Post Telecommunications Act of 1996 Developments
Implementation of the Telecommunications Act of 1996 was initially hampered by RBOC legal challenges. Disagreements over pricing, implementation and order placing snafus have further hindered competitors that wished to sell service using incumbents' facilities.
FCC Rulings, Legal Challenges and Progress Toward Deregulation
The Telecommunications Act of 1996 mandated that the very organizations that compete with new entrants, the RBOCs, must also supply connections and services for competitors. The local Bell companies are offered the carrot of entrance into new businesses, out-of-region long distance and manufacturing. Nonetheless, conflicts of interest are inherent in pricing for and arranging for resale and access to Bell resources. It is no surprise that issues of pricing for resale and interconnection were contested in court. (See Table 3.2 in the Appendix at the end of this chapter.)
Enforcement of provisions and details of implementation of the Act were left, for the most part, to the FCC. Its rulings on wholesale rates and its rights to set rates were challenged by the state public utilities, local telephone companies and independent telephone companies. They contended that the 1934 Communications Act granted state utilities the prerogative of setting resale and wholesale discounts in their states. The Supreme Court ruled in January of 1999 that the FCC has jurisdiction on pricing. It also ruled that the Act is constitutional in setting conditions for only the RBOCs but not the independent telephone companies for entry into interregion long distance.
The following are factors that have slowed local competition:
Legal challenges to the Act
Interconnection disagreements between incumbents and new local carriers
Service interruptions when customers change from RBOCs to competitors
Permission for RBOCs to Sell In-Region Long Distance
A new FCC chairman, Michael Powell, took office in January 2001. In the article, “FCC Chairman Signals Change, Plans to Limit U.S. Intervention,” published in the Wall Street Journal, WSJ.com, January 2001, by Yochi J. Dreazen, concerning allowing ROBCs to offer long distance from within their territories, Mr. Powell stated:
“I do not believe that deregulation is like a dessert that you serve after people have fed on their vegetables, as a reward for competition. I believe it's instead a critical ingredient to facilitating competition, not something to be handed out after there are a substantial number of players or competitors in the market.”
This statement can be interpreted to mean that the FCC will be more lenient toward granting approval for Bell entry into long distance. Up until Powell took office, only RBOCs in four states—Kansas, Louisiana, New York State and Texas—had received permission by the Federal Communications Commission (FCC) to sell interstate long distance from within their regions. Verizon received permission in Massachusetts in April 2001 and Connecticut in July 2001. SBC, which already has permission to sell long distance in Kansas, Louisiana and Texas, stated in its 2000 Annual Report that it has filed long distance applications at the state level in Arkansas, California, Indiana and Missouri. It plans to file in 2001 in Indiana, Michigan, Ohio and Wisconsin. Once these approvals are granted, SBC will be able to sell long distance in its entire territory. BellSouth has started the regulatory process of first seeking approval in individual states in North Carolina, Georgia, Florida and South Carolina.
Verizon has a filing before the FCC for permission to sell long distance in Pennsylvania. Pennsylvania state regulators had previously unsuccessfully attempted to have Verizon operate separate retail and wholesale operations. Verizon has stated it plans to file applications in New Hampshire, Rhode Island and Vermont in 2001 and in its entire territory by 2002.
Qwest, in its year 2000 Annual Report, stated that it would file its first request in late summer 2001 and complete all other initial filings by early 2002.
To help them assess Verizon's handling of competitors interconnection orders, state regulatory agencies in New York and Massachusetts hired consulting firm KPMG to conduct an analysis of Verizon's operations support systems (OSS). Other state utility commissions are following suit.
FCC Enforcement of Access to Local Networks After Bells Gain In-Region Long DistanceThe Telecommunications Act of 1996 granted the FCC post-approval enforcement powers to monitor Bell Operating Company (BOC) adherence to rules providing access to central office and other Bell facilities (unbundled network elements) at fair rates. In their January 19, 2001 approval of SBC's application to provide in-region, inter-LATA services in Kansas and Oklahoma, the FCC made the following statements: “Section 271 (d)(6)(A) provides for the Commission to receive and review complaints filed by persons concerning alleged failures by a BOC to meet conditions required for long distance approval. Section 271 (d)(6)(A) also specified several enforcement actions that the commission can take on its own motion, including ordering the BOC to correct a deficiency, assessing a forfeiture, and suspending or revoking the BOC's authority to provide long distance service.” The commission further stated that it would monitor SBC's compliance in opening its network by requiring it to provide monthly reports for at least one year for the five-state Southwestern Bell Telephone's region of Arkansas, Kansas, Oklahoma, Missouri and Texas. The FCC's monitoring of Verizon's compliance with open competition rules after Verizon won the right to sell long distance in New York State resulted in a fine against Verizon. In March 2000, the FCC fined Verizon (then called Bell Atlantic) $13 million for mishandling competitors' orders for access to network elements in New York State. As a result of the fine, Verizon stated that it was delaying its application for permission to sell out-of-region long distance in Massachusetts until it fixed the same order processing system used in Massachusetts. It received permission to sell long distance in Massachusetts in 2001. |
Unbundled Network Elements (UNEs)—Competitors Leasing Parts of RBOCs' Networks
There are numerous disagreements between CLECs and incumbent telephone companies regarding rates for interconnection and discounts for resale. State utilities set resale discounts using formulas set by the FCC. These discounts range from the low to high 20%s.
Competitors lease unbundled network elements from incumbents. An unbundled network element (UNE) is defined as a facility used to provide telecommunications services. Competitors want fees for these elements to be based on current costs, which are often lower than historical costs. Incumbent phone companies want the costs based on historical costs. The Supreme Court has stated its intention to decide on this issue in 2001. Examples of unbundled network elements include the following:
The copper line from the customer to the CLEC equipment collocated at the Bell central office (see Figure 3.6)—These lines are used for voice and data traffic such as DSL service.
Figure 3.6. A local loop leased as an unbundled network element by a CLEC.
T-1, T-3, OC-3 (155 Megabits per second) and higher speed lines between the competitor's Bell collocated equipment and another CLEC site.
Rental of RBOC central office switch ports for provision of local telephone service—A central office switch port connects to a local loop and routes calls to the public switched telephone network (PSTN).
Connections to signaling system 7 (SS7) service for purchases of “smart” features such as caller ID and voice mail.
Fiber optic cabling owned by the incumbent telephone company that has no multiplexing equipment associated with it—This is called dark fiber.
Fines Levied on Incumbents for Failure to Provide Timely Access to Competitors
When customers change local providers from incumbent telephone companies to competitive local exchange carriers, the CLEC submits the change orders to the local telephone company. The CLEC has the responsibility to place the order in the correct format so that the change can be processed correctly. The incumbent telephone company in turn must in a timely and accurate manner process requests it receives from CLECs.
To date the FCC has fined BellSouth, SBC and Verizon for not adhering to these Telecommunications Act of 1996 requirements.
In May 2000 the Pacific Bell unit of SBC was fined $27.2 million for failing to provide service in a timely fashion to Covad, a DSL provider. SBC appealed the fine. Covad and SBC settled when SBC purchased 6% of Covad.
In August 2000 the FCC fined GTE (now Verizon) $2.7 million for failing to allow 51 CLECs and Internet Service Providers to place their equipment at central offices without a cage surrounding it. The FCC had previously changed its rules and GTE said they needed more time to get their offices ready to handle competitors' equipment when it was no longer inside cages.
In November 2000 the FCC fined BellSouth $750,000 for failing to disclose to competitor Covad Communications Group, Inc. data Covad needed about BellSouth costs over a six-month period. BellSouth later agreed to provide the data if Covad would sign a nondisclosure agreement. Nondisclosure agreements about costs are prohibited by the Act.
Between early 2000 and March 2001, SBC paid a total of $22.3 million in penalties to the FCC for providing inadequate service to competitors in its midwestern Ameritech region.
Reciprocal Payments
The Telecommunications Act of 1996 mandated that carriers compensate each other for carrying each other's local calls. Many local service providers sell telephone service to ISPs that connects users' dial-in Internet calls to the ISPs' Internet access equipment. Calls that CLECs carry to ISPs for the most part originate on incumbent local telephone company's networks. The FCC ruled in February 1999 that calls to the Internet are not usually local. The FCC's 1999 ruling further stated that existing reciprocal contracts should be honored. It directed state commissions to arbitrate disputes over reciprocal payments. However, the U.S. Court of Appeals threw out this ruling in 2000, saying it was unclear.
Prior to new rules promulgated in April 2001, Bell and incumbent independent carriers paid billions of dollars in reciprocal fees for Internet-bound traffic. According to the article, “FCC Is Set to Reduce Fees Paid by Bell to Competitors to Complete Online Calls,” published in The Wall Street Journal, WSJ.com, 13 April 2001, Verizon spent $1 billion, SBC $0.8 billion and BellSouth $0.3 billion annually on reciprocal payments. On April 19, 2001 the Federal Communications Commission decreased these fees. The lower fees were scheduled to be phased in over a two-year period. In its press release about the change, the FCC stated:
The Commission concluded that telecommunications traffic delivered to an ISP is interstate access traffic, specifically “information access,” thus not subject to reciprocal compensation.
The FCC further capped the minutes for which a local carrier can receive payments at not greater than 10% more minutes than it previously received payment for. Various CLECs have warned that decreasing their revenue will lead to an increase in the cost of dial-in Internet access for end users. If the bill-and-keep rules that the FCC is looking at are passed, reciprocal fees will be eliminated altogether. (See the next section for bill-and-keep.)
Local Access Fees—A Shift in Balance Between Local and Long Distance Costs
Interexchange carriers pay access fees to incumbent and competitive local telephone companies for transporting long distance traffic to and from local customers. Access fees were intended to subsidize local service so that telephone companies could keep rates for residential customers affordable. Residential basic telephone service was also subsidized by rates businesses paid for local service and by long distance fees. Rules promulgated by the FCC on May 7, 1997 lowered access fees by $18.5 billion over five years. However, this action shifted costs to residential and business users in the form of higher monthly subscriber line charges (SLCs) described later. It also was a factor in balancing costs between local and long distance service. Lower access fees are one factor in lower long distance rates.
As part of the change in reciprocal fees previously discussed, the FCC released a Notice of Proposed Rulemaking about intercarrier compensation. It announced it is considering eliminating all fees that carriers pay each other for interconnecting their networks and terminating traffic to each other's customers. The FCC called this approach bill-and-keep. With bill-and-keep, carriers recoup the costs of originating and terminating traffic from their own customers rather than from other carriers. If these rules are enacted, both access fees and reciprocal payments will be eliminated.
Because they are not considered telecommunications firms, Internet Service Providers (ISPs) have always been exempt from payment of access fees.
Local Number Portability
Local number portability enables subscribers to keep their telephone numbers, at the same location, when they change from one local telephone provider to another.
Creating an Equal Playing Field and Conserving Numbers
Local Bell and independent operating companies assign telephone numbers to local carriers in blocks of 1000. Numbers are assigned from a pool of numbers kept by the incumbent carrier. This is called the number pooling system of allotting numbers because pools of 1000 unused numbers are created. Prior to the year 2000, numbers were assigned to carriers in blocks of 10,000. This resulted in wasted numbers because many smaller carriers who did not use up all of their numbers could not share them with other carriers. To further conserve numbers, in 2000 the FCC mandated that phone companies must first use up 60% of their assigned phone numbers before being given new ones. In three years, the percentage will increase to 75%.
Achieving number portability requires costly upgrades to older telephone company switches. For this reason, in 1999 the FCC allowed incumbent carriers to charge customers the fee previously noted for local number portability. However, they only can be charged for five years.
Four Types of Telephone Number Portability
To date, only service provider portability is mandated.
Service provider portability— An enduser's ability to keep his or her telephone number when changing carriers within the same rate center. The method approved by the FCC to accomplish service provider portability is local routing number (LRN). With LRN, every central office switch is assigned a 10-digit number. These switch numbers, or LRNs, reside in network databases. All telephone calls trigger a “dip” into a database to determine to which central office a call should be routed. According to the FCC's December 2000 Trends in Telephone Service, as of August 2000, 6.7 million telephone numbers had been ported, mainly from incumbent phone companies to CLECs.
Wireless number portability must be achieved by November 24, 2002 in the 100 largest metropolitan statistical areas. By that date, customers must be able to change cellular service providers without changing their cellular numbers.
Location portability— Keeping a telephone number when moving to another rate center.
Rate centers are the points within exchanges used to determine toll rates. Location portability is not mandated. It is thought that implementation of location portability will be driven by customer demand. The capability for large businesses to keep their telephone numbers when they move is significant.
Service portability— Keeping a telephone number when changing from wireline to wireless or voice to data services.
Service portability is not mandated. Service provider portability would allow users to keep their telephone numbers when they change to wireless providers for their home telephone service.
One number for life portability— Keeping a telephone number regardless of location or service used.
This opens up the possibility for out-of-area geographic portability between towns and states as well as between carriers. This is the case with toll-free 800, 888, 866 and 877 calling. These numbers are assigned to customers regardless of their location. No date is set or mandated for one number for life portability.
Running Out of Telephone Numbers
The public switched telephone network in the United States, Canada and many of the Caribbean nations use the North American Numbering Plan (NANP). Telephone numbers consist of a three-digit area code (NPA), a three-digit exchange or central office code (NXX), plus a four-digit line number. Because there is a finite amount of numbers, there is a concern that telephone numbers might be used up in the not-too-distant future. The chairman of the FCC, Michael Powell, has stated that he will review how many numbers are actually being used.
The Industry Numbering Committee (INC), a standing committee of the Carrier Liaison Committee (CLC), is exploring six ways to expand the North American Numbering Plan (NANP)
Allow central office codes to begin with a 0 or 1, in addition to 0–9.
Increase the length of central office codes from three digits to four digits.
Increase the line number length from four digits to five digits.
Introduce a National Destination Code (NDC), a single-digit number between 2 and 9, which is placed before the NPA to indicate a specific geographic region within the NANP. In this option, a single digit such as the number 1 might be assigned to Canada and other digits to the United States. Users calling Canada from outside the area would have to first dial the Canadian country code and then the National Destination Code. This opens all of the area codes to Canada and the United States. Furthermore, the United States could be broken into four quadrants, each assigned its own NDC.
Use a four-digit NPA: NXX(X)—where a single digit (0–9) is appended to the area code.
Use a four-digit NPA: (N)NXX—where a single digit (2–9) is added to the beginning of the area code
Changing the structure of the North American Numbering Plan will be a larger task to the telecommunications industry than the year 2000 computer compatibility upgrade was to the computer industry. All of the Operational Support Services that identify services by telephone number will have to be changed. This will impact billing, repairs, all network databases and routing. Every switched service has a telephone number. Many non-telecommunications companies identify customers by telephone number. Unlike Social Security numbers, telephone numbers are public unique numbers.
Open Access to Multiple Tenant Buildings
Prior to October 25, 2000, apartment owners could enter into agreements with local carriers giving them exclusive rights to provide telephone service to their multi-tenant buildings. Tenants often lost the right to select whom to use for local telephone service and Internet access. Competitive local exchange carriers felt that they were being excluded from this often-lucrative market. Real estate owners felt that any restrictions by the FCC would violate their constitutional rights in regard to private property.
The FCC made its October open access to buildings ruling in an effort to promote competition. It ruled that:
Building owners cannot enter into exclusive contracts with telecommunications providers. Any fees charged to CLECs for access to the building must also be charged to incumbent telephone companies. These rules do not apply to residential buildings or pre-existing contracts. The FCC said it might extend these rules to residential multiple dwelling environments at a later date.
Utilities and local exchange carriers must allow other carriers, including cable operators, access to in-building conduits and rights-of-way used for cabling within multitenant buildings.
Building owners may not restrict tenants from placing antennas smaller than one meter for fixed wireless service on the tenant's private area.
The final rule makes the demarcation, the place where a building's inside wiring is connected to a carrier's cabling, more accessible. It required that the local exchange carriers must, at the building owner's request, move the demarcation closer to the building's point of entry. It also required that the local exchange carrier notify within 10 days of a request by the building owner, the location of the demarcation.