Effect of FCC review on fiber deployment under debate
February 21, 2003, UPDATED 6:45 PM--The Federal Communications Commission (FCC) touted its new unbundling rules as a major step toward the provision of broadband services, particularly through the construction of fiber-optic infrastructure in the local loop. However, despite the fact that incumbent local exchange carriers were granted a virtual monopoly on fiber-in-the-loop, significant pessimism remains concerning the willingness of the incumbents to take advantage of this opportunity.
February 21, 2003, UPDATED 6:45 PM--The Federal Communications Commission (FCC) touted its new unbundling rules as a major step toward the provision of broadband services, particularly through the construction of fiber-optic infrastructure in the local loop. However, despite the fact that incumbent local exchange carriers (ILECs) were granted a virtual monopoly on fiber-in-the-loop (FITL), significant pessimism remains concerning the willingness of the incumbents to take advantage of this opportunity.
The new rules, announced yesterday, are the result of the FCC's Triennial Review of the Telecommunications Act of 1996. They follow court challenges to the commission's rules covering Unbundled Network Elements (UNE), as well as lamentations from the ILECs that current enforcement of the Telecom Act makes it uneconomical to deploy next-generation architecture. While the new rules cover a wide range of issues (for more information, visit www.fcc.gov), FITL figured prominently:
- ILECs will not have to unbundle new-build/greenfield fiber access loops for broadband or narrowband services. The same applies for overbuild/brownfield loops. However, the ILECs must provide a transmission path suitable for narrowband services if copper loop is retired.
- ILECs will not have to offer unbundled packet switching functions. This means, on hybrid copper/fiber loops, that no unbundling of a transmission path will be required over infrastructure that uses the packet switching capabilities of digital loop carrier (DLC) systems in remote terminals. ILECs do have to provide unbundled access to a voice-grade equivalent channel and "high-capacity" loops using TDM technology, such as DS1s and DS3s.
- In enterprise applications, the FCC rules that not having access to OC-n capacity on ILEC infrastructure does not represent an impairment to competitive access. However, the commission says that, in general, there is a nationwide impairment for DS1, DS3, and dark fiber loops. However, state commissions have the authority to rule that these impairments have been overcome on a case-by-case basis, based on the availability of wholesale alternatives. The states are also authorized to conduct customer-location-specific reviews to determine where loop facilities have been self-deployed.
- In the case of dedicated interoffice transmission facilities (which were redefined to include only transmission facilities connecting ILEC switches or wire centers), the FCC again ruled that lack of access to unbundled OC-n facilities does not constitute a competitive impairment. Also, the commission gave states the authority to determine whether competitive carriers are impaired without access to ILEC dark fiber, DS3, and DS1 transport, based on the availability of wholesale alternatives. The states also will determine on a route-by-route basis where transport facilities have been self-deployed.
The new rules passed by a 3-2 margin among the commissioners. While each issued a statement offering their opinions on individual aspects of the new rules, in general they expressed optimism that granting the ILECs regulatory relief in FITL will spur the installation of advanced infrastructure. "I strongly support the commission's decision to exempt new broadband investment from unbundling obligations," said Commissioner Kathleen Q. Abernathy. "We have taken bold action to restore incentives for carriers to build next-generation fiber-based facilities that will support a host of exciting new broadband applications."
However, not everyone agrees that the ILECs will follow through on the FCC's intent. "Are the incumbents really oriented in their strategic plans and their capitalization and their research toward fiber in the loop?" asks Steve Brown, who writes Lightwave's monthly "Washington Report" column. "History says that they're not, that they're not particularly interested in it. Because what they really wanted was to get their competitors off of the copper loop - and they tried and tried, even when you had a clear situation in front on them where the incumbents had to share their local loops. They went ahead and they invested in [copper infrastructure] heavily. So that shows what their technical and organizational preferences are."
Brown also points to research he's conducted on patent filings that shows a marked decrease in optical communications patents filed by ILECs and their affiliated research organizations over the past several years. Brown has written an article on his findings that will appear in the March Lightwave.
Support for Brown's sentiments appears widespread. A recent "Quick Vote" conducted on this website asked, "If the RBOCs are granted regulatory relief from unbundling requirements, do you think they will accelerate spending on new network infrastructure and technologies?" Forty-five percent of participants chose "No, they have no interest in changing their current practices; regulations are just an excuse" as their response.
"There is a wide-held opinion that they really didn't push DSL until they had competition," says Brown. "Does the same logic apply to fiber? Perhaps. They're not even oriented toward building it now. Nothing at all. They're going to have to have an entire change of mindset and a skill set too."
In a statement issued today, Merrill Lynch analyst Simon Leopold also expressed doubts that the rules would spark an immediate FITL or fiber-to-the-home (FTTH) bonanza. "We think that FTTH projects make business sense in an environment with strong consumer demand for a triple-play bundle of voice, video, and data. We don't see strong demand," he said. "We do not believe the RBOCs plan to embark on this route, as video content has been a sticking point. However, there might be modest increases in trial builds to new housing developments. Further, with the limited relief related to voice resale obligations, the RBOCs face tough competition, and might feel that despite currently poor economics they have to investigate FTTH more as a response to a longer-term threat from the cable video, high-speed data, and telephony triple play."
Similarly, Jim Stackman, CTO of Advanced Fibre Communications (AFC ¿ Petaluma, CA), says he's not looking for a big boost to his company's DLC sales. "Theoretically, it could increase modestly depending on the total spend of capex, which I think is a bigger driver than the changes in regulation."
Stackman says that several issues still need to be resolved regarding the definition of "hybrid networks" before he'll have a clearer picture. For example, AFC and Alcatel make DLCs with a direct fiber interface. However, other companies don't have such an interface, so carriers will deploy a SONET multiplexer and feed T1s to their DLCs. Stackman says it remains to be seen how the different classes of DLCs fit into the definition of hybrid networks and what needs to be bundled and unbundled. The fact that AFC's DLC also packetizes transmissions opens the door to further questions in light of the new rules regarding packet services remaining bundled.
The situation is different for FTTH, he believes. "The big difference between these hybrid networks and fiber-to-the-home is that there are no approved products in RBOC networks to deploy," he says. "Which means that nobody's got any planning guidelines, nobody's got any products. So it's a couple of years away from anybody actually starting to deploy that stuff. And on top of that, the cost models still don't work. So those are the inhibitors at the moment, not the regulation."
For their part, the ILECs were less than pleased with the FCC's latest action, particularly the fact that they did not receive complete regulatory relief. "The Federal Communications Commission had a great opportunity today and blew it," said Verizon's Tom Tauske, senior vice president-public policy and external affairs. "The future of telecommunications is broadband, and on this issue the commission appears to have moved in the right direction but may have important details wrong."
"Today, the Federal Communications Commission missed an historic opportunity to address serious problems in the vital telecommunications industry sector, with consequences for every American consumer," said BellSouth CEO Duane Ackerman.
Brown points out that the new rules will likely undergo "months and months of litigation," so it will be some time before the new parameters are in place. The ILECs should have plenty of time to determine their future fiber plans in the meantime.