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Interconnect ruling looms large
Telephony / July 29, 1996

By Larry Luxner

WASHINGTON -- Before a packed audience of more than 250 lawyers, lobbyists, journalists and FCC employees -- many of them sporting buttons reading "We're Wired Tired," the Federal Communications Commission on Thursday unanimously approved a sweeping set of rules that will oversee the entry of long-distance companies into the local market, and vice-versa.

The order, adopted one day after an unrelated but equally important federal mile-stone -- welfare reform -- establishes a framework of minimum, national rules enabling the states to begin implementing local competition provisions of the Telecom Act of 1996.

"Today marks the end of 60 years of monopoly in the local market," said Commis-sioner Rachelle B. Chong. "One of the key goals of the act was to make sure we had rapid entry of new competitors. Consumers won't see a difference overnight, but when we're done, we'll see a lot more technological choices out there, as well as more choices of rate plans and service plans."

Under the new rules, local telcos must let new rivals -- including long-distance, cable and cellular companies -- plug into their networks in order to offer local service. Meanwhile, Bell operating companies must offer discounts of 17% to 25% off retail prices to competitors who buy service in bulk for resale, given that "resale will be an important entry strategy both in the short term for many new entrants as they build out their own facilities, and for small businesses that cannot afford to compete in the local exchange market by purchasing unbundled elements or by building their own networks."

The FCC also adopted a minimum list of seven unbundled network elements that incumbent LECs must make available to new entrants upon request. These include network interface devices; local loops; local and tandem switches (including all software features provided by such switches); interoffice transmission facilities; signalling and call-related database facilities; operations support systems and information, and operator and directory assistance facilities.

With regard to commercial mobile radio service (CMRS), the FCC concluded that under Section 251(b)(5) of the 1996 Act, a local exchange carrier "may not charge a CMRS provider, including a paging company, or any other carrier for terminating LEC-originated traffic." The agency also stated that CMRS providers -- specifically cellular and broadband PCS companies -- may offer telephone exchange service and may request interconnection under Section 251(c)(2), though it adds that CMRS providers shouldn't be classified as LECs at this time.

FCC attorney Katherine Schroder said prices set by the states for interconnection and unbundled network elements "must be cost-based, nondiscriminatory, and may include a reasonable profit," based on the local telephone company's Total Element Long-Run Incremental Cost (TELRIC) or providing the particular network element, plus a reasonable share of forward-looking joint and common costs.

"Nothing in today's order alters the collection of access charges paid by an IXC under Part 69 of the commission's rules, when the incumbent LEC provides exchange access service either directly or as a reseller to an IXC," she said. "The incumbent local telephone companies may continue to assess those portions of access charges that reflect subsidies, when a new entrant purchases unbundled switching from the incumbent carrier and provides long-distance services to a consumer."

The same day the FCC approved its new interconnection rules, Bell Atlantic announced it would immediately begin offering long-distance services in Michigan, North Carolina and Texas -- thereby becoming the first Baby Bell to provide long-distance service outside its traditional service area, the mid-Atlantic region. "Customers who choose Bell Atlantic as their long-distance company will receive high-quality service at an exceptional value," said Al Binford, president and CEO of Bell Atlantic Communications Inc. "They'll no longer be limited to the three long-distance companies that have dominated the market."

One of those companies, MCI, has invested nearly $1 billion on its local service initiative, and plans to spand nearly that much on local service next year if the states "create the proper regulatory environment," says MCI Chairman and CEO Bert C. Roberts Jr.

"We're looking forward to seeing all the details of this lengthy order when the full text is released," Roberts said in a prepared statement. "But it's clear from what we know already that the FCC today demonstrated the leadership needed to fulfill the promises of the Telecommunications Act of 1996."

Though interconnection is seen as the first part of a trilogy that includes universal service and access-charge reform, Commissioner James H. Quello said he saw the FCC decision "not as the first, but rather the third and final part, of a different trilogy -- one whose first two parts were the introduction of competition into the long-distance telephone market and the divestiture of the Bell operating companies from AT&T. These first two events made local telephone competition inevitable; today we usher it in."

Added Commissioner Susan Ness: "This is a good decision, but not a perfect one. There are bound to be bumps in the road. Competition will take time to emerge, and it won't come easy." Ness said most of the 700 pages of documents to be released by the FCC next week summarize the more than 17,000 pages of testimony submitted by lobbyists over the last three months; the rules themselves take up fewer than 50 pages.

The commissioners spent much of Thursday's meeting congratulating themselves and each other, at one point even asking the audience to stand up and applaud the FCC's hard work as the names of hundreds of agency employees scrolled across overhead TV monitors. FCC Chairman Reed Hundt called those 17,000 pages of testimony "not just a bunch of words, but a reservoir of thoughtful analysis," complimenting all the lawyers and lobbyists who participated in the debate "on their extremely high level of professionalism."

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