops. The FCC determined that requesting carriers are impaired on a customer-location-specific basis without access to unbundled DS 3 loops. However, the FCC delegated to the states authority to collect and analyze more specific evidence of DS3 loop deployment on a customer location-specific basis, in order to determine locations where CLECs are not impaired without access to unbundled DS3s. Further, consistent with the FCC’s finding that there is no impairment at the OCn loop capacity level and because the FCC found that it is economically possible to self-deploy at a three DS3 loop level to a particular customer location, the FCC decided to limit an ILEC’s unbundled obligation to a total of two DS3s per requesting carrier to any single customer location.

DS1 loops. The FCC found a requesting carrier is generally impaired without access to unbundled DS1 loops.  The FCC did NOT delegate to states the authority to consider DS1 loop impairment on a location-specific basis based on self-provisioning trigger. However, the FCC recognized there may be locations where alternative providers at the DS3 or higher capacity levels may have deployed fiber and could offer excess capacity at the DS1 loop level. Accordingly, the FCC said  in the future, non-ILEC DS1 loops may be available to particular customer locations and delegated to states the authority to collect and analyze more specific evidence of wholesale alternatives to DS1 loops on a customer location-specific basis, applying a uniform national trigger that measures the availability of wholesale competitive alternatives to determine customer locations where competitive carriers are not impaired without access to ILEC unbundled DS1s

Location-Specific Review Conducted by States Applying Federal Triggers. The FCC delegated to states a fact-finding role to determine where CLECs are not impaired without unbundled high capacity loops pursuant to two triggers:

• where a specific customer location is identified as being currently served by two or more unaffiliated CLECs with their own loop transmission facilities at the relevant loop capacity level (self-provisioning trigger); or•
• where two or more unaffiliated competitive providers have deployed transmission facilities to the location and are offering alternative loop facilities to CLECs on a wholesale basis at the same capacity level (competitive wholesale facilities trigger).

If a state commission declines to exercise the delegated authority, a party may petition the FCC to conduct the analysis.

Self-provisioning Trigger. This trigger is satisfied where there are at least two competitive carriers (unaffiliated with each other and with ILECs), each of which has self-deployed its own facilities to serve customers at the location over the relevant loop capacity level.  Special access facilities do not satisfy the definition of a self-provisioning competitor.

Analytical Flexibility. Even if there is no actual competitive self-deployment, a state commission may also find no impairment if it determines that no material economic or operational barrier at a customer location precludes a CLEC from economically deploying loop facilities to that particular customer location at the relevant capacity level. 

Competitive Wholesale Facilities Trigger. The FCC concludes that impairment does not exist at a location for a type of high capacity loop if competitive carriers have two alternative choices apart from the ILEC network to purchase wholesale high-capacity loops, including intermodal alternatives, at a particular premise.  Dark fiber IRUs satisfy this “own facilities” prong of this trigger. In applying this analysis, states may not undertake a financial viability analysis with respect to each wholesale provider, but there should be “some reasonable expectation that these providers are operationally capable of continuing to provide wholesale loop capacity to that customer location.” 

State Action Under Both Triggers. States should complete initial reviews applying triggers and other analysis within nine months from the effective date of this Order. A party may petition the FCC if a state fails to act pursuant to this deadline. 

Unbundled DS1, DS3, and dark fiber loops will remain available to all customer locations until the state commission determines that unbundled loops at particular capacities serving specific customer locations are no longer required. The FCC noted that states should require “an appropriate period” for competitive LECs to transition from unbundled loops that the state finds should no longer be unbundled. 

Subloops For Multi-unit Premises Access And NIDS. An ILEC must provide nondiscriminatory access to the subloop for access to multi-unit premises wiring regardless of the capacity level or type of loop. The subloop for access to multi-unit premises wiring is defined as any portion of the loop that it is technically feasible to access at a terminal in the ILEC’s outside plant at or near a multi-unit premises (i.e., where a technician can access the wire or fiber within the cable without removing the splice case), including inside wire, which is defined as all loop plant owned or controlled by the ILEC at a multi-unit customer premises between the minimum point of entry and the point of demarcation of the ILEC’s network.   Apart from its obligation to provide the NID functionality as part of the unbundled loop or subloop, an ILEC must provide nondiscriminatory access to the NID on an unbundled basis. Arrangements governing access to NIDs are to be addressed in interconnection agreement negotiations.

Dedicated Transport. In light of judicial decisions, the FCC adopted a more granular unbundling analysis for transport facilities and limited its definition of dedicated transport to only those transmission facilities connecting ILEC switches or wire centers.

The FCC made the following determinations, all on a national level: 

• OCn Transport. Requesting carriers are not impaired without access to unbundled OCn transport facilities.
• Dark Fiber Transport. Requesting carriers are impaired without access to unbundled dark fiber transport facilities, subject to a granular route-based review by the states to identify both available wholesale facilities and where transport facilities can be deployed.
• DS3 Transport. Requesting carriers are impaired without access to DS3 transport, subject to a granular route-based review by the states to identify available both wholesale facilities and where transport facilities can be deployed.
• DS1 Transport. Requesting carriers are impaired without access to unbundled DS1 transport facilities, subject to a granular route-based review by the states to identify available wholesale facilities.

The FCC also established specific triggers for states to apply in making their granular impairment analysis. An ILEC or other party may show that a requesting carrier is not impaired without bundled transport in two ways: (1) by identifying specific point-to-point routes where carriers have the ability to use alternatives to the ILEC’s network; or (2) by identifying specific point-to-point routes where self-provisioning transport facilities is economic.

The FCC delegated to state regulatory commissions the authority to make findings of fact as to the scope of these triggers.

Definition of Dedicated Transport. The FCC limited its definition of dedicated transport to those transmission facilities connecting ILEC switches and wire centers within a LATA. The FCC found that the Act does not require  an ILEC to unbundle transmission facilities connecting ILEC networks to competitive LEC networks for the purpose of backhauling traffic. The FCC also found that the dedicated transport network element includes only the “features, functions and capabilities” of equipment and facilities that are part of the ILECs transport network—the transmission facilities connecting LEC switches or wire centers.

This change in the definition of dedicated transport applies to all competitors, including intermodel competitors.  No requesting carrier will have access to unbundled internetwork transmission facilities, but all telecommunications carriers, including CMRS carriers will have the ability: (1) to access transport facilities within the ILEC’s network; and (2) to interconnect for the transmission and routing of telephone exchange service and exchange access.

Impairment Analysis

Dark fiber transport. The FCC found on a national basis that competing carriers are impaired without access to unbundled dark fiber transport. While the FCC could not determine whether dark fiber can be self-provisioned or obtained on a wholesale basis from carriers other than the ILEC, it said there are specific routes where such transport is available. The FCC delegated to the states the authority to collect and analyze more specific evidence of transport deployment on a route-specific basis, applying uniform national triggers that measure self-provisioning or wholesale alternative transport availability, to determine where competitive carriers are not impaired without access to ILEC unbundled dark fiber transport. 

Access to Dark Fiber. The FCC affirmed its previous authorization to states to establish reasonable limitations and technical parameters to assure that competing carriers have sufficient information about the availability of and access to the unbundled dark fiber of the ILEC. For this purpose the FCC retained Rule 51.307(e), obligating an ILEC to provide technical information abut the ILEC’s network facilities.

DS3 Capacity Transport. The FCC concluded on a nationwide basis, that requesting carriers are impaired on a route-specific basis without access to unbundled DS3 transport. Due to economies of scale, FCC found that the inability to recover the fixed and sunk costs of deployment transport facilities, coupled with the barriers to obtaining rights-of-way, impairs the ability of requesting carriers to self-provision DS3 transport. The FCC also delegated to the states the authority to collect and analyze more specific evidence of transport deployment on a route-specific basis, and to apply uniform national triggers that measure self-provisioning or wholesale alternative transport availability to determine routes where competitive carriers are not impaired without access to ILEC unbundled DS3 transport. Moreover, the FCC established a maximum number of twelve unbundled DS3 transport circuits that a competing carrier or its affiliates may obtain along a single route. Because the FCC found no impairment above a twelve DS3 level, there is no need to unbundle OCn interface transmission facilities. The FCC also ruled that dark fiber and multiple DS3 circuits provide reasonable substitutes for OCn interface circuits at these capacities, and found that requesting carriers are not impaired without OCn or SONET interface transport.

DS1 Capacity Transport. The FCC found that requesting carriers generally are impaired without access to DS1 capacity transport. The FCC made this determination based on high entry barriers associated with deploying or obtaining transport used to serve relatively few end-user customers and the lack of route-specific evidence showing sufficient alternative deployment. The FCC also determined that competing carriers generally cannot self-provide DS1 transport because such carriers lack sufficient loop traffic at a central office to justify the high fixed and sunk costs to self-provide and they cannot spread costs among their  relatively smaller customer base as can carriers with larger customer bases.

While the FCC observed that competitive fiber is available in many areas, it found that DS1 transport is not generally made available on a wholesale basis and the record is insufficient to analyze DS1 transport on a route-specific basis. While the DS1 transport wholesale market is nascent, technological advances may allow this market to develop.

The FCC delegated to the states the authority: (a) to collect and analyze specific evidence of transport deployment on a route-specific basis; and (b) to apply a uniform national trigger that measures when wholesale alternative transport becomes available to determine where competitive carriers are not impaired, without access to ILEC unbundled DS1 transport. Unbundled DS1 transport is often used by competing carriers in a loop/transport combination when collocation at the customer’s end-office is uneconomic. Under the FCC’s DS1 transport analysis, new market entrants can access unbundled DS1 transport, or access DS1 transport from multiple competing carriers.

Route-Specific Review Conducted by State Applying Federal Triggers. The FCC also developed some limitations on unbundling and decided that further analysis should be  undertaken by states to determine further situation where non-impairment findings are appropriate. The FCC delegated to states a fact-finding role to identify where competing carriers are not impaired without unbundled transport, pursuant to two triggers. The FCC also delegated to the states, subject to appeal back to FCC if a state fails to act, a fact-finding role to determine on a route-specific basis where alternatives to the ILECs’ networks exist such that competing carriers are no longer impaired.

The FCC adopted two triggers designed to identify where carriers are not impaired without access to ILEC transport based on the two primary ways carriers overcome impairment:  (1) self deployment and (2) access to third party providers. Both triggers are evaluated on a route-specific basis. First, where three or more competing carriers, not affiliated with each other or with the ILEC, each have deployed non-ILEC transport facilities along a specific route, regardless of whether these carriers make transport available to other carriers, the FCC found that to be sufficient evidence that competing carriers are capable of self-deploying. Second, the FCC found that competing carriers are not impaired where competing carriers have available two or more alternative transport providers, not affiliated with each other or with the ILEC, immediately capable and willing to provide transport at a specific capacity along a given route between ILEC switches or wire centers. If a state commission finds no impairment for a specific capacity of transport on a route, the ILEC will no longer be required to unbundle that transport along that route, in accordance with the transition schedule adopted by the state commission.

Self-Provision Trigger. The FCC delegated authority to state commissions to declare that requesting carriers are not impaired without unbundled transport when there is sufficient evidence that facilities deployment is possible on a particular route, regardless of the availability of wholesale transport. Specifically, the FCC delegated authority to states to determine where three or more unaffiliated competing carriers each have deployed transport facilities on a route. Such a determination is a sufficient indication that sunk costs, economies of scale, and other barriers to deploying transport facilities do not present an insurmountable barrier on a particular route. In such a case, requesting carriers are not impaired without access to unbundled transport. The FCC also found that the competitive transport facilities counted to satisfy this trigger must terminate in a collocation arrangement that has been established pursuant to contract, tariff, or where appropriate, Section 251 (c)(6). The competitive transport providers identified to satisfy this trigger on a route must be unaffiliated with the ILEC and with each other. The FCC concluded that competing carriers generally cannot self-provide DS1 transport, finding that the self-provisioning trigger should not be applied at the DS1 level.

The FCC said that actual competitive deployment is the best indicator that requesting carriers are not impaired and this quantitative trigger is the primary vehicle through which non-impairment findings will be made. However, because this trigger identifies only the existence of actual competitive facilities and does not address the potential ability of competitive LECs to deploy transport facilities on a specific route, the FCC required a state to consider a number of factors in making a finding of no impairment for which it seeks to base its finding that a specific route is suitable for “multiple, competitive supply.” A state may identify impairment on specific routes that satisfy the self-provisioning trigger, but where some significant barrier to entry exists that would foreclose additional deployment.

The FCC delegated to state commissions, the fact-finding role of identifying the specific routes where there is evidence that two or more competing carriers, not affiliated with each other or the ILEC, offer wholesale transport services. The competitive transport providers must be operationally ready and willing to provide the particular capacity transport on a wholesale basis along a specific route. The FCC also found that states should not evaluate any other factors, such as the financial stability or well-being of the competitive transport providers.  As long as the carrier is currently offering and is able to supply service, the trigger has been met. Unbundled dark fiber from the ILEC will not be considered as a wholesale alternative for dark fiber. States may ensure that wholesalers of dark fiber have sufficient quantities of dark fiber available to satisfy current demand.

States must complete their initial reviews applying the triggers and other analysis within nine months from the effective date of the order. Unbundled DS1, DS3 and dark fiber transport will remain available in all locations until the state commission determines that unbundled transport at particular capacities and in specific locations is no longer required. After completion of this initial review, the FCC expects state commissions to conduct further granular review to identify additional routes that satisfy triggers.

 Local Circuit Switching

DS1 Enterprise Customers. The FCC established a national finding that competitors are not impaired with respect to DS1 enterprise customers that are served using loops at the DS1 capacity and above. A state commission may rebut the national finding of no impairment by undertaking a more granular analysis using economic and operational criteria.

State Petitions for Waiver. State commissions are given 90 days from the effective date of the Order to petition the Commission to waive the finding of no impairment.  Any such petition must include an affirmative finding of impairment showing that carriers providing service at the DS1 capacity and above should be entitled to unbundled access to local circuit switching in a particular market. 

This petition requirement is a significant change from the Commission’s earlier description of the waiver process.  In a footnote, the decision goes to great length to provide support for its authority to make a change of this scope.

Relevant Markets. State commissions have discretion to define the relevant markets for purposes of this inquiry, provided they follow the guidelines described in the Order. The requirement of detailed market findings imposes a significant burden on state commissions that will be very difficult to meet within the FCC’s 90-day time frame.

Operational Criteria. In order to rebut the Commission’s finding of no impairment as it relates to operational barriers, the states must examine whether operational factors are impairing competitors, according to the FCC’s impairment standard. In particular, state commissions must consider whether ILEC performance in provisioning loops, difficulties in obtaining collocation space due to lack of space or delays in provisioning by the ILEC, or difficulties in obtaining cross-connects in an incumbent’s wire center, make entry uneconomic for CLECs. State commissions are to consider evidence, which could include performance metrics and standards for BOCs or other types of evidence for non-BOC ILECs, of whether these factors impair impairing entrants in the enterprise market, and whether unbundling will overcome this impairment.

Economic Criteria. To rebut the Commission’s finding that CLECs are not impaired by the lack of access to unbundled local circuit switching, the states must find that entry into a particular market is uneconomic in the absence of unbundled local circuit switching. To make this determination, states must weigh competitive LECs’ potential revenues from serving enterprise customers in a particular geographic market against the cost of entry into that market.

Subsequent Review.  The FCC noted that states may, after the expiration of the initial 90-day period and pursuant to state-determined procedures, revisit whether competitive LECs are impaired without access to unbundled local circuit switching to serve enterprise customers due to changes in the specified operational and economic criteria.  However, it is not clear what steps, if any, a state commission must take at the outset to preserve rights to utilize this “second look” option.

Mass Market Customers

National Finding of Impairment. The FCC established a national finding that competitors are impaired without access to unbundled local circuit switching with respect to mass market customers, based on evidence of the economic and operational barriers caused by the ILEC hot cut process. The Commission also identified a number of other economic and operational factors that may cause impairment in certain circumstances, including lack of collocation space, ILEC failure to provide CLEC-to-CLEC cross-connects, costs associated with backhauling the voice circuit to the competitive LEC’s switch, and the lack of scale economies.

State Actions and Determinations. The FCC has asked the states to conduct the following detailed analyses within nine months of the effective date of the new unbundling rules.

• Batch Cut Migration Process. Within nine months, state commissions must approve a batch cut migration process to be implemented by ILECs that will address the costs and timeliness of the hot cut process. In adopting such processes, state commissions should decide the appropriate volume of loops to be included in the “batch,” approve specific ILEC processes, establish completion interval metrics, evaluate whether the ILEC is capable of migrating batch cutovers of UNE-P circuits to UNE-L, and adopt TELRIC rates for batch cut activities they approve.  In the alternative, state commissions must make detailed findings explaining why a batch cut process is not necessary in a particular market. If a state commission makes such a determination, it must provide detailed findings regarding the volume of UNE-L migrations that could be expected if competitive LECs were no longer entitled to unbundled local circuit switching, the ability of the ILEC to meet that demand in a timely and efficient manner using the existing hot cut process, and the nonrecurring costs associated with the hot cut process.

• Analysis of Non-Impairment In Particular Markets. Within nine months, state commissions must also determine whether to find no impairment in particular markets. This determination involves a two-step process. First, the state commission must determine whether objective triggers have been met.  If either trigger is satisfied, with one narrow exception, the state commission must find no impairment and need not undertake any further analysis.  If neither trigger is satisfied, the state commission must conduct an analysis of operational and economic impairment factors to determine whether the particular market is suitable for multiple competitive supply of switching.

In conducting their analyses, state commissions must define the market in which they will evaluate impairment by determining the relevant geographic area, taking into consideration factors such as how UNE rates vary across the state, how retail rates vary geographically, how the costs of serving customers vary according to the size and location of wire centers, and variations in the capabilities of wire centers to provide adequate collocation space and to handle large numbers of hot cuts.  State commissions may not define the market as encompassing the entire state and must also determine which customers are mass market customers for purposes of evaluating impairment. The FCC has defined mass market customers as analog voice customers that purchase only a limited number of POTS lines, and can only be economically served using DS0 loops. Accordingly, state commissions must determine the appropriate cut-off for multi-line DS0 customers, though the cut-off in Density Zone 1 (e.g., the top 50 MSAs) is presumed to be four lines, absent significant evidence to the contrary.

Objective Triggers. The FCC has established two objective criteria for determining whether competitors are impaired in a given market without access to unbundled local circuit switching, a self-provisioning trigger and a wholesale facilities trigger.

• Self-Provisioning Trigger. A state commission must find no impairment where three or more competing carriers, unaffiliated with each other or with the ILEC, is serving mass market customers in a particular market using their own switches. These providers must be: (1) actively providing voice service to mass market customers; (2) operationally ready and willing to provide service to all customers in the designated market; and (3) capable of economically serving the entire market as defined by the state commission.  State commissions are expressly prohibited from evaluating the financial stability or well-being of the competitive switching providers.
• Exceptional Sources of Impairment. Even where the objective self-provisioning trigger has been met, in exceptional circumstances, state commissions may find that significant barriers to competition exist that prevent further entry. If so, the state commission may petition the FCC for a waiver of the application of the trigger until the exceptional circumstance identified by the state no longer exists.

Competitive Wholesale Facilities Trigger.  A state commission must find no impairment where two or more competing carriers, unaffiliated with each other or with the ILEC, offer wholesale switching service for the particular market using their own switch. Unlike the self-provisioning trigger, there is no provision for a state commission to seek a waiver of the wholesale facilities trigger in exceptional circumstances.

Analysis of Potential Deployment. If neither of the objective triggers has been satisfied, a state commission must evaluate whether self-provisioning of switching is economic notwithstanding the fact that no three carriers have in fact provisioned their own switches. The state commissions are directed to evaluate the following three types of evidence: (1) whether competitors are using their own switches to serve enterprise or mass market customers; (2) whether CLEC entry is uneconomic because of ILEC performance in provisioning loops, difficulties in obtaining collocation space due to lack of space, ILEC delays in provisioning, or difficulties in obtaining CLEC-to-CLEC cross-connects; and 3) potential economic barriers.  In conducting their review of economic barriers, state commissions are instructed to consider all of the likely revenues and costs associated with mass market service, including: (1) revenues from basic retail charges, vertical features, universal service payments, subscriber line charges, toll services, and data services; and (2) costs of purchasing and installing switches, recurring and non-recurring charges paid to the ILEC for loops, collocation, transport, hot cuts, OSS, signaling, costs of collocation equipment, costs of backhauling local traffic to the competitor’s switch, customer transfer costs, maintenance, operation and administrative costs, and the competitor’s cost of capital. In assessing costs, state commission’s must also take into account the entrant’s likely market share, scale economies, and line density of the wire center.

Baseline Rolling Use of UNE Switching. If after applying the triggers and the analysis of potential deployment a state commission finds impairment, it must next consider use of “rolling access” to UNE switching for a temporary period of not less than 90 days. Rolling access would permit CLECs to acquire customers through the use of unbundled local circuit switching for a temporary period, permitting later migration of these customers to the CLEC’s own switching facilities. If rolling access would “cure” any impairment that would otherwise undermine competition, the state must implement rolling access rather than perpetuating permanent access to the switching element.

Transition Rules. Pending state commission determinations regarding impairment in the mass market, ILECs will be required to continue providing UNE switching. However, the FCC retained its four-line “carve out” from the UNE Remand Order, which relieves ILECs from the obligation to provide UNE switching to requesting carriers for serving customers with four or more DS0 loops in density zone one of the top fifty MSAs.

Continuing Review. States are expected to adopt procedures for reevaluating their conclusions following the initial impairment review. Any such proceedings must be completed within six months of the filing of a petition submitted to the state commission requesting such review.

State Commission Failure to Act. To the extent a state commission fails to complete its granular review within the nine month time frame, any aggrieved party may petition the FCC. Similarly, aggrieved parties may petition the FCC if a state commission fails to timely adopt a batch cut migration process or fails to provide a detailed explanation why such a process is unnecessary. ILECs must continue to provide unbundled local circuit switching pending FCC disposition of any such filing.

Transition of the Embedded Customer Base. A competing carrier must transfer its embedded base of DS1 enterprise customers to an alternative service arrangement within 90 days from the end of the 90-day consideration period, unless a longer period is necessary to comply with the “change of law” provisions of an applicable interconnection agreement. To the extent a state commission finds “no impairment” for mass market customers in a particular market, mass-market carriers must commit to an implementation plan with the appropriate ILEC within two months from the finding of no impairment. Thus, if a state commission determines that there is no impairment for a particular market in its initial nine-month review, the carriers must have a plan in place within 11 months of the effective date of this Order. By five months after a finding of no impairment, CLECs may no longer request access to unbundled local circuit switching. Moreover, CLECs must submit the necessary orders for one-third of their customers in accordance with the following schedule: (1) 13 months after a finding of no impairment, each CLEC must submit orders for one-third of all its unbundled local circuit switching end users; (2) 20 months after a finding of no impairment, each CLEC must submit orders for half of its remaining unbundled local circuit switching end users; and (3) 27 months after a finding of no impairment, each CLEC must submit orders for its remaining unbundled local circuit switching end users.

Shared Transport. Shared Transport is available as a UNE only when Unbundled Local Switching is available as a UNE.  State switching analysis to include economic characteristics of shared transport and backhaul.

Packet Switching. The FCC found, on a national basis, that Packet Switching (including routers and DSLAMs) is not a UNE.  There is no distinction made between mass market and enterprise customers.

Signaling Networks. Signaling Networks are not a UNE for carriers deploying their own switches. Carriers purchasing the switching UNE must also gain access to ILEC signaling. The FCC applied a national level analysis, applicable to both mass market and enterprise markets.

Call-Related Databases - LIDB; CNAM; Toll Free Calling; LNP; AIN; and E911. With the exception of the 911 and E911 databases, access to ILEC call-related databases is not a UNE. Where switching remains a UNE, however, competitive carriers purchasing the switching UNE will have access to signaling and the call-related databases that the signaling networks permit carriers to access.

OSS Functions. Access to OSS remains a UNE on a national basis, although the FCC did recognize a state role in ensuring access to required OSS functions. Note that ILEC loop qualification information obligations may be met by providing carriers with the same underlying information that ILEC has in any of its own databases or internal records without offering direct access to those records.

SECTION VII: SCOPE OF UNBUNDLING OBLIGATIONS

 Combinations of Network Elements. The Commission reaffirmed its existing rule regarding UNE combinations, requiring an ILEC to provide a UNE combination upon request and prohibiting it from separating combinations that are ordinarily combined except upon request. An ILEC is required to provide only combinations that are technically feasible. A combination is not technically feasible if it impedes an ILEC’s ability to retain responsibility for the management, control, and performance of its network.

EELs.  EELs must be made available where the underlying loop and transport elements are available pursuant to the impairment analysis and the requesting carrier provides a qualifying service. In addition, for DS1 and DS3 EELs, a carrier must meet additional service eligibility requirements, as discussed below. An ILEC may not impose additional conditions or limitations upon obtaining access to EELs and other UNE combinations, such as a requiring a CLEC to purchase special access and then convert those facilities to UNEs.

Commingling --Transmission Facilities. The Commission eliminated the commingling restriction applicable to stand alone loops and EELs that it adopted in the Supplemental Order Clarification. Thus, requesting carriers may commingle UNEs and UNE combinations with wholesale services (e.g. tariffed switched and special access services) and the ILEC must perform the necessary functions to effectuate such commingling upon request. However, the Commission did not require “ratcheting,” which is a pricing mechanism that involves billing a single circuit at multiple rates to develop a single blended rate. Thus, a CLEC that commingles UNE combinations with interstate access service would pay the appropriate rate for each. In addition, the Commission clarified that ILECs must permit commingling of UNE and UNE combinations with any network elements purchased pursuant to Section 271 and services offered for resale.

Conversions. The Commission declined to establish specific procedures and processes that ILECs and CLECs must follow when converting wholesale services to UNEs or UNE combinations or vice versa. A CLEC may convert from wholesale services to UNEs or UNE combinations, so long as the CLEC meets the eligibility requirements that may be applicable. To the extent a CLEC fails to meet the eligibility criteria, an ILEC may convert UNEs or UNE combinations to wholesale services in accordance with the procedures established between the parties. A CLEC that meets the eligibility criteria may convert from wholesale services to UNEs or UNE combinations, assuming the UNE is still available pursuant to the impairment analysis. The Commission also declined to require ILECs to allow requesting carriers an opportunity to dissolve existing contractual arrangements through a conversion request. However, because ILECs are never required to make conversions to serve their own customers, they may not charge CLECs non-recurring charges related to a conversion. 

Service Eligibility to Access UNEs. A requesting carrier must provide qualifying service to a customer to obtain access to UNEs. The Commission also adopted further eligibility requirements for DS1 and DS3 EELs because of the potential to use these circuits for “gaming” (avoiding access charge). The additional eligibility criteria only apply to high-capacity EELs. The additional service eligibility criteria must be satisfied to: (1) convert a special access circuit to a high-capacity EEL; (2) obtain a new high-capacity EEL; or (3) obtain a UNE pricing part of a high-capacity loop-transport combination (commingled EEL).

Additional Criteria. To obtain a high-capacity EEL a requesting carrier must:

1. Have a state certification of authority to provide local service;
2. Have at least one local number assigned to each DS1 circuit and must provide 911 or E911 capability on each circuit; and
3. Meet circuit specific architectural safeguards.

Because some CLECs do not provide telephone numbers at the time of ordering, the Commission found that a requesting carrier may satisfy the numbering and 911/E911 criteria to initiate the ordering process for a new EEL circuit by certifying that it will not begin to provide service until a local number is assigned and 911 or E911 capability is provided.

The circuit specific architectural safeguards are:

1. Each circuit must terminate into a collocation governed by Section 251(c)(6) at an ILEC central office within the same LATA as the customer premises;
2. Each circuit must be served by an interconnection trunk in the same LATA as the customer premises served by the EEL for the meaningful exchange of local traffic (for every 24 DS1 EELs or the equivalent, the requesting carrier must maintain at least one active DS1 local service interconnection trunk); and
3. Each circuit must be served by a Class 5 switch or other switch capable of providing local voice traffic.

The criteria are applied on a circuit-by-circuit basis so each high-capacity EEL must satisfy the criteria. For a DS3 EEL, the requesting carrier must satisfy the criteria for the DS1-equivalent circuit capacity.

Certification and Auditing. The Commission’s Supplemental Order Clarification established a self-certification and auditing framework for carriers meeting safe harbors to convert tariffed loop-transport combinations to UNE rates.  Although the bases and criteria for the service tests being imposed are different than those set forth in the Supplemental Order Clarification, the Commission adopted comparable certification and auditing procedures that entitle requesting carriers to unimpeded UNE access based upon self-certification, subject to later verification.

The Commission concluded that self-certification is an appropriate method for a CLEC to satisfy qualifying service eligibility criteria for high-capacity EELs. Before accessing (1) a converted high-capacity EEL, (2) a new high-capacity EEL, or (3) part of a high-capacity commingled EEL as a UNE, a requesting carrier must certify to the service criteria.  The Commission declined to specify the form for self-certification but reaffirmed that a letter sent to an ILEC is appropriate.

The Commission concluded that an ILEC may conduct limited audits when an ILEC has concern that a requesting carrier has not met qualifying service eligibility, but only to the extent reasonably necessary to determine the CLEC’s compliance.  An ILEC may hire an independent auditor to audit a carrier’s compliance on an annual basis, but not prior to the ILEC’s provisioning of the requested services. Requesting carriers are expected to maintain the appropriate documentation to support their certifications.

If the auditor’s report concludes that a CLEC failed to comply with service eligibility criteria, the CLEC must true-up any difference in payments, convert all noncompliant circuits to the appropriate service, and make the correct payments on a going-forward basis. The CLEC will also be responsible for audit costs.  In the event that the auditor’s report concludes that the requesting carrier complied with the eligibility criteria, however, the ILEC must reimburse CLEC for its audit-associated costs.

Modification of Existing Network. The Commission addressed its authority to require ILECs to engage in activities necessary to activate loops not already activated and to modify existing networks in order to provide access to network elements in light of the Eighth Circuit’s holding in Iowa Utilities Board, that 251(c)(3) requires “unbundled access only to an incumbent LEC’s existing network—not to a yet unbuilt superior one.” The court also held that an ILEC can be required to modify its facilities to accommodate interconnection or access to network elements but cannot be required “to alter substantially their substantially their networks in order to provide superior quality interconnection and unbundled access.”

Routine Network Modifications to Existing Facilities. The Commission held that an ILEC must make “routine network modifications” to unbundled transmission facilities used by requesting carriers where the requested transmission facility has already been constructed. The Commission set forth the basic principle that when provisioning high-capacity loop facilities to competitors, an ILEC must make the same routine modifications to its existing loop facilities that to makes for its own customers. Routine network modifications include activities that ILECs regularly undertake for their own customers but do not include the construction of new wires for a requesting carrier.

The Commission specifically declined to list the precise electronics that an ILEC must add to the loop in order to transfer a DS0 voice-grade loop to an unbundled DS1 loop. However, it identified the following loop modification functions as those routinely performed by an ILEC for its own customers:  rearrangement or splicing of cable; adding a doubler or repeater; adding an equipment case; adding a smart jack; installing a repeater shelf; adding a line card; and deploying a new multiplexer or reconfiguring an existing multiplexer. While the Commission found that an ILEC is not required to trench or place new cables for a requesting carrier, the Commission said that activities such as accessing manholes, splicing into existing cable, deploying bucket trucks to reach aerial cable and installing equipment casings are routine activities. The Commission also said that the requirement that an ILEC must modify its network on a nondiscriminatory basis applies to all transmission facilities, including dark fiber facilities. The Commission encouraged state commissions to further identify routine modifications that ILECs make for their own customers.

The Commission concluded that its pricing rules provide ILECs with the opportunity to recover the cost of routine network modifications and gave state commissions the discretion to permit recovery of such costs through non-recurring or recurring charges. The Commission noted, however, that the costs associated with routine network modifications are often reflected in the recurring rates that CLECs pay for loops.

The Commission declined to reconsider its finding that charges for certain types of network modification (loop conditioning, unbundling of IDLC loops) were inconsistent with the TELRIC pricing rules, but said it will address this and other issues raised by petitions for reconsideration in its upcoming proceeding on TELRIC-related issues. 

Line Conditioning. The Commission found that a CLEC would be impaired without access to xDSL-capable stand-alone copper loops and therefore required ILECs to provide access, to such loops on an unbundled basis.  Recognizing that providing access to xDSL-capable stand-alone copper loops may require an ILEC to condition the local loop, the Commission readopted the line and loop condition rules set forth in the UNE Remand Order. The Commission found that line conditioning does not constitute the creation of a superior network but is rather a routine network modification that ILECs regularly perform to provide xDSL services to their own customers. 

SECTION VIII: REMAINING ISSUES

Section 271 Issues. The FCC determined that the BOCs that have received interLATA relief under Section 271 have an independent continuing obligation to provide unbundled access to loops, switching, transport, and signaling, regardless of any unbundling analysis under section 251 (e.g., a finding of no impairment). However, BOCs are relieved of the obligation to combine network elements that are made available exclusively pursuant to Section 271. Nor do the FCC’s commingling rules apply to network elements provided only under Section 271. In addition, TELRIC rates do not apply to loop, switching, transport, or signaling elements provided exclusively pursuant to Section 271. Instead, the rates for such elements must be determined according to the just, reasonable and nondiscriminatory rate standard of Sections 201 and 202 of the Communications Act. The FCC will set such rates in the context of 271 proceedings. In the event a BOC has already received Section 271 authorization, the FCC may establish non-TELRIC rates for elements provided solely pursuant to Section 271.

Clarification of TELRIC Rules. While the FCC left in place the general TELRIC framework at this time, it did determine that it should clarify the application of two components of TELRIC—cost of capital and depreciation.

• Cost of Capital. The FCC ruled that a TELRIC-based cost of capital should reflect the risks of a competitive market. States should establish a cost of capital that reflects the competitive risks associated with participating in the type of market that TELRIC assumes, and not only the actual competitive risk the ILEC currently faces in providing UNEs.

The FCC also said that a TELRIC-based cost of capital should reflect any unique risks (above and beyond the competitive risks discussed above) associated with new services that might be provided over certain types of facilities. The use of UNE-specific costs of capital is an acceptable method of reflecting in UNE prices any risk associated with new facilities that employ new technology and offer new services.

• Depreciation. The FCC declined to mandate the use of financial lives in establishing depreciation expense under TELRIC. State commissions continue to have discretion with respect to the asset lives they use in calculating depreciation expense. In calculating depreciation expense, therefore, the rate of depreciation over the useful life should reflect the actual decline in value that would be anticipated in the competitive market.

Fresh Look. The Commission had sought comment in the NPRM on “what bases competitors should be able to obtain a ‘fresh look’ for long-term commitments.” However, the  FCC rejected CLEC arguments that the Commission should not permit ILECs to impose early termination liabilities on competitive LECs converting from special access to UNEs.

Transition Period.

No Automatic Implementation. While the FCC declined the request of several BOCs that it override the Section 252 process and unilaterally change all interconnection agreements to reflect the terms of this order,  the Commission did provide some “guidance” to carriers and commissions as to how this transition process ought to work.

Timetable.  ILECs and CLECs must use Section252(b) as a default timetable for modification of interconnection agreements that are silent concerning change of law and/or transition timing. The effective date of the rules adopted in the Order will be the notification or request date for contract amendment negotiations under this default approach.

According to the Order, where a negotiated agreement cannot be reached, parties must file their requests for state arbitration between 135 and 160 days after the Order’s effective date. In turn, the state commissions must conclude their consideration of such disputes within nine months of the Order’s effective date. This timetable apparently is intended to apply even if there is contrary language in any interconnection agreement.

Trigger Date for Negotiations. Change of law provisions are triggered “when the decision of the D.C. Circuit reversing the Commission’s prior UNE rules becomes final and nonappealable.”

Periodic Review of National Unbundling Rules. There will be no further de novo triennial reviews. Instead, the FCC will rely on the biennial review process, which is not a de novo review.  Moreover, the FCC said it would not entertain ad hoc motions or petitions to remove or add UNEs. Presumably, this policy will not include petitions from State Commissions for waivers of the switching finding of no impairment, as the Commission specifically allowed Commissions to file such petitions after the expiration of the initial 90-day review period.

SECTION IX: FURTHER NOTICE OF PROPOSED RULEMAKING

The FCC’s decision also includes a “Further Notice of Proposed Rulemaking” (the “FNPRM”), proposing changes to the FCC’s “pick-and-choose” rule adopted pursuant to Section 252(i) of the Act. Rather than continuing to allow CLECs to opt into individual portions of interconnection agreements without accepting all of the terms and conditions of those agreements, the FCC is considering a major revision to this rule for ILECs that have obtained state approval for a Statement of Generally Available Terms and Conditions (an “SGAT”).

First, the FCC wants commenters to address the threshold question of whether the FCC even has the authority to reinterpret Section 252(i) of the Act, in light of the Supreme Court’s decision upholding the FCC’s current interpretation of this provision. Assuming the FCC may change its interpretation, the FCC requests comment on the extent to which the pick-and-choose rule impedes meaningful contract negotiations. The FCC has already tentatively concluded that the rule discourages negotiations in interconnection agreements and should be changed.  The FCC asks parties disagreeing with this conclusion to provide concrete evidence that meaningful negotiations in fact occur under pick-and-choose.

Second, the FCC proposes to change the current pick-and-choose rule as follows:

• If an ILEC does not request and obtain state approval for a SGAT, then the current pick-and-choose rule would continue to apply to all approved interconnection agreements.
• If an ILEC requests and obtains state approval for a SGAT, then the current pick-and-choose rule would apply solely to the SGAT. All other approved interconnection agreements with that carrier would be subject to an “all-or-nothing” rule requiring CLECs to adopt the interconnection agreement in its entirety.

The FCC requested comment on whether this approach would adequately address the shortcomings of the pick-and-choose rule; whether this approach is workable for all classes of carriers, including smaller CLECs; and whether there are other means of ensuring meaningful marketplace negotiations in interconnection agreements.  Also, since the provision of the Act allowing an SGAT to be filed applies only to BOCs and not to all ILECs, the FCC also requests comment on whether it may also apply this change to the pick-and-choose rule to non-BOC ILECs. 

Comment deadlines have not yet been established, but comments will be due 30 days after the item is published in the Federal Register and reply comments will be due 30 days after publication.