1. Comparative Telecommunications Law Prof. Karl Manheim Spring, 2007 9: Interconnection Copyright © 2007

2. Spring 2007CTL2 1996 Telecommunications Act Regulatory premise competition (not regulated monopoly) offers the best services at lowest cost Goals opening networks to competitive entry  Open Access promoting additional competition in open markets reform Universal Service to reflect competition (rather than regulation) in telecommunications  hidden cross-subsidies no longer possible  subsidies must be overt and competition neutral

3. Spring 2007CTL3 Opening Networks to Competition All Telecom Carriers [47 USC § 251(a)]47 USC § 251(a) (1) must interconnect with the facilities and equipment of other telecom carriers; and (2) Can not install network features, functions, or capabilities that do not comply with [this Act] (interoperability)

4. Spring 2007CTL4 LEC Obligations Duties of Local Exchange Carriers [§ 251(b)] (1) RESALE - Not to prohibit or impose unreasonable or discriminatory conditions or limitations on the resale of its telecommunications services. (2) NUMBER PORTABILITY (3) DIALING PARITY (4) ACCESS TO RIGHTS-OF-WAY - To afford access to poles, ducts, conduits, and easements to competing providers of telecom services on rates, terms, and conditions that are consistent with [this Act] (5) RECIPROCAL COMPENSATION - The duty to establish reciprocal compensation arrangements for the transport and termination of telecommunications.

5. Spring 2007CTL5 ILEC Obligations Additional obligations of ILECs [ § 251(c)] (1) Duty to negotiate … to fulfill the duties described in this section. The requesting telecom. carrier also has the duty to negotiate in good faith... (2) Interconnection (3) Unbundled access (4) Resale (5) Notice of changes… that affect the interoperability of [ILEC] facilities and networks. (6) physical collocation of equipment necessary for interconnection or access to unbundled network elements at the premises of the LEC

6. Spring 2007CTL6 Interconnecting CLECs & ILECs

7. Spring 2007CTL7 Interconnecting CLECs & ILECs Caged Collocation Physical sharing also required by Framework Directive Art. 12

8. Spring 2007CTL8 Which Network Elements? CLECs may “pick and chose” elements to lease: local loop switches & network interfaces vertical switching (such as call forwarding) interoffice trunk line database facilities operations support operator & information services

9. Spring 2007CTL9 FCC Order on UNEs Upheld (in part) in AT&T v. Iowa Bd (1999) On remand: FCC 3d Report and OrderFCC 3d Report and Order Upheld (2nd time) in Verizon v. FCC (1999) Interconnection compliance also challenged in Verizon v. Trinko (2004)

10. Spring 2007CTL10 Verizon v. FCC (SCt 2002) Facts FCC adopts pricing formula for UNE access  Forward looking (replacement) cost - TELRIC FCC formula is applied by state PUCs Claims 1.FCC cannot force state PUCs to use TELRIC 2.TELRIC rates violate US constitution (too low) 3.FCC method is “unreasonable” interpretation of Telecommunications Act § 252

11. Spring 2007CTL11 Verizon v. FCC (SCt 2002) Must PUCs apply FCC’s TELRIC formula? General rule: federal government may not require states to regulate (“commandeering”)  Compare EU directives Exception: if states can opt out of federal scheme Do TELRIC rates violate US constitution? Rates must be “just & reasonable” (Permian Basin) “Zone of reasonableness” (Hope Natural Gas) Cost recovery not required (Duquesne Light) Only complete loss of value is a “taking” (Lucas)

12. Spring 2007CTL12 Verizon v. FCC (SCt 2002) Is TELRIC an “unreasonable” interpretation? Chevron v. NRDC standard for reviewing agency decisions  Is the statute specific and unambiguous? If it is, a court can interpret it as well as the agency Here, the term “cost” in § 252 has many meanings, including “embedded,” “historic,” “replacement”  If the statute must be interpreted, defer to agency Agency interpretation is rejected only if unreasonable Here, future incremental cost is not an unreasonable interpretation of the statute Deference because of superior agency expertise

13. Spring 2007CTL13 Interconnection Pricing in EU Access Directive [2002/19/EC] (20)/Art. 13: NRAs to determine method of cost recovery  Allow a reasonable return on capital Historic costs adjusted for current valuation Rate of return should correspond to risk taken  Price should promote efficiency & sustain competition  Price should maximize consumer benefits How does this differ from TELRIC?

14. Spring 2007CTL14 Verizon v. Trinko (SCt 2004) Claims Verizon (ILEC) breaches UNE agreement with CLEC CLEC pays higher costs, charges Trinko higher rate Questions: Does Trinko have a claim under Telecom Act?  Ct Appeals rules that only CLECs may sue to enforce interconnection agreements, not customers Do Verizon’s actions violate Sherman Act, § 2  “Every person who shall monopolize, or attempt to monopolize, or conspire … shall be guilty of a felony, and … punished by fine not exceeding $10,000,000”

15. Spring 2007CTL15 Verizon v. Trinko (SCt 2004) Questions: How can he sue under the Sherman Act?  Act provides a “private right of action”  § 15: “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor … and shall recover threefold the damages by him sustained” Why does he lose?  Competition requirements in Telecom Act are not the same as in Antitrust law (no duty to aid competitors) Compare EU competition law

16. Spring 2007CTL16 Access to Local Loop in EU Regulation 2887/2000/EC Unbundled access is a “short term priority”  Access required for (DSL) broadband, not just telephony  Wire loops are “one of the least competitive segments”  Adequate investment & competition in fiber loops  Regulation applies only to telcos with SMP, then “sunset”  Entrants get to choose elements to lease Regulatory pricing required to assure access  Must be transparent, non-discriminatory, objective Parity of access (same as for own access) Supervised & enforced by NRAs

17. Spring 2007CTL17 Access to Local Loop in EU Access Directive [2002/19/EC] (8) reinforces interconnection obligations  (12) Unbundled access requirement continued pending implementation of new Telecoms package  (19) Access can be denied only on technical grounds  Access should not be a substitute for new networks (9) interoperability (harmonized standards)  See also ONP (1998)

18. Spring 2007CTL18 Dialing Parity What same calling protocols with CLEC as w/ ILEC How requires access to switching equipment Why experience with competition in IXC market dem- onstrated parity was essential to competition  Not to be confused with PIC vs. “Dial 10” Presubscribed Interexchange Carrier

19. Spring 2007CTL19 Collocation Caged Cageless