STATE OF NEW JERSEY
Division of The Ratepayer Advocate
31 Clinton Street, 11th Fl
P. O. Box 46005
Newark, New Jersey 07101
JAMES E. McGREEVEY |
SEEMA
M. SINGH, Esq.
|
Backgrounder
2004: The Year of Telecommunications
By Seema M. Singh, Esq.
Director, The New Jersey Division of the Ratepayer Advocate
*
The Federal Telecommunications Act of 1996 was intended to open all
telecommunications markets to competition so that consumers could enjoy the
benefits of increased choices, reduced prices, expanded services, and enhanced
technology and innovation. The
Federal Act significantly altered the legal and regulatory framework governing
the marketplace for local exchange telecommunications services.
Throughout the country, prior to the implementation of the Federal Act, each
local market was served by one local exchange carrier, or LEC.
In most areas of New Jersey, the LEC provider was and remains Verizon-New
Jersey. But today, large and small
businesses as well as residential customers have many choices for
telecommunication services from multiple providers.
As you can see from the price wars in the media, competition has lowered
prices for consumers for telephone and broadband services.
The Federal Act, and its corresponding regulations implemented in New Jersey by
the Board of Public Utilities, were intended to eliminate prior statutory,
regulatory, and economic barriers to competition which resulted in a virtual
monopoly for Local Exchange Carriers.
As expressed throughout the Federal Act, Congress envisioned competition in the
local telephone market developing in three ways through:
(1)
facilities-based competition—construction of new networks by competing
carriers;
(2)
unbundled network elements, or commonly referred to as UNEs—the ability
of competitors to purchase elements of the incumbent local telephone carrier’s
network and combine them with their own facilities;
(3)
resale of existing Local Exchange Carrier services.
While some of the above terms may seem confusing, they all serve to achieve a
specific goal: the seamless opening of the market to competition.
UNEs, for example, include all the parts of the telephone network that
are used for the transmission of a phone call.
By permitting competitors access to all or parts of the incumbent carrier’s
network for a fee so that competitors can rent the existing network, Congress
sought to open the local markets to competition.
Congress did not want each competitor to build its own networks from
scratch, as this would be prohibitively expensive and time-consuming. Congress
wanted numerous options available to Competitive carriers to jump start
competition in the local markets.
As a result, some competitors have chosen to build all or certain parts of the
network themselves and want access to only portions of the incumbent’s
network. While other competitors
have chosen to buy all of an incumbent’s network at a discount, and then
resell the service.
The Federal Act also established the pricing standards, which states are to
consider when setting the rates at which the incumbent must offer access to its
network through UNEs. The state
must base the rate on a forward-looking cost, or, the cost, which would be
required to build an efficient network today.
The UNE rates that competitors pay affect whether consumers have a choice
of providers. Consequently, the New
Jersey Board of Public Utilities took a gigantic step in fostering local
competition through its revisiting of UNE rates in New Jersey in 2002.
In 1997, the Board had initially set the statewide average loop rate at
$16.21 per month. By setting this
charge at almost twice Verizon-New Jersey’s price of local service, which is
$8.19 per month, local competition could not develop.
In 2002, the Board substantially reduced UNE rates in New Jersey including the rates for lines used by large and small businesses. The statewide average was reduced from $16.21 to $9.52 for a typical unbundled loop. The Board also made other price reductions for crucial UNEs, including local switching and transport. The Ratepayer Advocate actively participated in these proceeding and the Board adopted many of our recommendations. Now, residential customers and large and small businesses have numerous carriers marketing to them. Consistent with these increased options, the Board reclassified multiple business lines as a competitive service as part of the Alternative Form of Regulation Plan approved in 2002.
There are three major issues that will be addressed in 2004, which are important for the continued growth of competition and the prospects of more choice, technological innovations, and lower prices for consumers. These are (1) the implementation of the Triennial Review Order (TRO) by the Board, (2) the FCC’s decisions as to whether revisions to the UNE pricing methodology are necessary or warranted, and (3) the regulatory classification of Voice over the Internet (VOI) Protocol .
1.
Triennial Review Order (TR0)
Regarding the TRO, the FCC formulated revised policies, which reflect a
principled, balanced approach that promotes competition and deregulation.
The FCC deregulated broadband, making it easier for companies to invest
in new equipment and deploy the high-speed services that businesses need and
want in order to more effectively compete in the market place.
The FCC continued with its policy that states have a significant and
strong role in promoting local competition for all consumers, including
residential customers and large and small businesses.
For broadband and advance services, which are important for large and small businesses and residential customers, specifically, the FCC focused on deregulating broadband and attracting new investment by making broadband a top priority and creating proper incentives for new investment in advanced services. The FCC removed unbundling requirements on all newly deployed fiber, implemented regulatory relief for new hybrid fiber-copper facilities and packet technology, while ensuring continued access to existing copper. These changes will jump start investment in next-generation networks and facilitate the continued deployment of advanced services to business leading to a new period of growth in telecommunications and most importantly manufacturing.
In order to promote and preserve local competition, and maintain the role of state commissions, the FCC found that switching - a key UNE-P element - for business customers served by high-capacity loops such as DS-1 will no longer be unbundled based on a presumptive finding of no impairment. Under this framework, states will have 90 days to rebut the national finding. However, other changes ensure that large capacity circuits and dark fiber are available to competitors who in turn compete for the telecommunications needs of large and small businesses.
The FCC found that requesting carriers are impaired without access to dark fiber, and high capacity transport, each subject to a review by states to identify whether competing carriers are able to provide their own facilities. These are the facilities most often used by small and large businesses. However, the FCC found that residential competition requires that the UNE-P, including local switching continue to be available unless certain tests are met.
2.
Pricing of UNE Elements
The FCC initiated a proceeding to review and obtain recommendations on
whether changes are needed to assist state commissions to set pricing for UNEs
and resale discounts. UNE pricing
affects the prices that competitive local exchange carriers purchase network
elements from the incumbent local exchange carrier.
UNE pricing has played a crucial role in fostering competition for
telecommunication services. The
Ratepayer Advocate is recommending that the FCC establish and designate
for each input used to derive prices what is the floor and what is the
ceiling for each input. This will streamline future proceedings and permit state
commissions to balance the need to promote more competition and the need to
foster more facilities-based competition. Without
properly set UNE pricing, competition in the residential, small and large
business markets cannot flourish and the goals of the Federal Telecommunications
Act will not be achieved.
3.
Voice Over Internet (VOI) Protocol
Regarding Voice Over Internet protocol, the FCC held a public forum on
December 1, 2003 in Washington, D.C. with representatives from Government and
industry. Technical and market
issues surrounding VOI were addressed. There
was general consensus that VOI can be used to offer customers lower-cost,
innovative services with capabilities previously unavailable in voice
communications. VOI has the
potential to offer all consumers the prospect of lower cost alternatives for
local, long distance and international services while promoting increased
efficiency.
VOI essentially turns voice into digitized data and then transmits it
over the internet. The technology
to transmit voice is less expensive than traditional telephone technology and
also makes it possible to provide a wide range of features, including
videophones and being able to monitor phone activity and listen to voice mail
from over the internet.
Public policy questions were also addressed such as if and how VOI should
be regulated and what affect VOI may have on social policy such as access by
persons with disabilities, universal service, and Enhanced 911. As a matter of
fact, in December of 2003, AT&T announced its plans to roll out consumer VOI
service over high-speed connections, potentially providing a boost in demand for
broadband service. AT&T is
conducting a trial run of this service, with plans for a more substantial
rollout early in 2004. AT&T
claims that VOI technology will allow integration of various advanced
capabilities and services in addition to standard voice capability.
The cable TV industry sees an opportunity here as well. Time Warner also announced in December of 2003 that it signed
a deal with Sprint and MCI to provide this service. Time Warner said it expected to offer this service by the end
of 2004. In addition to Time
Warner, cable giants Comcast and Cablevision have begun deployment of internet
phone services. All of this
activity demonstrates just how competitive the telecommunications market has
become.
Many states are now actively involved in determining whether VOI should
be regulated at the state level as another form of telecommunications service.
Unless the proper regulatory approach is adopted, a level playing field
cannot exist between the telephone networks and the VOI networks.
*
The
Division of the Ratepayer Advocate is an independent state agency that
represents the interests of utility consumers and serves as an active
participant in every case where New Jersey utilities seek changes in their rates
or services. The Ratepayer Advocate
also gives consumers a voice in setting long-range energy, water, and
telecommunications policy that will affect the delivery of utility services well
into the future.
Additional information on this and other matters can be found at the Division of Ratepayer Advocate’s website at http://www.rpa.state.nj.us
ratepayer advocate: home
| electric
| gas
| telco
| water/wastewater
| news
& info. | press
releases | case
matters | publications
| consumer
info. | links |