V. Applicable Law

Most of the interconnection agreements have provisions addressing how applicable law affects the parties' rights and obligations under the agreements. Therefore, before addressing the specific interconnection agreements at issue, it is useful to set forth the applicable federal law regarding requirements to unbundle the local switching and packet switching network elements.

A. Network Elements

The Telecommunications Act of 1996 requires ILECs to provide "access to network elements on an unbundled basis." (47 U.S.C. § 251(c)(3).) The term "network element" means "a facility or equipment used in the provision of a telecommunications service. This term also includes features, functions, and capabilities that are provided by means of such facility or equipment, including subscriber numbers, databases, signaling systems, and information sufficient for billing and collection or used in the transmission, routing, or other provision of a telecommunications service." (47 U.S.C. § 153(29).)

The FCC has consistently maintained a broad definition of network elements subject to the 1996 Telecommunication Acts's unbundling requirement which is not limited to a particular piece of hardware:

"We reaffirm our previous interpretation of the definition of `network element', set forth in Section 153(29) of the Act, as requiring incumbent LECs to make available to requesting carriers network elements that are capable of being used in the provision of a telecommunications service. Section 153(29) defines `network element' as `a facility or equipment used in the provision of a telecommunications service. Such term also includes features, functions and capabilities that are provided by means of such facility or equipment...' As an initial matter, we disagree with those commenters that continue to argue that `network elements' can only be physical facilities or pieces of equipment and therefore cannot include mere features, functions, and capabilities of a physical facility or equipment, such as a portion of the available bandwidth of a loop. Several courts, including the Supreme Court, have previously considered and rejected this argument. Indeed, the Supreme Court stated that `[g]iven the breadth of [Congress's network element] definition, it is impossible to credit the incumbents' argument that a `network element' must be part of the physical facilities and equipment used to provide local telephone service.'" (Citations omitted.)⁷

Verizon argues that determining what is a network element is essentially a two-part process. According to Verizon, once the FCC determines whether a particular facility or equipment should be unbundled, only then do the features and functions of the particular piece of equipment become available for unbundling purposes. Thus, according to Verizon, the features and functions of the circuit switch are subject to unbundling, but the features and functions of a packet switch are not, even though both pieces of hardware may be utilized to provide overlapping features or functions, in this case, local switching.

We disagree with Verizon's narrow reading of the definition of a network element tied to a particular piece of equipment. The authorities cited above define a network element as the facility or equipment used to provide telecommunications service, as well as the features, functions, and capabilities provided by means of such facility or equipment. Once a feature or function provided by a facility or piece of equipment is identified as a network element, that feature or function remains a network element regardless of the piece of equipment used to provide it.

This broader definition makes sense in the commercial setting, where parties to an interconnection agreement care about the nature of the unbundled services they are to receive. For example, a CLEC receiving the local switching does not care what piece of equipment is used to perform the local switching function, as long as the CLEC receives the agreed-upon function in a serviceable manner.

B. Local Switching

The FCC's Local Competition Order⁸ held that ILECs "must provide local switching as an unbundled network element." (See ¶ 410.) The Triennial Review Remand Order issued earlier this year has rescinded this requirement with a 12-month transition period for certain customers.

C. Packet Switching

The FCC has declined to require unbundling of packet switching for advance services, but has not squarely addressed the issue of whether the ILECs can replace circuit switches with packet switches to avoid unbundling obligations.

Because of an insufficient record, in the Local Competition Order, the FCC did not finally decide the issue of whether to unbundled packet switches. The FCC stated it would continue to review and revise the rules.

Paragraph 427 of the Local Competition Order provides:

"At this time, we decline to find, as requested by AT&T and MCI, that incumbent LECs' packet switches should be identified as network elements. Because so few parties commented on the packet switches in connection with Section 251(c)(3), the record is insufficient for us to decide whether packet switches should be defined as a separate network element. We will continue to review and revise our rules, but at present, we do not adopt a national rule for the unbundling of packet switches. "(Emphasis added.)

In that order, the FCC addressed a limited request by several CLECs to unbundle data switching by packet switches. (See ¶ 407.) To the extent that the FCC focused on packet switches in the Local Competition Order, it focused on packet switches solely as a vehicle for providing advanced and data services.

In the UNE Remand Order,⁹ ¶ 304, the FCC addressed whether to unbundle packet switching. As a threshold matter, the FCC defined the functionality of the packet switching network element. The FCC first described packet-switched networks, where "messages between network users are divided into units, commonly referred to as packets, frames, or cells. These individual units are then routed between network users. The switches that provide this routing function are `packet switches,' and the function of routing individual data units based on address or other routing information contained in the units is `packet switching.'" (¶ 302.)

The FCC's packet switching definition focuses on the packet switching functionality used for providing data and advanced services, and not voice. The FCC describes a component of the packet switching functionality, the Digital Subscriber Line Access Multiplexer (DSLAM), and how the DSLAM, or a separate splitter, can split voice (low band) and data (high band) signals carried over a copper twisted pair. At that point, "the voice signal is transmitted toward a circuit switch, and the data from multiple lines is combined in packet or cell format and is transmitted to a packet switch..." (¶ 303.) Thus, the FCC's definition distinguishes low-band voice from the packet switching definition.¹⁰

Paragraph 304 of the UNE Remand Order then defines packet switching as follows:

"We define packet switching as the function of routing individual data units, or `packets,' based on address or other routing information contained in the packets. The packet switching network element includes the necessary electronics (e.g. routers and DSLAMs [Digital Subscriber Line Access Multiplexer].) We find that packet switching qualifies as a network element because it includes `all features, functions and capabilities...sufficient...for transmission, routing or other provision of a telecommunications service."

In the UNE Remand Order, the FCC declined to unbundle the packet switching functionality (with a limited exception not applicable in this case). Similar to the definition discussed above, the rationale for this decision focused on using the packet switching function for providing advanced services. Paragraph 306 of the UNE Remand Order states in pertinent part:

"...The record demonstrates that competitors are actively deploying facilities used to provide advanced services to serve certain segments of the market - namely, medium and large businesses - and hence they cannot be said to be impaired in their ability to offer service, at least to these segments without access to the incumbent's facilities. ...We conclude, however, that given the nascent nature of the advanced services marketplace, we will not order unbundling of the packet switching functionality as a general matter." (Emphasis added.) (See generally ¶¶ 300-317.)

The Triennial Review Order also addresses the packet switching function. Because the FCC continues to apply the same definition of packet switching used in the UNE Remand Order (see ¶ 535), the FCC's refusal to unbundle "packet switching as a stand-alone network element" again focuses on data and advanced services. (See ¶ 537; See also ¶ 539: "Thus, we decline to require unbundling on a national basis for stand-alone packet switching because it is the type of equipment used in the delivery of broadband.")

Verizon believes the orders above are broader in scope, and apply to both voice and advanced services. Verizon states the FCC clarified this point when it denied MCI's (WorldCom's) petitions for reconsideration and clarification on unbundling packet switching equipment. However, ¶ 288, note 833 of the Triennial Review Order, which Verizon cites, limits its discussion to advance services (i.e., DSL services). ("Because we decline to require unbundling of packet-switching equipment, we deny WorldCom's petitions for reconsideration and clarification requesting that we unbundle packet-switching equipment, SDLAMs, and other equipment used to deliver DSL service.")

Furthermore, neither the Triennial Review Order, nor other FCC precedent, addresses the question here: whether the ILECs can replace their circuit switches with packet switches and thereby avoid their obligations under interconnection agreements to provide the local switching functionality. Verizon, however, believes the FCC addressed this issue in footnote 1365 and ¶ 448 of the Triennial Review Order.

Footnote 1365 in the Triennial Review Order states in pertinent part:

"Moreover, the dissents fail to consider the incentives created by our decisions on packet switching and advanced services. Specifically, we no longer unbundled packet switching and the advanced networks used with such switching. This means that to the extent there are significant disincentives caused by unbundling of circuit switching, incumbents can avoid them by deploying more advanced packet switching. This would suggest that incumbents have every incentive to deploy these more advanced network, which is precisely the kind of facilities deployment we wish to encourage."

In ¶ 448, the Triennial Review Order further states:

"...In fact, given that we do not require packet switches to be unbundled, there is little, if any basis for argument that our treatment of circuit switches gives LECs a disincentive to upgrade their switches."

The above references refer to the deployment of new technology for the purpose of promoting the development of advanced services (i.e., broadband networks), rather than the replacement of existing switches. We do not read this language, primarily in a footnote, as constituting a holding that the ILECs can replace their circuit switches with packet switches and thereby avoid their obligations under the interconnection agreements to provide the local switching functionality. Presumably, had the FCC so intended, it would have rendered such a major policy decision explicitly and in more prominent, directive language. Moreover, the FCC has never prohibited Verizon from satisfying its obligations under interconnection agreements by means of a packet switch.