carriers of last resort: updating an old doctrine presented to mid-america regulator’s conference...
TRANSCRIPT
Carriers of Last Resort: Updating an Old Doctrine
Presented to Mid-America Regulator’s Conference
June 16, 2008Peter Bluhm, Principal,
TelecommunicationsNational Regulatory Research
Institute
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Overview
Historical review Several historical phases
Challenges Competition
Broadband Recommendations
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Duties of a COLR
Varieties Provide local exchange service (local COLR) Provide toll service (interexchange COLR)
Retail Serve all customers who seek service
Wide service areas, including high cost areas Line extensions and CIAC
Service elements Service quality
Carrier-to-Carrier Terminating switched calls, special access, tandem transit,
database management Exit barriers
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History #1 – Common Law (1500-1880) Common law sets framework
Common carriers Special care in handling packages Nondiscriminatory treatment
Franchises Originally called monopolies Must serve an entire area
Sovereignty went to the states State laws covered common carriage
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The classical regulatory bargain Carrier burdens
Common carriers must serve all customers equally But, may require contributions for line extensions
Provide standard service E.g.: no party lines, extended calling areas
No unreasonable discrimination Carrier benefits
Legal monopoly (now repealed) Cost of service-based rates (now largely repealed) Economies of scale and scope
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History #2 – Utility Laws (1880-1990) Merged common law principles
Franchise areas Mapped non-overlapping service areas Nondiscriminatory service
All customers treated equally All calls treated equally
Duty to serve all customers Contributions required for line extensions
Regulated entry and exit from markets Retail service quality measurements Carrier-to-carrier duties imposed
“Interconnection”
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History #3 – Competition and Universal Service (1990-2005) – Two Theories Theory #1: COLRs are essential
TA96 affirmed duties of COLRs (quietly) Carrier-to-carrier duties continued
Interconnection (§ 251(c), 271) Pole attachments Originating access for toll carriers Tandem transit
Default service upon CLEC failure (§ 214(e))
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Two Theories (cont)
Theory #2: It unfairly discriminates against new entrants if they cannot get USF support. Act defined a new class of competitive carrier – the
“Eligible telecommunications carrier” One who can receive support in return for meeting eligibility
criteria FCC adopts “Competitive neutrality” as USF principle
Originally means that new entrants get support, even if they aren’t quite the same as COLRs.
Key FCC decisions: Competition versus universal service is a “false choice.” States cannot create new prerequisites for eligibility. States cannot set unreasonably large service areas. States cannot require build-out as condition of entry.
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Challenges
Entry issues more complex Limited carrier access to multi-subscriber sites Overbuilds
Exit issues more complex CLEC failure ILEC failure
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Challenge #1 – More than one carrier Multi-subscriber properties
An issue of entry – who is the COLR and what must they do?
Arises frequently: Apartment houses, condominiums, housing developments, industrial parks
The issue: what is an incumbent LEC’s duty if the property owner gives exclusive benefits to a broadband provider?
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Challenge #2 – Over-builds
Infrequent but serious question Two competing networks Older network has minority of customers Newer network doesn’t have COLR duties
Terry Montana illustrates FCC’s process. RBOC had traditionally served the exchange New entrant built new facilities, quickly got 95%
market share. FCC ruled that new entrant was now an
“incumbent” for purposes of interconnection duties
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Challenge #3 – CLEC Failure
Competitive failures The issue: how protect society when a
competitive LEC fails? Answer: mass migration rules
Detailed procedures for CLEC exit. Notice to customers, notice to commission Customers get opportunity to pick new carrier Exiting CLEC must migrate customer records to new
carrier.
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Challenge #4 – ILEC failure
Can ILECs really fail? Dependency on access revenues, federal USF. Erosion of subscriber base
Costs not reduced Recent cases
Hawaiian Telecom FairPoint
What procedures to follow if nobody wants the job? Assign neighboring ILECs? Auctions?
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Broadband #1 - Preemption
Broadband Internet access services of all stripes are “information services,” and are probably “interstate information services.”
FCC says they are not “telecommunications services” for purposes of federal law, and they are not intrastate.
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Broadband #2 – State Promotion of Broadband But, Congress and the FCC are looking to the
states to help deploy broadband in rural areas.
Should states use anything like traditional COLR policies to do this?
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Does a State Need a COLR Policy? Goals still relevant:
Ubiquitous facilities Service quality and nondiscrimination Reliability (manage carrier exits) Linchpin carrier-to-carrier services
Exceptions Where independent facilities-based competition is
well established and there are no linchpin carrier-to-carrier services.
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Conclusions
USA has historic commitment to providing quality communications to every resident.
Traditional regulatory bargain has eroded. Absent state action, the affordability,
reliability, security and longevity of "carrier of last resort service" is in doubt.
COLR policy can be modernized to reflect current conditions, but not in a way that avoids controversy.
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Recommendations – Single Wireline COLR Economies of scale more likely, reducing
subsidy costs of providing ubiquitous reliable service.
Limiting support to one carrier avoids the hazard that USF funding will induce uneconomic entry.
Manages growth in fund size Recognizes importance of linchpin carrier-to-
carrier services
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Recommendations – Multiple COLR Classes Several types of COLRs possible:
Wireline COLR Wireless COLR Broadband COLR Federal ETC State ETC (optional)
Complex task to sort out which duties and benefits attach to which class
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Recommendations – Service Areas Service area size – policy tradeoff:
Small areas promote competitive entry But they may also induce uneconomic entry
Large areas limit the need for explicit subsidy But they may make incumbents noncompetitive in low-
cost areas
Recommend relatively large areas. Difficult to make implicit subsidies explicit
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Recommendations – Define duties for each class of carrierDuty Details Carriers assigned
Duty to serve Accurate voice reproduction from 300 to 3,000 hertz; no party lines; touch tone dialing; call waiting; call forwarding; 3-way calling; equal access for IXCs; modem transmission
Offer service to all qualified customers
COLR and ETC
Rate designs Offer an affordable flat-rate calling plan, Lifeline program
ETCs
Carrier-to-carrier services
Interconnection, UNEs, and resale, special access
COLRs
Regional wholesale services
Tandem transit Large COLRs
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Recommendations – COLR Entry
Adopt a procedure to adjust COLR duties for multi-subscriber properties: Limit COLR duties when COLR cannot obtain
entry or cannot earn a profit. For overbuilds, need process to replace old COLR
with new COLR.
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Recommendations – Carrier Exits CLECs
Adopt mass migration rules Apply to COLRs and all other LECs, except where
federally preempted. ILECs
Process for identifying substitute carrier when nobody wants the job. Use auctions?
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Recommendations – C2C
Identify linchpin wholesale services that support other carriers Intrastate special access Terminating incoming calls Equal access for IXCs
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Recommendation - Compensation Should COLRs receive explicit support from their
states? Funding options:
Charge for stranded capacity when customer leaves Workable for gas, but not telecom
Charge CLEC customers for benefits provided by COLRs – Economically efficient but politically controversial
Universal service surcharges Common but not very common