The Rules - Caution Ahead

Posted: 09/1999

Caution Ahead
FCC Releases Pricing Flexibility Plan
By Kim Sunderland

The Federal Communications Commission (FCC) has adopted a plan that gives the incumbent local exchange carriers (ILECs) more pricing flexibility in what they charge the interexchange carriers (IXCs) to access their local networks. Many competitive LECs (CLECs) already are regarding the FCC's new access charge reform with careful scrutiny.

"In the long term, this order puts pressure on the FCC and the ILECs to make loops available and it broadens the market for competitive entry," says John D. Windhausen Jr., president of the Association for Local Telecommunications Services (ALTS), which represents facilities-based competitors. "But we remain cautiously optimistic" about the competitive safeguards contained in the new order.

Under the plan, regulation of certain special access services will be reduced once competitive 'triggers' have been met, a move designed to let competition and not regulation determine prices for interstate access services.

The price cap ILECs currently have keeps their interstate access charges within a specific range, which they argue is unfair because new entrants aren't held to the same rules. The new regulation will reduce prices in markets where a certain number of competitors are present, with price caps being removed as competition increases. "It appears ILECs cannot raise rates where there is no competition, and they cannot price below their costs," says Jonathan Askin, vice president of law for ALTS.

However, the FCC's analysis doesn't reflect reality, says Jonathan B. Sallet, MCI WorldCom Inc.'s chief policy counsel. "First, it treats the local monopolies as if they are facing significant competitive pressure," Sallet says. "Second, the FCC framework treats the existence of collocation in a central office (CO) as an indication that competitors have their own last-mile facilities in place." He says collocation is used precisely where competitors don't have such facilities. "That's why they collocate--to connect their competitive networks to monopoly last-mile facilities."

Bruce C. Godfrey, executive vice president and chief financial officer of RCN Corp., Princeton, N.J., says the new order may allow RCN to obtain reduced prices from ILECs and other vendors. "However," Godfrey notes, "we hope the FCC will take care to limit this pricing flexibility to those markets in which competitive alternatives to LEC services really exist. Otherwise, LECs could engage in discriminatory pricing."

A separate plan filed by a coalition of IXCs and LECs to restructure access charges also is being considered by the FCC.

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