Text Version

December 24, 1997


Re: Application of BellSouth Corporation et al. Pursuant to Section 271 of the Communications Act of 1934, as amended, to Provide In-Region, InterLATA Services in South Carolina (CC Docket No. 97-208).

In denying BellSouth's bid to enter the long distance market in South Carolina, we recognize that the company has taken some significant steps in meeting the prerequisites for entry established by Congress under section 271. BellSouth's application is deficient in certain important areas, such that we cannot approve it in its present form. Nevertheless, these deficiencies can be corrected, and I encourage BellSouth to double its efforts to find workable and creative approaches that will enable it to satisfy the Act's requirements, which are designed to offer would-be local competitors a fighting chance to compete. I hope BellSouth accepts this challenge and returns to us with a more viable application that will lead to residents of South Carolina having an expanded number of choices for their local and long distance providers. I believe BellSouth can get there, but I caution that newspaper advertisements and letter writing campaigns will not remedy the deficiencies we have identified in this order.

If BellSouth (or any applicant) is to be successful in future applications, it must understand the ground rules. Moreover, it must have some confidence that if it takes further steps to allow competitors to win away its customers, the company will be rewarded in kind with the right to compete in the long distance market. We must always endeavor to place the seeds of section 271 success in the hands of the BOC applicants. With respect to the present application, we have attempted to offer clear guidance in a number of areas. Nonetheless, we could have done much more if we had had the time and resources to work more cooperatively with BellSouth to reach agreement on many of the checklist items, rather than having to retreat into the bowels of the Commission to slog through a 33,000 page application. Section 271 review is inefficient if it results in an applicant having to file two and three times just to obtain a clear picture of what it is doing right and what it is doing wrong. I believe we must do more or adopt a new approach to this process if we hope to provide the clarity that BOCs and new entrants need to open up local markets.

Accordingly, I want to commend my colleagues for attempting with me to clarify our interpretation of Track B, as well as for applying the competitive checklist to BellSouth's application, despite the fact that we found Track B unavailable to BellSouth. I believe that both BOCs and entrants need as much direction as we can possibly provide. In the past, there has been an inclination to fight the section 271 battle at the Track A/B "shore." Such an approach wastes time and resources, detracts from the thoroughness of our checklist analysis and clouds the guidance that incumbents and competitors alike desperately need. While I acknowledge that our interpretation of section 271 is an evolving one, I believe that our efforts in this order to flesh out the circumstances in which Track B and certain checklist items are or are not satisfied constitute a step in the right direction.

In addition, I believe the Commission, the BOCs and potential competitors must do much more to offer workable solutions to the vexing problems that are impeding the arrival of local competition. The proper standards and benchmarks for OSS is one such area. How to ensure the viable use of unbundled network elements (UNEs) in light of current legal precedent is another. Consider our own treatment of UNEs in the present application. We note, correctly, that a BOC must offer UNEs in a manner that allows them to be recombined by the new entrant. In this order, however, we fault BellSouth's collocation proposal, but offer no possible solution of our own. Rather, we (like the Department of Justice) reject the application on the grounds that the BOC failed to satisfy its burden of proving that it has met the checklist. I do not question that the BOC does and should bear the burden of proof, but I believe we could do much more to help develop and implement a workable, collaborative framework for promoting compliance with section 271, rather than relying on burdens of proof and other adjudicative devices to dispense with these applications.

In this regard, let me say more about the UNE problem. In its recent Rehearing Order,(1) the Eighth Circuit held that new entrants, rather than incumbents, must rebundle network elements. By its holding, the court undermined an intellectual construct. Notwithstanding the Eighth Circuit's interpretation, the network elements that the Commission has held must be "unbundled" are not actually tangible, physical elements that can be unplugged and replugged as easily as an electric cord from a wall socket. With the exception, perhaps, of loops and ports, the "unbundling" of network elements is not a physical process but a cost allocation fiction. Most UNE's -- though representing discrete functional capabilities that one can offer and charge for separately -- cannot in any real sense be dissociated from the software and hardware that control their operation. Thus, it seems ridiculous to suggest that incumbent LECs can physically unbundle most network elements, or that a new entrant can actually pick up those elements and recombine them, be it in a collocation cage or elsewhere.

The Commission and the various parties should stop perpetuating this myth. The UNE problem is arguably just a math problem that we should proactively address. That is, in the current environment, we should be dedicating our efforts toward crafting a method for allocating costs for UNEs that simulates the fiction of unbundling and rebundling, rather than spending time pretending that there are actually ways to take these elements apart, hand them to an entrant, and have that entrant put them back together like pieces in a Lego play set. In short, pending further review of the Eighth Circuit decisions, I believe we should invite proposals whereby a BOC would voluntarily recombine elements for a modest charge -- a "glue charge." While we await further guidance from the courts, I would encourage both BOCs and new entrants to participate actively in finding a glue charge structure or other UNE framework that they can live with, lest we find ourselves playing "catch up" in the event the courts do not reinstate our previous rulings.

Finally, I respect the genuinely held view of some that the statute confers independent jurisdiction on the Commission to establish pricing rules. I merely note that such an interpretation is not universally shared among the Commissioners. In particular, some of us question whether such an interpretation of section 271 is consistent with the Eighth Circuit's prior holdings regarding the states' ratemaking authority. I feel no need, however, to debate this legal point here. This interpretation has been challenged and is squarely presented in the mandamus action presently before the Eighth Circuit. Oral argument in that proceeding is scheduled for later next month. The Court itself will undoubtedly shed light on this important question.

1. 1 See Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997), modified on reh'g, No. 96-3321 (Oct. 14, 1997).