Recently, the Federal Communications Commission adopted its Advanced Services Third Report and Order, which requires incumbent local exchange carriers (ILECs) to share their local loops with competitors. The ruling compels ILECs to unbundle the high-frequency portion of their local loops and permits competing providers to provide digital subscriber line (DSL) services over the same lines used by ILECs to provide basic telephone service. While the benefits of such "line-sharing" arrangements have raised the expectations of competing providers and consumers alike, policy, implementation, and operational issues remain to be resolved.
Prior to the FCC's ruling, competing providers of high-speed Internet access services were forced to purchase local loops from ILECs in order to provide such services. In turn, consumers desiring to procure DSL from the competing providers were required to purchase a second line at a cost of about $20-$30. The need to install a second line placed high-speed Internet access providers at a competitive disadvantage, since ILECs were providing high-speed Internet access to their customers on the same line over which they provided basic telephone service.
The FCC, in its Order, seeks to level the playing field by requiring ILECs to share the high-frequency portion of their local loops with competing providers for the provision of Internet service. The Order accomplishes this by unbundling the high bandwidth portion of the loop and adding it to the FCC's list of available network elements. The FCC has stated that such line-sharing will ultimately benefit consumers because 1) consumers will be able to choose from a wider range of Internet providers without having to give up the basic voice telephone service of their chosen ILEC; 2) the installation of second lines will no longer be required, allowing competing providers to charge more competitive prices and putting downward pressure on Internet access charges for consumers; and 3) the quality of competition will improve as competing providers gain the same facilities access as ILECs.
While the FCC's ruling appears to benefit both consumers and competing provi- ders of high-speed Internet access services, a number of implementation, operational, and policy issues appear to exist. For example, ILECs have complained that, in terms of customer service, permitting competing providers to share lines will cause immense confusion in the event of service outages. Because there is more than one service provider using the line, ILECs argue, consumers will not know whether to direct service calls to the ILEC or the competitive carrier, and may erroneously lodge complaints with federal and state regulatory bodies.
Significantly, pricing issues remain unresolved. The FCC has yet to propose pricing blueprints establishing how much ILECs can charge competing providers for access to local loops. The FCC has indicated that it will issue interim pricing specifications within the first 180 days after publication of the Order in the Federal Register. However, the various state public utilities commissions will have ultimate authority to determine how much competing providers will have to compensate ILECs for sharing local loops located within their respective states.
The Order also does not appear to address vital technical questions. For example, no provision appears to have been made for limiting interference between ILEC high-frequency services and those other services offered over the same line, including traditional voice services. Also, the issue as to who will have responsibility for maintaining the shared local loop is not exactly clear.
Policy issues are potentially raised by what the Order does not mandate that the ILEC provide. First, under the ruling, an ILEC is not required to share any individual local loop with more than one competitive carrier who so requests. Second, if an ILEC is not using the loop to provide analog voice service, it need not unbundle the high bandwidth portion of that loop. Finally, ILECs are not required to unbundle the lower frequency voiceband portion of the loop.
ILECs have also raised the bogeyman of "cream-skimming." ILECs complain that the Order will allow competing providers to benefit from providing profitable DSL services (i.e., skimming the cream) without having any responsibility for the provision of basic voice services. ILECs assert that such competitive opportunity is essentially unfair and should not be permitted.
The text of the FCC's Order had not been released as of press time. It is possible that one or more of these outstanding issues could, at least to some extent, be addressed by the FCC's Order when it is released.
While competing providers celebrate and ILECs grumble, the real loser, when all of the technical, operational, and pricing details are ironed out, may, ironically, be the consumer. The unfortunate prospect for consumers may be that ILECs seek to minimize losses related to line-sharing by hiking up a variety of customer service and maintenance fees.
The big winners, it would seem, are the competing providers of high-speed Internet access services. Competing providers will likely see significant reductions in their costs to provide DSL services and will be able to offer their services to consumers more quickly now that second lines are no longer required.
Clearly, the legal/regulatory status of DSL services remains in a state of flux. It will take time for the FCC and state regulatory bodies to determine fair pricing for line-sharing. In addition, many outstanding operational and technical issues -- such as responsibility for maintenance, high-frequency interference, and customer service -- have yet to be resolved. However, the crux of the FCC's Order appears to put in place a crucial foundation for the development of a competitive Internet access marketplace.