By Jeffrey Krauss, Local loop loiterer and President of Telecommunications and Technology Policy

What was the FCC's biggest, most important decision in 1999?

I think it was the local loop line sharing decision that came out in December.

It requires incumbent local exchange carriers (ILECs) to lease the high frequency portion of their wire pair local loops to competitive local exchange carriers (CLECs) for digital subscriber line (DSL) services.

It was a good decision, although it might go beyond the FCC's statutory authority. If it stands, it will fuel the marketing predictions that DSL will grow faster than cable modems for Internet access.

In the Telecommunications Act of 1996, Congress gave the FCC the power to force ILECs to "unbundle" portions of the local phone network, so that "unbundled network elements" could be used by CLECs as part of a competitive local phone service. Until now, the list of unbundled network elements consisted of physical hardware such as local loops, switches, connecting frames, network interface devices, etc. CLECs were able to lease local loops and other network elements from ILECs and use them as part of a competing service.

Now, for the first time, the FCC has decided that a local loop has both a low frequency portion, which is used to carry voice communications, and a high frequency portion. That's no big deal. The big deal is that the FCC decided that the high frequency portion is a separate network element, and must be unbundled and leased to CLECs. The decision is good for the public, because it promotes high-speed Internet access. But the FCC's theory that the high frequency portion of a wire's bandwidth is a separate network element seems like a stretch to me.

Never mind that the FCC declined to specify the precise frequency ranges for the low frequency and high frequency portions, on the theory that such a specification would freeze technological development. And never mind that the upper end of the high frequency portion cannot be defined but depends on the length of the loop. For example, data rates up to a few megabits per second can be carried at distances up to about 18,000 feet, but higher data rates using higher frequencies have shorter distance limits. Courts have been known to overlook such technical complications. I hope this decision will survive the inevitable court challenge, even though the high frequency portion of a local loop isn't fully defined and doesn't have a separate physical existence.

Competition and deployment

The FCC decided that DSL is good because it supports advanced telecommunications services. The FCC decided that ILECs have unfairly retarded the deployment of DSL by competitors. In part, it's a cost issue. While an ILEC would provide DSL by putting it on the same wire pairs that carry voice service, CLECs would have to lease a separate pair of wires. While the ILEC would have little incremental cost, and could set its prices accordingly, the CLEC would have to pay for the full capacity of the separate local loop even though the low frequency part was not being used for voice services.

Under current rate regulation policies, ILECs have been permitted to allocate the entire cost of the local loop wires to monopoly voice service, so that only the DSL terminal equipment costs would figure in ILEC decisions on DSL rates. The FCC declined to set prices for the high frequency portion, or to specify an allocation factor to allocate the cost of the local loop between the high frequency and low frequency portions. But under this new decision, whatever allocation of cost the ILEC attributed to the local loop in setting its DSL rates, the ILEC is required to charge that same allocation to the CLEC.

Will this decision boost the deployment of DSL? You bet. The FCC quotes market estimates of more than 7 million DSL lines by the end of 2002. DSL is expected to surpass cable modem penetration by 2003, according to Cahners In-Stat. If these estimates did not take into account the FCC line sharing decision, DSL growth will be even better. Assuming that the decision withstands the scrutiny of the Appeals Court, it will have a massive impact on the availability and cost of DSL services provided by CLECs.

Does this decision portend a similar FCC "open access" requirement on cable modem service? Probably not. The FCC was very clear to say that line sharing was based on the statutory obligations that Congress placed on common carrier ILECs in the 1996 legislation because of their monopoly status. In contrast, the FCC has a long way to go before it even decides whether Internet access through a cable modem is a cable service, a telecommunications service or an information service. Different legal requirements could apply, depending on the classification.

The real winners in this decision are new companies such as Covad Communications, Rhythms Netconnections and Northpoint Communications. They are the major DSL CLECs. They convinced the FCC that DSL was good, and that the ILECs were retarding DSL deployment. They convinced the FCC that line sharing was technically and operationally feasible. They have established themselves as major players in the Washington lobbying arena. This was a huge victory. Good for them.