FCC Struggles to Get Past Unbundling

Published February 1, 2005

The Federal Communications Commission (FCC) in December issued its latest version of the unbundling rules it will require for incumbent local exchange carriers.

The FCC made progress in several ways. First, it signaled that competitors could no longer provide service by, in essence, leasing established phone companies’ entire networks at steeply discounted rates set by the government. Second, the agency stated it would consider the future prospects of competition in deciding whether companies entering the market are “impaired” and thereby entitled to lease those parts of the network the agency’s rules still cover. Third, the agency established numeric thresholds so that incumbent phone companies will not be required to lease parts of their networks to competitors throughout entire geographic areas.

Yet there are some potential risks in the agency’s approach that cannot be fully evaluated until the complete order is released. Although the agency will be able to assure the Court that companies will need to invest in their own equipment to get the full economic benefit of owning a network, those assurances won’t become effective until the end of transitions lasting a year or more. So the Court will need to decide whether those transitions are reasonable steps to prevent disruption of service to customers, or whether the agency has unduly prolonged obligations it had no authority to adopt in the first place.

Similarly, although the FCC apparently has heeded the Court’s warning not to disregard the prospects for future competition based on a variety of technologies and services, the Court may be skeptical that the agency afforded reasonable weight to such evidence. The numeric thresholds set by the agency, after all, do not appear to rely expressly on such evidence. And it’s difficult to shake the feeling that a Court that has criticized the FCC harshly for failing to comply with the law in this area three times previously may not be satisfied by a fourth attempt under which the FCC still would require incumbents to lease certain equipment in the vast majority of cases.

Only time (and the Court itself) will tell whether the pluses of the December decision outweigh its minuses. With any luck, the FCC may be able to put this proceeding to bed soon so it can devote more of its energies to finishing the framework to promote investment in more innovative services.

Kyle D. Dixon ([email protected]) is senior fellow and director of the Federal Institute for Regulatory Law and Economics at the Progress & Freedom Foundation, Washington, DC. This article is adapted from PFF’s blog, http://www.pff.org/weblog.