Gartner Says Radical Changes to Unbundled Network Elements Policies and a New Forward-Looking Regulatory Approach Are Needed
STAMFORD, Conn., November 10, 2003 — Short-term and long-term consequences of unbundled network elements (UNEs) policies are bad for consumers, the telecommunications industry and the U.S. economy, and radical changes are needed, according to Gartner, Inc.
"The industry has been polarized by the Federal Communications Commission's (FCC's) interpretation of the 1996 Telecom Act," said Ron Cowles, research vice president for Gartner's worldwide network services group. "The 1996 Telecom Act's focus had two goals: to open the local exchange market to competition, by stimulating facilities-based investment, and to promote expanded competition within the long-distance marketplace. The primary goal, however, was to provide residential customers with choice and innovation in their local voice telephone service."
There have been two core problems with the FCC's interpretation. Rather than rely on negotiated interconnection agreements as contemplated in the Telecom Act, the FCC ordered excessively complex interconnection rules that require incumbent telephone companies to unbundle their networks (access, switching and interoffice) at every technically feasible point for both voice and data services. The other issue has been the total element long-run incremental costs (TELRIC) - a costing model used to establish the price that the incumbents can charge for UNEs.
"After nearly seven years of rulemaking, primarily via unbundling the access network, the results have not been very effective," said Margaret Schoener, principal analyst for Gartner's worldwide network services group. "Choice for residential customers is limited primarily to urban customers, and investment by the incumbent and competitive carriers has been nonexistent."
"Infrastructure investment barriers will continue to exist, primarily because the rules cause all parties to hold investments," said Alex Winogradoff, research vice president for Gartner's worldwide network services group. "Moreover, Gartner's economic analysis demonstrates that following the current unbundled network elements platform (UNE-P) pricing scenario, the more UNE-P lines that are deployed, the more onerous the impact on the telecom industry and the national economy."
Gartner analysts said fundamental regulatory changes are required immediately. "Without the establishment of a forward looking regulatory policy, customers will likely see little change in choice, carriers will find it increasingly difficult to invest, market prices are likely to increase while service quality decreases," Cowles said.
"The industry and regulation are at a turning point," Cowles added. "Without a redirection of regulatory policy toward a future-focused market, the industry will remain in the doldrums." Gartner analysts said the industry and the FCC must work together to achieve this goal.
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