FORBEARANCE

1
Forbearance What is it? Whats wrong with
it? How to fix it.
Presentation for the National Association of
State Utility Consumer Advocates Annual Meeting,
Anaheim, CA November 12, 2007 Susan M. Baldwin
2
What is it?

• Congress set forth forbearance standards in the
  Telecommunications Act of 1996 47 USC 201(b))
  (47 USC 160)
• FCC shall forbear from applying regulations if
  three-prong test met
• Just and reasonable/non-discrimination AND
• Protection of consumers AND
• Public Interest

3
What is it?

• In making the determination under subsection
  (a)(3) of this section, the Commission shall
  consider whether forbearance from enforcing the
  provision or regulation will promote competitive
  market conditions, including the extent to which
  such forbearance will enhance competition among
  providers of telecommunications services. If the
  Commission determines that such forbearance will
  promote competition among providers of
  telecommunications services that determination
  may be the basis for a Commission finding that
  forbearance is in the public interest.
• 160(b) EMPHASIS ADDED
• Most petitions, if granted, would stifle
  competition

4
What is it?

• Section 10(c) of the Act requires the FCC to act
  on a petition for forbearance within one year
  after the filing date
• Petition is deemed granted if no action is taken
• FCC can extend the one year deadline (one time)
• by 90 days
• The ticking clock rushes decisions of
  significance

5
Forbearance from what?

• Cost Assignment Rules
• Reporting Requirements (e.g., ARMIS)
• Loop and Transport Unbundling Requirements
• Dominant carrier regulations (federal tariff
  filings price cap regs discontinuance)
• Computer III and ONA requirements
• Title II and Computer Inquiry Rules (Broadband)

6
Forbearance from what?

• Dominant Carrier Regulations
• Part 61 tariffing
• Part 61 price caps
• Part 63 discontinuance and transfer of control
• Computer III and ONA
• Nonstructural safeguards for provision of
  enhanced services
• Open Network Architecture
• Unbundling of building blocks of enhanced
  services

7
RBOC Petitions

• Unending parade of petitions
• RBOCs assert that FCC rules no longer serve their
  intended purpose the cost associated with
  regulation is burdensome and harms competition
  and that consumers are protected by
• Competition (They are not)
• FCC Price Cap System (Not sufficient)
• Other regulations still in place (Wrong)

November 12, 2007
NASUCA Annual Meeting
Susan M. Baldwin
8
RBOC Petitions Are Flawed

• Many of the analytic/economic issues parallel
  debates occurring before state PUCs
• Geographic market is too broad
• State MSA Wire Center
• Proposed product market is flawed
• Intermodal competition ? basic local

9
RBOC Petitions Are Flawed

• The burden is on the petitioner, yet RBOC
  petitions
• Lack specific details about the specific
  regulations from which they seek forbearance
• Lack discussion of the three-prong test re each
  regulation separately
• Fail to demonstrate the cost of the regulations
  outweigh benefits

10
RBOC Petitions Are Flawed

• Forbearance from discontinuance
• Public review of mergers, sales is critical
• Verizon proposed sale to FairPoint in ME, NH, VT
  critical to assess consumer impact
• Many mergers (SBC/ATT ATT/BellSouth
  Verizon/MCI) at least some conditions are better
  than none

November 12, 2007
NASUCA Annual Meeting
Susan M. Baldwin
11
RBOC Petitions Are Flawed

• Petitions for forbearance from ARMIS and other
  reporting
• ATT (Docket WC 07-139), Qwest (Docket WC
  07-204) Verizon (as part of six-MSA petition -
  WC Docket 06-172)
• Would further tip balance of information
  asymmetry between regulators and telcos
• Service quality is declining reports allow
  detection
• Separations needs fixing reports are relevant
  tools

November 12, 2007
NASUCA Annual Meeting
Susan M. Baldwin
12
Consumer Harms

• Rate increases, service quality decline, door
  further closed on competition
• Loss of valuable data
• Cost information
• Service Quality
• Regulators and consumer advocates are unable to
  detect problems and take enforcement actions re
  anticompetitive conduct
• Although rates may not be based on rate-of-return
  regulation, an analysis of just and reasonable
  must be based, in part, on cost

13
Consumer Harms

• Verizon seeks forbearance from Commission
  regulations that provide many consumer benefits
  and protections. Those benefits and protections
  include, inter alia, limitations on increases in
  certain rates, opportunities to provide comment
  in certain proceedings, non-discriminatory access
  to the public network, and a variety of service
  quality protections. Each of the regulations from
  which Verizon seeks forbearance is instrumental
  in achieving the goals Congress established when
  it passed TA-96 to ensure that all charges,
  practices, classifications and regulations for
  and in connection with communication service,
  are just and reasonable.
• (NASUCA Comments in 06-172, at 4.)

14
Consumer Harms

• Premature grant of forbearance leads to
• Loss of competition
• Potential for anticompetitive behavior by ILEC
• ILEC abuse of market power
• Consumer impact
• Higher prices
• Lower service quality
• Lack of consumer choice

15
What constitutes effective competition?

• FORBEARANCE DEBATES ECHO DEBATES IN STATE
  PROCEEDINGS
• Intermodal is not an economic substitute for
  basic local
• Access line loss does not alter continuing ILEC
  dominance
• Weight afforded facilities-based vs. wholesale
• Duopoly One facilities-based cable competitor
  is not enough cable and ILECs control 95 of
  residential broadband access (58 by cable 37
  by ILECs)
• Residential vs. business even if CLECs serve
  business customers, this doesnt mean they will
  serve residential market, especially no frills
  standalone basic local

16
Seemingly Endless Parade of Petitions

• Quantity/frequency of petitions fragments policy
  making
• Burden shifts inappropriately to consumers to
  identify and to oppose petitions (otherwise deem
  granted)

November 12, 2007
NASUCA Annual Meeting
Susan M. Baldwin
17
Pending Forbearance Petitions
Pending Forbearance Petitions
18
ATT (WC Dkt. 07-21)

• ATT and BellSouth affiliates
• Forbearance from the following rules sought
• Section 32.23 (nonregulated activities)
• Section 32.27 (transactions with affiliates)
• Part 64 Subpart I (cost allocation rules)
• Part 36 (jurisdictional separations rules)
• Part 69 Subparts D, E (cost apportionment rules)
• Limited forbearance from section 220(a)(2) to the
  extent the provision contemplates separate
  accounting of nonregulated costs

19
ATT (WC Dkt. 07-21)

• Key points raised by opposing and questioning
  comments
• The continued reliance on allocated costs for
  state rate regulation
• The continued importance of allocated costs under
  federal price cap regulation
• The continued importance of allocation in the
  FCCs special access and other proceedings
• ATTs (and other BOCs) reliance on the use of
  allocated costs when it suits their purposes

20
Verizon (WC Dkt. 06-172)

• Petitions for Philadelphia, Pittsburgh, Boston,
  Providence, New York City and Virginia Beach MSAs
• Forbearance relief request more comprehensive
  than that granted in Omaha Order
• Loop and transport unbundling regulations
  pursuant to Section 251 of the Act (47 CFR
  51.319 (a), (b) and (e))
• Dominant carrier tariffing requirements (Part 61
  of FCC Rules 47 CFR 61.32, 61.33, 61.38,
  61.58, and 61.59.) Relate to notice and filing
  requirements for tariff changes
• Price cap regulation (Part 61 of FCC Rules)
• Computer III requirements (including comparably
  efficient interconnection and open network
  architecture requirements)
• Dominant carrier requirements pursuant to Section
  214 of the Act

21
Verizon (WC Dkt. 06-172)

• Verizons Petitions also seek forbearance from
  Commission regulations that provide substantial
  consumer benefits and protections affecting
  retail customers. In addition to rate
  protections, these regulations also provide
  quality of service and other protections that
  ensure that basic local exchange
  telecommunications services are just and
  reasonable. The regulations from which Verizon
  seeks forbearance are identified only in a
  footnote in Verizons Petitions, and are not
  mentioned again anywhere in the Petitions or the
  accompanying Declarations, which focus on issues
  relating to competition. However, these
  regulations have a substantial impact on
  consumers daily use of their telecommunications
  services.
• (NASUCA 06-172 Comments, at 16-17)

22
Qwest (WC Dkt. 07-97)

• Seattle, Phoenix, Denver, and
• Minneapolis St. Paul MSAs
• Relief requested more comprehensive than that
  granted in Omaha Order
• Dominant carrier requirements (part 61.41 -61.49)
• Computer III and Open Network Architecture
• Section 251 and Section 271 requirements

23
Qwest (WC Dkt. 07-97)

• Taken together, these petitions threaten the
  competitive landscape for nearly 13 million
  Americans, in over four and a half million
  households. And unlike the relatively small
  territories at issue in the Omaha and Anchorage
  forbearance proceedings, Qwests Petitions cover
  a massive geographic area -- covering large parts
  of four western states. The smallest of the MSAs
  at issue here, the Denver, Colorado MSA, is
  nearly three times larger in population than
  the Omaha MSA.
• (NASUCA Reply Comments in 07-97, quoting
  EarthLink et al, at 2)

24
Qwest (WC Dkt. 07-97)

• Opposition based upon
• Actual level of competition in MSAs Qwest
  ignores Omaha Order granular wire center analysis
  and asks for forbearance throughout four MSAs
• Overreaching nature of petitions
• NASUCA Reply comments October 1st suggest that
  the FCC should go back and review what effect
  Omaha Order and forbearance has had on markets
  and notes that Qwest must do more than cite Omaha
  Order to make a showing in this proceeding.

25
Piecemeal Policy Making

• Dealing with the multitude of forbearance
  petitions is a risky and messy business
• Let us start by noting what may already be
  obvious to many dealing with the multitude of
  forbearance petitions before us is a risky and
  messy business. There are no requirements on the
  parties to be explicit in their requests or
  detailed in the data they provide. It is left to
  the Commission to sort through and if we dont,
  we hand over the writing of these rules to
  industry.
• Petition of ATT Inc. for Forbearance Under 47
  U.S.C. 160(c) from Title II and Computer
  Inquiry Rules with Respect to Its Broadband
  Services Petition of BellSouth Corporation for
  Forbearance Under Section 47 U.S.C. 160(c) from
  Title II and Computer Inquiry Rules with Respect
  to Its Broadband Services WC Docket No. 06-125,
  Memorandum Opinion and Order (October 11, 2007),
  Joint Statement of Commissioner Michael J. Copps
  and Commissioner Jonathan S. Adelstein,
  Dissenting, at 42.

26
How to Fix

• Oppose them!
• Demonstrate how petitions hamper state goals,
  state regulation
• Demonstrate consumer harm
• Deny petitions that lack empirical support
• FCC should signal clearly that it wont tolerate
  policy making in a fragmented, piecemeal fashion

November 12, 2007
NASUCA Annual Meeting
Susan M. Baldwin
27
More Detailed Information

• Multitude of details and issues raised by
  forbearance petitions

November 12, 2007
NASUCA Annual Meeting
Susan M. Baldwin
28
Omaha Order

• Approved, in part, for mass market and broadband
  services (but not enterprise services)
• Forbearance from Part 63 non-dominant carrier
  discontinuance rules on the condition that Qwest
  subject to same treatment as non-dominant
  carriers under those rules (para.43)
• Forbearance from network unbundling obligations
  under Section 251(c)(3) (loops and transport) in
  9 of 24 wire centers
• Despite forbearing, in part, from loop and
  transport unbundling in some wire centers, the
  FCC found that certain key obligations that Qwest
  is subject to under Section 251(c) and
  271(c)(2)(B)(ii) (competitive checklist
  requirements) should remain in place

29
Omaha Order

• December 2, 2005
• Qwest petition for Omaha MSA
• FCC grant
• Forbearance for mass market but not enterprise
  with respect to dominant carrier regulations
• MSA-based analysis for dominant carrier
  regulations but wire center for unbundling
  requirements for 271

30
Omaha Order

• This Order is significant because it
  demonstrates the Commissions willingness to
  grant substantial deregulation to an ILEC even
  with only one significant facilities-based
  competitor in the market
• Latham Watkins Corporate Department, Client
  Alert, December 19, 2005

31
Omaha Order

• Predictive assumptions of FCC may have been
  optimistic or just plain erroneous
• The Arizona Corporation Commission states that
  McLeodUSAs Petition shows
• CLECs trying to compete in the nine wire centers
  in the Omaha MSA have experienced wholesale
  monthly price increases from Qwest in the range
  of 30 or more for DS0 stand alone loops. A
  minimum increase of 86 for DS1 access loops and
  a 360 increase in associated non-recurring
  charges for installing DS1 access loops have also
  been realized by the CLECs. While the cost to
  install a UNE DS1 loop and cross connect in
  Nebraska is 136.15 that same loop costs 626.50
  to install in one of the nine Omaha wire centers.
  The monthly recurring charge (MRC) for a UNE
  DS1 in Zone 1 increased from 76.42 to a special
  access rate of 182.22 in that same Omaha wire
  center. Even at the discounted special access
  rates, if term and volume commitments are met,
  the lowest discounted MRC in the affected Omaha
  wire centers is 145.95. This is a 91 increase
  over the monthly UNE DS1 Rate. Based on the
  current state of competition in the nine Omaha
  MSA wire centers, the ability of CLECs to
  continue to effectively compete in the Omaha
  market is questionable.

32
Anchorage Order

• Petition of ACS of Anchorage, Inc. Pursuant to
  Section 10 of the Communications Act of 1934, as
  Amended, for Forbearance from Sections 251(c)(3)
  and 252(d)(1) in the Anchorage Study Area, WC
  Docket No. 05-281, Memorandum Opinion and Order
  (rel. January 30, 2007)(Anchorage Order)
• Sought forbearance from unbundling obligations
  pursuant to 251(c)(3)
• FCC granted forbearance in 5 of 11 wire centers.
  However, the grant was conditioned upon ACS
  providing local legacy loop access, including
  access to the same subloops from which the
  Commission forbears unbundled local switching or
  other services, pursuant to commercially
  negotiated rates specific to the Anchorage study
  area. (Anchorage Order, at para. 39)

33
ATT Title II Computer Inquiry

• FCC granted forbearance in WC Docket No. 06-125
  on October 11, 2007
• ATT sought relief comparable to that deemed
  granted to Verizon in March 2006
• Granted substantial relief with respect to
  existing packet-switched broadband service and
  existing optical transmission services
• Relief from Computer Inquiry rules related to
  those services conditioned upon compliance with
  Computer Inquiry rules that apply to all
  non-incumbent LEC, facilities-based wireline
  carriers

34
Verizon (WC Dkt. 06-172)

• Two of the six Petitions filed by Verizon, i.e.,
  those that cover the New York and Philadelphia
  MSAs, will impact 2.7 million households, or 89
  of all households, in the State of New Jersey in
  16 of the states 21 counties. In fact, if
  approved, Verizons Petitions would impact over
  80 of the wire centers and an even higher
  percentage of lines serving customers in
  Verizons service territory. Moreover, approval
  would severely limit competitive alternatives in
  regions of the state where consumers can least
  afford it, including the city of Camden where
  almost 41.0 of the families living in the city
  have incomes below the poverty line.
• The Board is extremely concerned with the
  deleterious, profound and lasting consequence
  that approval of Verizons Petitions would have
  on the states competitive providers and
  ultimately consumers of telecommunications
  services. Over the past decade, the Board has
  painstakingly endeavored to establish balanced
  policies to promote local competition in the
  state. However, Verizons Petitions threaten the
  very foundation and balance the Board has worked
  so hard to achieve.
• New Jersey Board of Public Utilities Reply
  Comments, April 18, 2007, at 3-4.

35
FCC Analysis

• Defining the product market
• FCC differentiates between Mass Market and
  Enterprise market interstate services
• Mass market includes residential and small
  business

36
FCC Analysis

• Geographic market
• MSA
• Zip Code
• Wire Center
• In Omaha Order, granted Qwest petition for relief
  from Section 251(c)(3) loop and transport
  unbundling obligations in 9 wire centers in Omaha
  MSA based upon actual and potential competition
  (para. 57)