California PUC Just Can’t Let Go

Published May 24, 2004

In the latest wrinkle concerning regulation of Unbundled Network Elements-Platform (UNE-P), the California Public Utilities Commission (PUC) has asked SBC to submit its interconnection agreement with Sage Telecom for review.

The agreement was not PUC-mandated, but negotiated freely, and SBC politely declined the commission’s request, saying public disclosure of the details would compromise terms it wants to keep proprietary. The PUC’s action raises serious concerns about regulation of telecom agreements consummated in a competitive, market-driven environment.

The argument that SBC is the largest telecom service provider in California, and therefore its business demands greater scrutiny, doesn’t wash. McDonald’s, the largest fast-food chain, is not required to file with regulators its wholesale agreements with potato farmers and beef suppliers. General Motors is not required to report the terms of purchasing with its subcontractors. Why should telecommunications be treated differently?

It’s unclear whether the PUC request is regulatory inertia–a kind of “we’ve-always-reviewed-phone-company-contracts-so-why-should-this-be-any-different”–or an intentional strategy to inject itself into yet another aspect of the industry. Either way, the PUC is overreaching.

What We’ve Been Waiting For

Tthe SBC-Sage deal, and others likely to follow it, are exactly the market-directed responses to the Telecom Act we’ve been waiting for. Deals like this were the goal of deregulation.

By all accounts, SBC and Sage arrived at a mutually acceptable agreement on the price Sage would pay for access to SBC’s unbundled network elements. Not even the PUC suggests SBC coerced Sage into accepting unfavorable terms.

Wholesale network interconnection agreements are among the hallmarks of a competitive telecom environment. With competition in both access and transport networks, consumer and business traffic traverses facilities owned and operated by any number of companies, all of whom have negotiated bilateral or multilateral agreements as to how they will compensate each other for connecting calls.

Negotiated agreements for interconnection and access to facilities have been standard business in wireless from the beginning. They are also the reason international calls have dropped to pennies per minute. They are driving voice over Internet Protocol (VoIP), and they will be indispensable to expanding public wi-fi.

In short, interconnection agreements like Sage and SBC’s represent the current and future competitive industry and a decisive step away from the monopolistic past. One hopes the California PUC’s call for review of the deal does not presage a desire or intention to regulate all such agreements. These contracts have become so pervasive that such a move would foist on the industry another huge roll of regulatory red tape, in a state where excessive regulation already has hindered economic growth and made California the most expensive state in the union in which to do business.

California–and PUCs everywhere–should be doing their best to encourage these deals. These new agreements represent a fundamental shift toward market-based UNE-P solutions. Letting deals like SBC-Sage go forward will speed deployment of broadband and other innovative telecommunications services through true, unsubsidized competition.

Steven Titch ([email protected]) is a telecommunications technology and policy analyst in Chicago.