**PRESS STATEMENT OF COMMISSIONER KATHLEEN Q. ABERNATHY**

*Re: Review of Section 251 Unbundling Obligations of Incumbent Local
Exchange Carriers; Implementation of the Local Competition Provisions of
the Telecommunications Act of 1996; Deployment of Wireline Services
Offering Advanced Telecommunications Capability; and Appropriate
Framework for Broadband Access to the Internet Over Wireline Facilities,
CC Docket Nos. 01-338, 96-98, 98-147 & 02-33, Report and Order (adopted
Feb. 20, 2003).*

This has been a grueling proceeding for everyone involved, and I am
relieved that we have finally come to closure. I am pleased to support
many aspects of this Order. Most importantly, I strongly support the
Commission's decision to exempt new broadband investment from unbundling
obligations. We have taken bold action to restore incentives for
carriers to build next-generation fiber-based facilities that will
support a host of exciting new broadband applications. I am also pleased
that the item ensures that facilities-based carriers will have access to
the critical loop and transport elements they need to compete, and I
support the further notice seeking comment on proposed modifications of
the pick-and-choose regime.

I am deeply troubled, however, by the majority's resolution of the fate
of unbundled switching, or UNE-P. The decision to make only vague
presumptive findings on switching impairment and to delegate virtually
unlimited discretion to state commissions abdicates our statutory
responsibility. This approach is also inconsistent with the goals of
promoting regulatory certainty and facilities-based competition. As I
made clear upon coming to the FCC, I am guided by several core
principles, and at the top of the list are (1) adhering to the text and
structure of the Communications Act, (2) relying to the greatest extent
possible on market forces rather than heavy-handed regulation, and (3)
promoting regulatory clarity and certainty. The majority's approach to
switching violates each of these principles. I am therefore forced to
dissent from the switching section of the item. I also dissent from the
majority's decision to eliminate line sharing.

I elaborate below on the two most pressing issues in this proceeding:
broadband loops and unbundled switching, and I explain my reasons for
dissenting from the line sharing decision.

**Broadband Loops**

One of the 1996 Act's most important mandates, and accordingly one of my
core goals as a Commissioner, is to facilitate the deployment of
broadband infrastructure. The key question posed in this proceeding is
*how* we should accomplish that end. The answer, in my view, is to
remove regulatory obstacles to deployment and thereby ensure that
network owners have adequate incentives to make the costly and risky
investments needed to deliver broadband to all Americans.

As in most important debates, no one side has a slam-dunk argument. And
the stakes could hardly be higher: While the FCC has been pondering
these issues, capital expenditures have fallen off a cliff. Carriers and
equipment manufacturers alike have laid off thousands of workers, and
bankruptcies have become commonplace. Despite our historical global
leadership in communications technology and deployment, several other
countries now surpass the United States in terms of broadband
penetration and performance. American service providers and equipment
vendors have been forced to slash research and development budgets and
this trend is not easy to reverse.

Faced with this situation, the Commission is forced to balance two
sometimes competing goals in the statute: preserving carriers'
incentives to invest in new facilities, on the one hand, and providing
competitive access to incumbents' networks, on the other. I believe that
the balance we strike should vary with the degree of new investment at
issue. At one end of the spectrum is fiber-to-the-home (FTTH)
investment, which entails a complete replacement of legacy facilities
(or entirely new construction in greenfield situations) and thus imposes
immense costs and risks on incumbents as well as new entrants. The Order
accordingly refrains from unbundling these new FTTH facilities. At the
other end of the spectrum is existing copper plant. Granting competitors
access to copper loops or to the high-frequency portion of the loop
(line sharing) in my view does not create any real disincentive to
invest, because the loops in question already exist and the electronics
used to provide line sharing already have been exempted from unbundling.
As discussed below, I therefore believe that the majority should have
preserved our line sharing requirements.

The most significant debate centered on how to handle hybrid
fiber/copper loops, where the incumbent deploys a next-generation
digital loop carrier (NGDLC) architecture. These hybrid situations
contain a mix of legacy plant and new broadband investment. I am
persuaded that the best approach, which we have adopted today, is to
preserve existing access rights but refrain from imposing new unbundling
obligations on upgraded hybrid loops. Specifically, competitive carriers
will have voice-grade access to upgraded fiber, as well as access to
spare copper loops and copper subloops. In addition, competitive LECs
will retain the very same access to high-capacity loops (DS-1s and
DS-3s), subject to the impairment analysis set forth in the order, that
they have today. Preserving this access is a critical measure to
preserve competition in the enterprise market. At the same time,
refraining from unbundling newly deployed packetized channels over fiber
will give incumbent LECs increased incentives to make their networks
capable of delivering broadband to many more Americans.

I fully agree with the argument that competitive pressures are necessary
to spur investment by incumbent carriers. But granting unbundled access
to new broadband networks would be an empty gesture if it meant that
such networks were never built in the first place. The record suggests
that the uncertainty regarding possible broadband unbundling obligations
has chilled investment substantially.

I am therefore heartened by the FCC's decision to provide significant
regulatory relief for new broadband investment. I firmly believe that
this decision, in due time, will bring consumers the benefits of
increased investment and innovation  which translates into better,
faster, more robust services. I also believe that consumers will benefit
from broadband competition  both intermodal (from cable modem,
satellite, and wireless broadband providers) and intramodal (from
competitive LECs using their own facilities and incumbents' loops and
subloops). And because the telecom sector has become such an important
driver of overall fiscal health, I expect that regulatory relief for
broadband will serve as a much-needed stimulant to the economy.

**Unbundled Switching (UNE-P)**

While I enthusiastically support the decision to remove regulatory
obstacles to broadband deployment, I am deeply disappointed by the
Commission's resolution of the unbundled switching (UNE-P) issue. Rather
than conducting the kind of impairment analysis mandated by the statute
and the courts, the Commission has essentially washed its hands of the
issue, delegating virtually unbounded authority to state commissions to
make their own impairment findings. Rather than creating a clear and
predicable regulatory environment, this decision will engender
litigation in each of the 50 states and leave all carriers  whether
CLECs or ILECs  guessing about what their rights and obligations will
be in the years to come. And rather than promoting facilities-based
competition, this decision creates the possibility that UNE-P will
remain ubiquitously available indefinitely, despite powerful record
evidence demonstrating that competitors can serve customers using their
own switches in many (if not most) areas.

I fully agree with the majority that state commissions are our partners
in implementing the 1996 Act. But the Act itself spells out the terms of
this partnership, and the majority ignores the congressional framework.
The Act unequivocally directs this Commission to "determin\[e\] what
network elements should be made available." 47 U.S.C. § 251(d)(2). By
contrast, Congress assigned the states responsibility for approving
interconnection agreements, mediating and arbitrating disputes, and
setting rates for unbundled network elements, among other things. 47
U.S.C. § 252. I also agree that once the FCC imposes limitations, it may
appropriately delegate some authority to state commissions to make more
granular findings regarding impairment. To remain faithful to the
statutory scheme, however, the FCC must retain the *primary*
decisionmaking authority, and we must establish *clear* standards for
the states to apply. Our test for unbundled transport, for example,
generally establishes that impairment exists on a route that is served
by fewer than two wholesale providers or three total providers. The
states will play an important role in carrying out this standard, but
the critical fact is that this Commission has established a clear,
economically justified, and predominantly federal framework. With
respect to switching, by contrast, the Commission has neither justified
the vague impairment presumptions it makes nor provided a meaningful
framework to cabin state discretion.

It is no answer to claim that the Commission is unable to provide
clarity regarding switch impairment. The record demonstrates that
competitors have widely deployed circuit switches  over 1,300 in all 
in most areas of the country. More than 200 competitive LECs have their
own switches. They primarily serve business customers, but a number
serve residential customers as well, in spite of the lower margins
available. While reasonable minds can differ about the appropriate
conclusions to draw from the record, and line-drawing is undoubtedly
difficult, the Commission was bound to make *some* effort to analyze the
data on switch deployment and alleged impairments. For example, the
Commission could have made impairment findings based on wire center
density, drawing on the analysis of carriers such as WorldCom and
SBC.[^1] We alternatively could have focused on a threshold number of
switches deployed in a LATA or wire center  an approach backed by two
respected former Chairpersons of NARUC's Telecommunications
Committee.[^2] Another approach would have made UNE-P available as an
acquisition tool to give competitors a limited period to aggregate a
base of customers before transitioning to UNE-L, in order to mitigate
costs associated with individual hot cuts and customer churn. Any of
these approaches also would have given the state commissions a
significant supervisory role in ensuring that the hot cut process would
not create an operational or economic impairment. I worked hard to
develop proposals incorporating these ideas to ensure that the federal
standard addresses potential impairments associated with the UNE-L entry
strategy. I also made clear my eagerness to explore other compromise
proposals advanced by outside parties and my colleagues. The one thing I
was *not* willing to do  which unfortunately is what the majority has
done here  was to shirk our statutory obligation to decide the
circumstances in which unbundled switching will be available.

Over the past several months, when asked about this rulemaking, all of
my colleagues have invoked the mantra of "regulatory certainty." We have
called for creating a more stable and predictable regime that will allow
service providers to craft long-term business plans and enable investors
to make rational decisions. Having worked for both a CLEC and an ILEC, I
am well aware of the costs associated with an uncertain regulatory
climate. Unfortunately, the majority's decision to refrain from adopting
a concrete standard for unbundled switching is the exact opposite of
what the telecom economy needs. By prolonging the uncertainty
indefinitely, I fear that this Order will deal a serious blow to our
effort to restore rational investment incentives. While the President
and Congress are striving to provide an economic stimulus, the majority
unfortunately has stymied that effort.

Simply spelling out the framework of the majority's approach to
switching demonstrates the lack of clarity and direction. While lawyers
will thrive in this environment, the carriers will become mired in a
regulatory wasteland. The majority declares that competitors are
presumptively impaired without access to ILECs' switches, but it fails
to elucidate the precise nature of this impairment. The majority then
directs state commissions to *consider* a list of potential impairment
factors, to make their own largely subjective judgments about how to
weigh them, and ultimately to decide whether the impairment is of a
permanent nature or rather can be alleviated by restricting UNE-P
availability to three-month intervals. If (and only if) states decide to
limit UNE-P in some areas, the embedded base of customers would be
transitioned over a three-year period. In short, neither incumbent LECs
nor competitive LECs have a clue about the markets in which unbundled
switching will be available on a going-forward basis. Rather than
developing sound business plans in response to the Commission's
decision, carriers will spend the next several years in litigation
before the state commissions and in the federal district courts.

In addition to jettisoning the principle of regulatory certainty, the
majority's decision tramples on the goal of promoting facilities-based
competition. While this has been a watchword for most of my colleagues,
now that we had an opportunity to translate our words into action, the
majority shied away from doing so. The majority instead has established
a regime under which UNE-P may remain permanently available in all
markets. Moreover, by inviting states to give added weight to whether a
certain number of switches have been deployed by CLECs, the majority's
decision seems to give CLECs a *dis*incentive to invest in their own
switches  for doing so could jeopardize the continued availability of
UNE-P and the premium margins it affords.

A further source of concern  and additional uncertainty  is the
significant prospect that the majority's approach will not survive
judicial scrutiny. As noted above, section 251(d)(2) directs *the FCC*
to apply the impairment standard, and the Supreme Court has confirmed
the Act's shift of ultimate authority and responsibility to the federal
jurisdiction. As Justice Scalia's opinion for the Court in *Iowa
Utilities Board* made clear, "the question . . . is not whether the
Federal Government has taken the regulation of local telecommunications
competition away from the States. With regard to matters addressed by
the 1996 Act, *it unquestionably has*."[^3] Indeed, in considering the
appropriate role for the states, the Court opined that the notion of "a
federal program administered by 50 independent state agencies is
surpassing strange."[^4] The majority perhaps could have shored up its
sweeping grant of authority to the states by establishing a right of
appeal to the FCC, so that the ultimate decisionmaking authority resided
here. But it refused to do even that. And while the majority relies on
the ability of incumbent LECs to pursue appeals in federal district
court under section 252(e)(6), it remains to be seen how a reviewing
court can gauge a state's compliance with the federal regime when the
FCC has refused to provide any specific guidance on what that regime
should be.

An equally significant legal vulnerability is that the majority makes no
real effort to adopt a meaningful limiting principle regarding switch
unbundling. The Commission has twice been reversed on this exact ground,
and I fear this may be strike three. The Supreme Court and the D.C.
Circuit have made clear section 251(d)(2) permits the Commission to
unbundle an element only when we can affirmatively justify doing so.
Turning this mandate on its head, the majority declares that switching
will be unbundled because they cannot rule out that some impairments may
exist. In fact, the majority does not even make a concrete finding of
impairment to justify its requirement that switching be unbundled;
instead, the majority *presumes*, without any clearly articulated basis,
that competitors are impaired nationwide in the absence of unbundled
switching, subject only to the caveat that state commissions may, based
on their consideration of various nonbinding factors, convert the
permanent availability of UNE-P to a temporally limited access right.
The majority makes no attempt to square its decision with the record
evidence showing extensive switch deployment by competitive LECs,
including a number of carriers serving mass market customers on a UNE-L
basis. While states *may* limit the availability of switching in such
circumstances, the fact that they are under no obligation to impose any
limits whatever (and are not subject to Commission review) makes that an
illusory constraint. Making matters worse, the Commission, without any
coherent explanation, has abandoned its previous constraint on access to
unbundled switching  namely the three-line limit in the top 100 MSAs
adopted in the *UNE Remand Order*. It is especially hard to see how
*expanding* the availability of unbundled switching, without any
affirmative justification, comports with the *USTA* decision.

For all these reasons, I am forced to dissent from the Commission's
decision to order the unbundling of switching without applying the
impairment standard.

**Line Sharing**

Finally, I also dissent from the majority's decision to eliminate line
sharing. This is a close call, but, on balance, I believe that line
sharing provides substantial procompetitive benefits without unduly
constraining investment by incumbent LECs. Unlike the prospect of
unbundling fiber-to-the-home loops or NGDLC systems, the record suggests
that line sharing spurs ILEC investment in DSL, rather than retarding
it. The reason is that, by definition, line sharing is available only
over legacy copper loops  there is simply no loop upgrade that
incumbents are deterred from making. Thus, as we weigh the goals of
competitive access and promoting investment in new facilities, the
balance favors reinstatement of a line-sharing obligation.

I am certainly mindful of the arguments against line sharing. For
example, cable modem providers, rather than DSL providers, currently
lead the broadband marketplace, making a line sharing obligation
somewhat incongruous. Moreover, data LECs arguably can obtain an entire
unbundled loop and provide a combination of voice and data service, as
the incumbent LECs do. Yet I believe that the Commission could have
overcome these arguments: The presence of cable in the broadband market
does not seem sufficient to support a finding of non-impairment for
telecommunications carriers seeking to provide DSL service. Moreover, I
am sympathetic to the argument that a carrier should not be forced to
enter the voice telephony market simply to provide competitive DSL
service.

As noted above, this is not an easy issue. In the end, however, I cannot
join the majority's decision to eliminate line sharing because they have
not advanced a clear rationale that overcomes the record evidence that
line sharing promotes competition *and* investment. In fact, I fear that
this decision will compromise our efforts to spur broadband deployment,
because the decline in intramodal competition will ease pressures on
incumbents to invest in upgraded facilities. I am also troubled by the
majority's decision to establish a three-year transition period for the
elimination of line sharing. I believe that the majority should own up
to the fact that, by cutting off data LECs' access to line sharing, it
has shut down residential broadband competition over the copper loop.
Any talk of a glide path is fanciful, because, in all likelihood, there
will regrettably be no providers left to participate in a transition
three years from now.

\* \* \*

In conclusion, the Order is a decidedly mixed result in my view. It
scores a big win for consumers by promoting broadband investment, but it
potentially undermines that victory by turning unbundled switching into
a regulatory morass that carriers will be stuck in for years to come. I
therefore voted to approve in part and dissent in part.

[^1]: *See* Letter from Gil M. Strobel, Lawler, Metzger & Milkman
    (Counsel to WorldCom), LLC, to Marlene H. Dortch, Secretary, FCC
    (Jan. 8, 2003) (arguing that, if certain operational impediments
    were addressed and WorldCom were given time to build market share,
    it could pursue a UNE-L strategy in larger wire centers (e.g., those
    with 25,000 or more lines)); Letter from James C. Smith, SBC, to
    Chairman Michael K. Powell (Jan. 14, 2003) (arguing for finding of
    non-impairment in wire centers with 5,000 or more lines).

[^2]: *See* Letter of R. Steven Davis, Qwest, to Chairman Michael K.
    Powell (Jan. 30, 2003); Joint Statement of Bob Rowe, Chairman,
    Montana Public Service Commission, and Joan Smith, Commissioner,
    Oregon Public Utility Commission (Jan. 30, 2003).

[^3]: *AT&T v. Iowa Utils. Bd.*, 525 U.S. 366, 378 n.6 (1999) (emphasis
    added). The Act expressly preserves state authority to adopt local
    competition regulations, but only to the extent that such
    regulations are "consistent with the requirements of \[section 251\]
    and \[do\] not substantially prevent implementation of the
    requirements of \[section 251\] and the purposes of \[Part II of
    Title II\]." 47 U.S.C. § 251(d)(3).

[^4]: *Iowa Utils. Bd.*, 525 U.S. at 378 n.6.