How the FCC may have saved the CLECs

Last year, in a response to the regional Bell operating companies' request to exempt advanced services from competition, the Federal Communications Commission proposed a new set of rules that might have driven many competitive local exchange carriers (CLEC) out of business. This year, the FCC may have saved the CLECs - or at least some of them - from extinction.

The most important ruling in the telecom act is the requirement that incumbent facility-based carriers, such as the RBOCs, wholesale the elements of their infrastructure to competitors. Last year, the RBOCs asked the FCC to exempt advanced services such as digital subscriber line (DSL) from this requirement, citing the FCC's obligation under Section 706 of the act to further advanced services.

The FCC refused but suggested the RBOCs consider forming separate CLEC subsidiaries to offer advanced services. These subsidiaries would not only be exempt from wholesaling, but could also buy RBOC voice services at wholesale prices and sell them at retail rates just like any other CLEC. This would eliminate a lot of the CLEC price advantages, possibly driving many out of business.

The FCC's latest round of rule-making leaves the RBOCs hanging on the issue of the separate CLEC subsidiary and provides CLECs real opportunities in the very area where the RBOCs sought FCC protection - xDSL.

According to the FCC ruling, the incumbent LECs (ILEC), including the RBOCs, must:

Permit any sort of digital loop technology that is based on international standards or has been deployed in other RBOC areas.

Permit the co-location of switching technology used to interconnect the unbundled network elements that the CLECs wholesale, thereby allowing the CLECs to add value to their xDSL offerings.

Submit to rigid inspection of co-location space options in each central office and provide space in alternative locations if space runs out.

In addition, the FCC proposed the ILECs be required to wholesale not only copper loop, but also digital spectrum space on the same copper loop used for basic telephony. Consequently, a CLEC could wholesale only the xDSL portion of a loop, leaving the incumbent to provide analog voice services on the remaining spectrum space. Moreover, many xDSL providers could dodge the expensive option of providing voice services.

All of this is designed to let CLECs exploit the most valuable asset they can wholesale from ILECs: copper access to the customer. The question is: Will the CLECs follow the FCC's lead?

There are powerful forces driving the CLECs to exploit copper loop in creating their own advanced services. Competition from cable companies could siphon off most of the residential xDSL opportunity if both the CLECs and ILECs sit on the sidelines. Even a short delay in deploying xDSL would mean that many of the best Internet access or corporate telecommuter prospects would be committed to alternative means of network access, such as cable.

There are also powerful forces inducing the CLECs to sit on their hands and wallets. Building infrastructure exposes CLECs to significant costs in equipment and technology skills. It might take a year or more for RBOCs to enter the CLEC space, even if the FCC moves quickly to solidify the requirements for RBOC/CLEC subsidiaries. During this year, a CLEC focusing on simply wholesaling service from the RBOC and retailing it to users can rake in the bucks with no investment to speak of.

Equipment vendors face a similar dilemma. Should they jump in to support a new class of switching-enabled Digital Subscriber Line Access Multiplexer (DSLAM) products designed to empower the new-age CLEC with facilities-based data services? If they do, they could sit without customers for a year while the RBOCs consider their options. If they don't, they could leave what might be an exploding equipment market to others.

According to FCC rules, new DSLAM products have to offer advanced switching/routing features to add services to xDSL. But it'll be up to the CLEC or RBOC to decide whether these features will be used.

Inevitably they will be used because this is do-or-die time for the CLECs. The FCC has offered them a set of rules that brush aside stalling tactics the ILECs have used to inhibit xDSL. The commission also has given the CLECs a warning: Wait too long and we'll open the CLEC market space to the RBOCs themselves.

The winners in this process could be xDSL users. Better data features in DSLAMs, and a more competitive local access market to push those features, could bring higher-quality, lower-cost xDSL services to users.

It's about time.