What I will attempt to do is give an overview of the Interconnection Rules issued early in August by the FCC. I'll try my best to avoid giving any personal opinion, but that might be impossible. The rules themselves are very well written and are very consistent. As an educator, I am impressed with the effort that the FCC made in educating the reader about costing, pricing, and technology.
What we're really talking about here is the continuing saga of competition comes to telecommunication. This story began many decades ago with the Carterphone decision by the FCC which opened the customer premises equipment market to competition. This was followed by the FCC's concept of specialized common carriers, which opened the long-distance market to companies like MCI and Sprint. There was also a series of inquires by the FCC into the difference between computing and communications--the computer inquiries. I remember computer inquiries I and II, but I do not remember when the inquires finally stopped--or whether they are even still continuing.
The biggest chapter in the competition saga was the Modification of Final Judgement that was approved in 1982 and was followed by the AT&T breakup of 1984--an event we must now name AT&T breakup I. This breakup lead to the creation of the Baby Bells.
AT&T breakup I was followed this year by AT&T breakup II: the creation of Lucent Technologies and the resurrection of NCR. And this year also saw the passage of the Telecommunications Act of 1996. This year also surprised many as some of the Baby Bells proposed mergers--perhaps the beginnings of a reformation of the old Bell System.
The Telecommunications Act of 1996 orders the opening of the local exchange. The FCC has tackled this in three steps: (1) interconnection, (2) universal service, and (3) access charges. We are here tonight to discuss the first rules of this trilogy.
But remember the bigger picture of the continuing saga--the story that does not seem to have a last chapter. And just when you think the saga is about to come to and end, a surprise occurs, and I am sure many more surprises are in the future.251 of the Telecommunications Act of 1996 treated the topic of interconnection. It required interconnection at the local level and stated a number of obligations of local exchange carriers (LECs). LECs had to offer to resell and unbundle their various service elements. Telephone numbers had to be portable. All long-distance calling, including long-distance calls within the local exchange, had to be treated the same with no favored carrier. Access to rights of way had to be opened. Reciprocal compensation was required to other carriers. Interconnection was required at any technically feasible point in the local exchange. The FCC was ordered to determine the specific rules within six months--and they did.
The FCC was very busy during these last six months, holding hearings, listening to everyone's comments, trying to be fair to all, and yet also being consistent with the Telecommunications Act. That these rules were completed in six months, particularly when the government usually closes for the summer. The FCC consulted heavily with State commissions. The rules set by the FCC are guidelines that must then be implemented by the States.
The FCC rules for interconnection--known as FCC 96-325--were adopted on August 8, 1996. These rules are the first in a trilogy, with the remaining two topics being universal service and local access. The interconnection rules are 750 pages long! The overall tone is that the local exchange carriers MUST open their local network and cooperate with competitors.
Some LECs are questioning these new rules. But the Telecommunications Act of 1996 seems very specific in requiring competition at the local exchange. The FCC rules for interconnection have a very short time frame, with an action date of January 1, 1997. The FCC rules are minimum guidelines that the States will build upon as they determine their own specific rules and rates.
The FCC rules specify the interconnection points in great detail, almost it seems to cutting people in half if that were technically feasible. The rules also specify how rates will be determined for the opened local exchange.
We now have another acronym in our industry: TELRIC. It stands for Total Element Long-Run Incremental Cost and is the method that will be used to set rates. The FCC has determined "proxy" rates which are to be used until States perform their own TELRIC analyses. The FCC also has set wholesale discounts from 17 to 25 percent. The obvious intent seems to be to create much more of a wholesaler role for the LECs.
This wholesaler role means that the LECs will lose their retail markup. And this could imply dire financial consequences for the LECs. But, more people might purchase unbundled elements from the LECs and invent many more new services thereby leading to increased utilization of the local exchange and much new business for the LECs. I remember decades ago when the FCC determined that AT&T was making too much money from long distance and hence ordered AT&T to lower the rates. Many more people made more long-distance calls, and AT&T made even more money. Sometimes, lowering prices can be very profitable.
Collocation is required by the FCC. This means that a LEC must allow a competitor to come on the LECs property to install its own equipment. This equipment can be located in a cage, but the competitor can contract for the construction of the cage.
The FCC has specified in great detail the various pints in the local exchange at which access by competitors is required. Access is specified at both the local loop and the trunk sides of the local switch. Access to trunks is specified. Access to the software that controls the local switch is specified. Access is also required to the signalling network, to operator and information services, and to the support services, such as customer records. Access to the local loop is specified. In effect, access is required everywhere, since access really is technically feasible everywhere. The LEC is required to install the physical connections necessary to give this access, although fair charges can be made for such access.
The FCC chose not to set rules for opening the Internet. This bothers me, since the Internet remains something of a government monopoly benefitting the prime contractors MCI and IBM. It too needs to be opened to competition. The Telecommunications Act mentions advanced telecommunication capabilities that should be promoted. The FCC chose to ignore defining them until some future date.
What will be the impact of the interconnection rules on LECs? I would not want to be a LEC. Everything I thought I owned has been opened to competition and furthermore I am ordered to cooperate with the competition so they can take away my business. Now the LECs will know how AT&T felt decades ago when competition was forced on long distance. The FCC has even told me how much I must charge the competition for this access to my property.
The Telecommunications Act of 1996 speaks of regulatory reform. The portion of this Act that treated local interconnection was a few pages long at most. The FCC rules to implement this portion of the Act are 750 pages long! And each State will issue their own rules, consisting of hundreds of more pages. It would seem that deregulation and regulatory reform is very costly in term of more rules and paper.
And who will ultimately benefit from these rules? Lawyers! Oodles of lawyers will be busy reading, interpreting, and challenging all these and coming rules for decades to come.