FCC Releases Interim Order on Unbundled Network Elements

In Order and Notice of Proposed Rulemaking (NPRM) FCC 04-179, the Federal Communications Commission ("Commission") established a 12-month plan on alternative unbundling rules for network elements consisting of two phases. On an interim basis, the Commission required that between the effective date of the Order and the effective date of the permanent unbundling rules that the Commission plans to issue before the close of 2004, incumbent local exchange carriers (ILECs) must continue providing unbundled access to switching, enterprise market loops, and dedicated transport under the same rates, terms and conditions that applied under their interconnection agreements as of June 15, 2004.

The Commission set forth transitional measures for the next six months thereafter — in the absence of a Commission holding that particular network elements are subject to the unbundling regime, those elements would still be made available to serve existing customers for a six-month period, at rates that will be "moderately higher" than those in effect as of June 15, 2004.

The requirements will take effect immediately upon Federal Register publication, and without prior public notice and comment. The interim rates, terms, and conditions will remain in place until the earlier of the effective date of final unbundling rules promulgated by the Commission or six months after Federal Register publication of the Order, except to the extent that they are or have been superseded by: (1) voluntarily negotiated agreements; (2) an intervening Commission order affecting specific unbundling obligations (e.g., an order addressing a pending petition for reconsideration); or (3) (with respect to rates only) a state public utility commission order raising the rates for network elements.

The Order expressly preserved ILECs' contractual prerogatives to initiate change of law proceedings to the extent consistent with their governing interconnection agreements. The Order did not restrict such change-of-law proceedings from presuming an ultimate Commission holding relieving ILECs of Section 251 unbundling obligations with respect to some or all of these elements, but under any such presumption, the results of such proceedings must reflect the transitional structure set forth in the Order. However, the rates, terms or conditions resulting from any such proceeding cannot take effect before the earlier of (1) Federal Register publication of the Order or (2) the effective date of the forthcoming final unbundling rules. The Commission held that competitive LECs (CLECs) may not opt into the contract provisions "frozen" in place by the interim approach.

The interim rules are not subject to a "true-up," under which, for example, competing carriers would be required to pay back the difference between unbundled network element (UNE) and market-based rates if the Commission determines that a particular network element need not be unbundled under its permanent rules.

The Commission adopted the interim and transition requirements "consistent with our statutory mandate to protect the public interest." It found "credible evidence" that some ILECS have informed CLECs of their intention to initiate proceedings to curtail their UNE offerings, and that at least one Bell Operating Company (BOC) has announced its intention to withdraw certain UNE offerings immediately. While stating that such actions are permitted under the D.C. Circuit's USTA II decision, the Commission found they would likely have the effect of disrupting competitive provision of telecommunications services to millions of customers, and noted that the dispute resolution process arising from the operation of change of law clauses would be uncertain and wasteful.
 
The entire 12-month plan is:

Interim period: The interim rules will govern until the earlier of (1) six months after Federal Register publication of the Order or (2) the effective date of the final unbundling rules adopted by the Commission in the proceeding opened by the NPRM. ILECs must continue providing unbundled access to switching, enterprise market loops, and dedicated transport under the same rates, terms and conditions that applied under their interconnection agreements as of June 15, 2004.  Unbundled switching encompasses mass market local circuit switching and all elements that must be made available when such switching is made available. These rates, terms, and conditions shall remain in place during the interim period, except to the extent that they are or have been superseded by (1) voluntarily negotiated agreements, (2) an intervening Commission order affecting specific unbundling obligations (e.g., an order addressing a pending petition for reconsideration), or (3) (with respect to rates only) a state public utility commission order raising the rates for network elements.

Transition period: For the six months following the interim period (that is, the six months following the expiration of the interim requirements on the earlier of six months after Federal Register publication of the Order or the effective date of the Commission's final unbundling rules), in the absence of a Commission ruling that switching, dedicated transport, and/or enterprise market loops must be made available pursuant to Section 251(c)(3) in any particular case, the Commission proposed the following requirements, "designed to protect ILECs' interests while also guarding against the precipitous rate increases that might otherwise result."

First, in the absence of a Commission ruling that switching is subject to unbundling, an ILEC will only be required to lease the switching element to a requesting carrier in combination with shared transport and loops (i.e., as a component of the "UNE platform") at a rate equal to the higher of (1) the rate at which the requesting carrier leased that combination of elements on June 15, 2004 plus one dollar, or (2) the rate the state public utility commission establishes, if any, between June 16, 2004, and six months after Federal Register publication of the Order, for this combination of elements plus one dollar.

Second, in the absence of a Commission ruling that enterprise market loops and/or dedicated transport are subject to Section 251(c)(3) unbundling in any particular case, an ILEC will only be required to lease the element at issue to a requesting carrier at a rate equal to the higher of (1) 115 percent of the rate the requesting carrier paid for that element on June 15, 2004, or (2) 115 percent of the rate the state public utility commission establishes, if any, between June 16, 2004, and six months after Federal Register publication of the Order, for that element.

The Commission did not preclude state commissions from imposing price increases greater than those specified in the Order, nor did it prohibit carriers from entering into agreements contemplating other pricing arrangements. With respect to all elements at issue here, the transition period will apply only to the embedded customer base; CLECs may not add new customers at these rates. As during the interim period, carriers remain free to negotiate alternative arrangements (including rates) superseding the rules (and state public utility commission rates) during the transition period. During the transition period, incumbent carriers may not charge a rate higher than the rate described in the Order (i.e., the June 15 rate plus one dollar for the UNE platform, or 115 percent of the June 15 rate for enterprise loops and/or dedicated transport) absent the negotiated consent of the competitor leasing the element or a state commission ruling expressly permitting the higher rate. Subject to the comments requested in response to the NPRM, the Commission intends to incorporate the second phase of the plan into the final rules.

Post-transition period: After the transition period expires, ILECs will be required to offer on an unbundled basis only those UNEs set forth in the final unbundling rules, and subject to the terms and conditions set forth therein. The specific process by which those rules shall take effect will be governed by each ILEC's interconnection agreements and the applicable state commission's processes.

The NPRM requested comment on how to respond to the USTA II decision in establishing "sustainable" new unbundling rules under Sections 251(c) and 251(d)(2). The Commission requested comment on the changes to the unbundling framework required under USTA II. The Commission sought comment on how various ILEC service offerings and obligations, such as tariffed offerings and BOC Section 271 access obligations, fit into the unbundling framework. The Commission requested comment on how best to define relevant markets (e.g., product markets, geographic markets, customer classes) to develop rules that account for market variability and to conduct the service-specific inquiries to which USTA II refers. The Commission sought comment on how to respond to the D.C. Circuit's guidance on other threshold factors, including the relationship between universal service support and UNEs. The Commission requested comment on what additional transition mechanisms, if any, would help to prevent service disruptions during cut-overs from UNE facilities to a carrier's own (or third-party) facilities, or for conversions to tariffed or other service arrangements, and would be consistent with the court’s decision. The Commission sought comment, including evidence at a granular level, on which network elements ILECs must make available as UNEs in which specific markets, consistent with USTA II, and how the Commission should make those determinations. The Commission invited parties to comment on any other issues the Commission should address in light of USTA II. The Commission also adopted a Protective Order governing commercially sensitive business information submitted by parties in response to the NPRM. Comments are due 21 days after Federal Register publication, and replies 36 days after Federal Register publication.
The Order and NPRM is available here:
http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-04-179A1.doc