VII. Unbundled Network Elements

C. Background

Section 251(c)(3) requires incumbent local exchange carriers to provide unbundled access to those network elements that the FCC determines, under Section 251(d)(2), to be necessary, and to be required to avoid impairment of the requesting carrier's ability to provide its services. The terms and conditions for providing such UNEs are established in interconnection agreements.

The FCC first addressed these unbundling obligations in the 1996 Local Competition Order, which, among other things, established a list of seven UNEs which incumbent local exchange carriers were obliged to provide.³³ The courts affirmed some parts of the Local Competition Order and reversed others, vacating the specific unbundling rules at issue.³⁴ In response, the FCC issued the 1999 UNE Remand Order promulgating new unbundling rules. The D.C. Circuit vacated the order and remanded the portions establishing a list of mandatory UNEs.³⁵

The FCC responded to USTA I in its August 2003 Triennial Review Order,³⁶ where it adopted new unbundling rules declassifying certain network elements as subject to unbundled access. For example, the FCC ruled that access to copper subloops is to be unbundled, but not access to feeder loop plant (Id., ¶¶ 253-254); access to the dedicated transport network element is to be unbundled, but is narrowly defined to include only that equipment and facilities that coincide with the incumbent local exchange carrier's internal transport network (Id., ¶ 366); OCn or SONET interface transport does not qualify as UNEs (Id., ¶ 389); and nor do local circuit switches serving DS1 capacity and higher enterprise customers or mass market customers (Id., ¶ 419). On appeal of the Triennial Review Order, the D.C. Circuit decided USTA II in which it vacated and remanded several of the Triennial Review Order's rules requiring unbundling, but also upheld a number of elements.³⁷

The FCC has now crafted new unbundling rules in light of USTA II, although the final order has not been released.³⁸ Meanwhile, it has adopted an interim plan for the transition to final unbundling rules. The Interim Order requires incumbent local exchange carriers to continue providing unbundled access to mass market switching, enterprise market loops, and dedicated transport under the rates, terms and conditions in their current agreements.
(Id., ¶¶ 1, 21.) These requirements will expire when the FCC's new unbundling rules take effect or on March 13, 2005 (six months from Federal Register publication of the Interim Order), whichever comes first. (Id., ¶ 23.)

The FCC also proposes to adopt, subject to further comment, a second transition period for the six months following this interim period during which, in the absence of an FCC ruling making switching, dedicated transport and/or enterprise market loops subject to unbundled access, incumbent local exchange carriers must continue to provide such access, but may do so at higher rates. (Id., ¶ 29.)

Against this background, the question before the Commission is whether to adopt the UNE Appendix from the parties' current interconnection agreement as Level 3 proposes, or to adopt a new UNE Appendix that leaves out network elements that either are not required to be unbundled under the Triennial Review Order or as to which USTA II vacated the FCC's rule requiring unbundling as SBC proposes.

SBC also offers to include a rider to the new agreement that would allow Level 3 access to the network elements referenced in the Interim Order until the effective date of final unbundling rules adopted by the FCC, the date that is six months after Federal Register publication of the Interim Order (which will be on or about March 13, 2005), or the if the Interim Order is withdrawn, vacated or stayed.

D. Discussion

I adopt SBC's proposed UNE Appendix and its proposed rider to apply the FCC's interim plan to this agreement. The Interim Order does not entitle Level 3 to the terms and conditions of its current agreement with respect to UNEs that are no longer required to be unbundled, i.e., declassified UNEs.

Level 3 asserts that the FCC's Interim Order requires the parties to retain the current agreement's UNE terms and conditions until the FCC adopts permanent unbundling rules or March 13, 2005, whichever is earlier. Level 3 is wrong on two counts. First, the Interim Order does not extend all rights and obligations regarding network elements, but only those rights and obligations related to mass market switching, enterprise market loops and dedicated transport. Second, the Interim Order does not apply to expired contracts, but only to contracts that continue to be in effect.

Level 3 argues that the Interim Order prohibits arbitration of new agreements until after the FCC adopts permanent UNE rules. Level 3 cites to the FCC's statement that:

Moreover, if the vacated rules were still in place, competing carriers could expand their contractual rights by seeking arbitration of new contracts, or by opting into other carriers' new contracts. The interim approach adopted here, in contrast, does not enable competing carriers to do either. (Interim Order, ¶23.)

This statement does not stand for Level 3's proposition. To the contrary, the statement affirms that the vacated rules are no longer in place, beyond the provisions of the interim plan.

Level 3 suggests that the Interim Order's provision that incumbent local exchange carriers shall continue to provide declassified UNEs "under the same rates, terms and conditions that applied under their interconnection agreements as of June 15, 2004" means that Level 3 is entitled to those rates, terms and conditions in its new agreement. Level 3 is incorrect. The FCC's Interim Order freezes in place, and protects from change of law provisions, contract terms that predate the vacated rules. The Interim Order does not preclude new contracts. Rather, it precludes new contracts from adopting those vacated rules. (¶ 23.)

Level 3 cites the FCC's comments that "such litigation would be wasteful in light of the Commission's plan to adopt new permanent rules as soon as possible." The FCC's discussion here, however, references litigation of change of law clauses in the event that the FCC adopted new interim requirements, which it did not. (Id., ¶ 17.) It does not reference litigation over new contract terms and conditions.

In any event, Level 3's insistence on access to the declassified UNEs until the FCC adopts permanent UNE rules or March 13, 2005, whichever is earlier, is fully satisfied by SBC's proposed rider. Level 3 nevertheless objects to SBC's proposed rider as improper because SBC did not attempt to negotiate its terms, but instead presented it for the first time in the prepared testimony of its witness Silver. Level 3 argues that the proposed rider is therefore a new issue that was not raised in negotiation and therefore not subject to arbitration under Section 252.

Level 3's objection is hollow. Level 3 does not dispute that SBC and Level 3 negotiated SBC's proposed language withdrawing the declassified UNEs from the proposed interconnection agreement. SBC's concession to allow access to them on a limited basis does not constitute an injection of a new issue into the arbitration.

In addition to asserting that SBC is obliged to continue unbundled access to declassified UNEs, Level 3 contests SBC's characterization of certain UNEs as declassified. First, with respect to certain network elements, Level 3 contends that, although they are no longer ruled to be unbundled, they are nevertheless "pending" resolution and therefore subject to continuing unbundled access. Specifically, Level 3 admits that the FCC eliminated "entrance facilities" dedicated transport as a UNE in the Triennial Review Order, but asserts that this issue remains pending because the D.C. Circuit remanded this issue to the FCC for further explanation of its reasoning. Level 3 admits that USTA II vacated the FCC's finding of impairment, on a national basis, for DS1, DS3 and dark fiber dedicated transport, but asserts that this issue remains pending because the D.C. Circuit remanded the issue to the FCC to assess whether the impairment analysis should be done on a route-by-route basis.

The possibility that new rules may emerge reclassifying currently declassified UNEs does not give this Commission the discretion to require unbundled access to them. Future rules requiring unbundled access to currently declassified UNEs will be taken into account under the intervening law provisions of this agreement. However, as Level 3 acknowledges, the law as it currently stands declassifies these network elements.³⁹

With respect to DS1 and DS3 loops, Level 3 claims that USTA II did not vacate the rules requiring their unbundling. However, although the D.C. Circuit did not make a formal statement regarding the status of these UNEs, the FCC determined that it would assume arguendo that the D.C. Circuit had vacated the FCC's finding regarding enterprise market loops for the purpose of its Interim Order.⁴⁰ As the FCC has deemed it prudent to treat DS1 and DS3 loops as declassified pending final rules, it is likewise reasonable for this Commission to do so.

With respect to hybrid loops and fiber-to-the-home loops, Level 3 notes that USTA II did not vacate the Triennial Review Order's ruling that placed limits on their unbundling, rather than entirely declassifying them as UNEs. Level 3 does not, however, identify any specific objections to SBC's proposed UNE Appendix with respect to whether it conforms to those limits by allowing permissible unbundled access.

Level 3 asserts that enhanced extended links (EELs) continue to be subject to unbundled access. SBC does not dispute this statement, but responds that this is irrelevant because all enhanced extended links include dedicated transport, which is declassified. This conclusion is consistent with Level 3's reference to the Triennial Review Order's definition of EELs as combinations of network elements consisting of unbundled loops and unbundled transport.

Level 3 points out that, although USTA II upheld the FCC's elimination of unbundled access to line sharing, it also upheld the FCC's rules continuing unbundled access for a three-year transition period. However, Level 3 does not propose any language from its current UNE Appendix that would provide for line sharing.

Presented with two competing UNE Appendices - SBC's, which purports to dispense with declassified UNEs, and Level 3's, which explicitly continues them - I adopt SBC's proposed UNE Appendix.

³³ The seven UNEs were: (1) local loops, (2) network interface devices, (3) local and tandem switching, (4) interoffice transmission facilities, (5) signaling networks and call-related databases, (6) operations support systems, and (7) operator services and directory assistance. Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Interconnection between Local Exchange Carriers and Commercial Mobile Radio Service Providers, CC Docket Nos. 96-98, 95-185, First Report and Order, 11 FCC Rcd 15499, 15616-775 (1996) (Local Competition Order) (subsequent history omitted).

³⁴ AT&T Corp. v. Iowa Utils. Bd., 525 U.S.366 (1999).

³⁵ United States Telecom Ass'n v. FCC, 290 F.3d 415 (D.C. Cir. 2002) (USTA I).

³⁶ Triennial Review Order, 18 FCC Rcd 19,020 (rel. Aug. 21, 2003).

³⁷ The court upheld the FCC with respect to a number of elements including broadband loops, hybrid loops, enterprise switching and the section 271 access obligation.

³⁸ On December 15, 2004, the FCC issued a decision adopting final unbundling rules. This decision issued too late for consideration in this arbitration under the schedule mandated by the Telecommunications Act, the Commission's Resolution ALJ-181, and the schedule stipulated to by the parties. To the extent that the Arbitrator's Report is in conflict with the FCC's December 15 order, parties may seek review under the Commission's Rules of Practice and Procedure.

³⁹ See footnote 38, above.

⁴⁰ Interim Order, ¶ 1, fn. 4.