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Separate Statement
of
Commissioner Susan Ness

Re: Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket No. 96-98

Local competition is the cornerstone of the Telecommunications Act of 1996 (the Act). Under section 251 of the Act, Congress facilitated the transition from a monopoly to a competitive market for telecommunications services by creating three vehicles for entry: reselling the services of the incumbent local exchange carrier (ILEC) at retail prices less avoided costs; leasing one or more "unbundled network elements" (UNEs) from the ILEC at wholesale discounts; and offering facilities-based competition. Policy makers assumed -- but did not require -- that most new competitors would migrate over time to their own facilities as equipment availability and customer demand warranted. Initially, however, new entrants would need to use piece-parts of the incumbent's network to establish a foothold in a market.

Just over three years ago, in our Local Competition Order, I voted to "unbundle" seven network elements under section 251(d)(2) of the Act. In January, the Supreme Court remanded to the Commission that section of our order dealing with unbundled network elements, finding that we had not adequately considered the "necessary and impair" standard when we gave competitors "blanket access" to the incumbents' networks.(1)

In August of 1996, with little local competition on the horizon, we took an expansive view of what new entrants would need to jumpstart competition and a narrow view of the limitations embodied in section 251(d)(2). Today, with three years of experience to guide us, we have crafted a standard that balances the need to jumpstart competition with the need to preserve incumbent incentives to innovate and invest in new facilities. The analytical framework we adopt today facilitates efficient rather than inefficient competition - as Congress intended.

Our new standard reconfigures the national list by paring down some elements and bolstering others. I write separately to elaborate on a few key points.

Advanced Services

I support our decision not to require unbundling of facilities used to provide advanced services, such as packet switches and DSLAMs. Incumbents argue that, if forced to unbundle such facilities, incumbents would have no incentive to deploy these new broadband networks in rural areas.(2) In many urban markets, we have witnessed competition from cable providers and other new entrants propel local exchange carriers to roll out xDSL service. But I am concerned about the limited availability of advanced services in rural America today. Advanced services are a key to rural economic renaissance, because they enable entrepreneurs to establish new businesses literally anywhere and strengthen the economic viability of established enterprises. If the incumbents are correct that unbundling inhibits investment in these areas, then I expect -- as a result of our action today -- to see a surge in incumbent investment in facilities to provide advanced services to our rural communities.

Unbundled Local Switching

I support the majority's decision to "carve out" an exemption from the general unbundling requirement for switches serving dense, urban markets. Lack of access to unbundled switching should not impair the ability of new entrants to provide service in these markets, especially if those competitors are targeting large and medium size businesses. Indeed, evidence in the record shows that most of the competitive facilities-based deployment has occurred in precisely these high-density zones. Although no fit will ever be perfect, we have given careful consideration to areas where competitors are self-provisioning or where there is a possibility that competitors can purchase from another provider -- two of the key factors that the Supreme Court said we failed to consider in our initial decision.(3)

I have reservations, however, about the decision to require unbundling for small businesses with three lines or less. While I want to ensure that small businesses also have a choice of providers, I am concerned that adding additional unbundling requirements in high density areas is not the best way to address the problem. A policy based on the number of telephone lines a customer orders could create consumer confusion and be an administrative nightmare. What happens, for example, if the number of lines that a small business orders fluctuates seasonally (e.g., during the holiday season)? I fear that tracking the number of lines in this manner imposes significant administrative costs on carriers and is potentially unenforceable. I am also concerned about undercutting those providers that have deployed their own switches and want to serve the small business community.

In addition, unlike the majority, I would have required access to unbundled switching for all residences, rather than only those with three lines or less. There are instances where multiple families live together in a single residence, or students - all of who order their own telephone lines - share accommodations. Surely these instances meet the definition of "mass market" and should not be excluded from the exception.

Operator Services and Directory Assistance (OS/DA)

I am delighted that third-party providers of OS/DA are emerging to fill an increasing need for OS/DA services. However, the Act does not require incumbents to provide these third-party providers with nondiscriminatory access to directory databases.(4) This clearly hampers their ability to provide reliable directory assistance to those carriers that will now need to rely on a non-incumbent source for their OS/DA. I recognize that we have raised this issue in the context of another proceeding, which I hope will be resolved shortly.

Combinations of UNEs and Special Access

The order defers decision on whether there should be limited use restrictions for certain combinations of UNEs to avoid an opportunity for arbitrage for special access. While I agree that we should develop a fuller record on this issue, I am hesitant to start down the slippery slope of adopting use restrictions on UNEs. Nevertheless, I will withhold final judgment on these issues until I have reviewed the record developed in response to the Further Notice. I am particularly interested in finding out whether restricted use of UNE combinations might inadvertently lead to inefficient or unreliable network configurations.

Conclusion

We have adopted a workable framework that takes into account variations in the way that competition is developing in different areas of the country. We have reaffirmed the benefit of a national policy that provides competitors with the certainty they need to develop business plans and raise capital, and reduces the opportunity for further protracted litigation. As competition continues to take hold, we intend to scale back our unbundling requirements even further. Now that the new rules are in place, I urge all players to move beyond litigation and to embrace competition.


1     AT&T v. Iowa Utils. Bd., 119 S.Ct. 721 (1999).

2    See Comments of US West, at 60 (arguing that unbundling advanced services elements would have a "dampening effect on the incentives of both CLECs and ILECs to invest and innovate in advanced services technologies, particularly in high-cost areas"); Comments of SBC, at 76-77 (warning that "consumers are harmed when new technologies never enter the market because of disincentives created by a regulatory regime"); Comments of Bell Atlantic, at 43-44 (arguing that unbundling obligations for advanced services equipment would reduce incentives for incumbents to invest in such equipment); Comments of GTE, at 80 (stating that an unbundling rule for advanced services elements would "result in less innovation and [would] deprive consumers of valuable new services"). See also Comments of USTA, at 40-42 (stating that an ILEC would be "unlikely to invest in deployment of new broadband networks and services if it knows that the Commission will [require unbundling]").

3    See 119 S.Ct. at 735.

4    47 U.S.C. 251(b)(3).