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USTelecom Petition for Ruling that ILECs Are Non-Dominant in Switched Voice Services

12.19.2012
Petition

USTelecom Petition for Ruling that ILECs Are Non-Dominant in Switched Voice Services

Pursuant to Section 1.2 of the Commission’s rules, the United States Telecom Association (USTelecom) respectfully files this petition requesting that the Commission issue a declaratory ruling that incumbent local exchange carriers (ILECS) are no longer subject to dominant-carrier regulation under the Commission’s rules.

The Commission in the Universal Service Reform Order emphasized the importance of reforming “outdated” regulatory mechanisms “established long before competition emerged among telephone companies, cable companies, and wireless providers...” The Commission went on to conclude that “the system is eroding rapidly as consumers increasingly shift from traditional telephone service to substitutes including Voice over Internet Protocol (VoIP), wireless, texting, and email….”

Today, there are likely more households that have chosen to “cut-the-cord” and subscribe only to wireless service than there are households that subscribe to a switched-access service provided by an ILEC. And within the next year, the number of households being served by an interconnected VoIP service will surpass the number of households subscribed to an ILEC switched access service.

These statistics are merely the most obvious manifestations of a profound and accelerating technological and societal shift away from “plain old telephone service” (POTS) offered over the legacy public switched telephone network (PSTN) to IP-based services offered over fixed and mobile broadband networks.

In recognition of these facts, the Commission has focused significant resources recently on preparing for the demise of the PSTN – a notion that is fundamentally at odds with the continued treatment of ILECs as “dominant” when offering switched access voice services. Indeed, the Commission has established a policy goal of modernizing its rules in order to “accelerate the transition from circuit-switched to IP networks, with voice ultimately one of many applications running over fixed and mobile broadband networks.”

While the Commission has recognized this transition in several contexts, many of its regulatory paradigms continue to be based upon the idea that the PSTN still constitutes a monopoly platform for the delivery of voice services. But the evidence is clearly to the contrary. Indeed, since its peak around the turn of the century, the number of ILEC switched access lines has fallen at least 50%, and continues to decline; and ILEC switched access minutes of use have dropped by more than 70%, all despite an increased population. These connections have not just disappeared. Rather, they have been displaced by wireless and VoIP connections. Indeed, today only about one-third of American households purchase an ILEC switched access service. In contrast, approximately 40% of U.S. households have “cut the cord” and rely entirely on wireless for their voice service. In short, the share of consumers continuing to subscribe to ILEC switched-access services is considerably less than that which led to the finding of AT&T non-dominance in the long-distance market, as well as the Commission’s recent order finding that cable companies are no longer dominant on a nationwide basis in the MVPD market.

Not only can such an imbalanced regulatory scheme no longer be justified, its continued enforcement by the Commission has significant negative public policy consequences. As the number of consumers choosing to retain ILEC PSTN connectivity continues to decline – by more than ten per cent a year, according to the Commission – the costs of complying with these anachronistic regulations are spread across fewer and fewer consumers, proportionately increasing the burden on those consumers that remain on the legacy network. As the Commission itself has recognized, this situation is not “sustainable.”

And more importantly, the continued failure to adjust outdated regulatory models to reflect the rapidly changing communications landscape is inhibiting the transition to all-IP networks by reinforcing incorrect market signals and forcing limited investment capital to be directed to last century’s communications infrastructure at the expense of new technologies. At the same time, this backwards-looking approach undermines the Commission’s ability to tailor its public interest obligations in a manner that takes full advantage of these new technologies.

In short, POTS provided by the ILECs is only one of many options available to meet consumers’ demands for communications services, and an option being chosen by a rapidly declining minority of consumers at that. In this context, it simply no longer makes sense as a matter of economics or public policy to continue to treat ILECs as dominant in the provision of switched voice telecommunications services, and thus the switched access services component of those voice services. Accordingly, the public interest would be well-served by a clear declaration from the Commission stating what it has implicitly acknowledged in other contexts – that ILECs are no longer in any way “dominant” when providing voice services over their traditional switched access networks. This petition is not requesting the deregulation of switched access, but rather is requesting regulatory parity in this area between LECs.