Quantifying the Impact of UNE-P Deregulation

For the first time, the impact of UNE-P deregulation is becoming quantifiable. New data are showing what we all now know — that few CLECs operate on a resale basis, choosing either commercial agreements or their own facilities to replace the competitive model of the late ’90s.

A recent FCC report on local phone competition shows the migration of CLEC lines from resold, UNE and facilities-based models, between 1999 and 2006.

Government-mandated UNE-P pricing ended March 11, 2006. The FCC report compiled data through December of that same year. Competitive providers had seen that decision coming, though, and most had spent the previous year-and-a-half securing confidential commercial agreements with the ILECs. Those deals provided lower margins than did UNE-P but kept business models intact.

Here’s a look at how market share has changed.

In December 1999, 81 CLECs claimed 8.1 million switched access lines. Seven years later, those numbers had jumped to 396 and 28.6 million, respectively. More interestingly, the percentage of providers using resold and UNE lines switched places between the end of 1999 and 2006. In other words, by December 1999, 42.9 percent of competitive lines were provisioned on a resale basis. At the same time, 23.9 percent of competitive lines were UNEs.

Those numbers flip-flopped by the fourth quarter of 2006 as it became clear that reselling lines for minimal margins was less favorable than operating on commercial agreements or owning networks, says Craig Clausen, senior vice president and COO for New Paradigm Resources Group (NPRG). To wit, CLECs reported providing 39 percent of their end-user switched access lines over their own local loop facilities, 41 percent by using UNEs leased from other carriers, and 20 percent through resale arrangements with unaffiliated carriers.

“We’re seeing stabilization now as a result of regulation,” Clausen says, referring to the year-old numbers.

CLEC Metropolitan Telecommunications (MetTel), for example, has transitioned to commercial agreements with the ILECs since the phase-out of UNE-P. It still buys DS0s and, for higher-bandwidth services, uses UNE-L services.

“If the ILECs priced their services so high that we couldn’t make money, obviously we wouldn’t be here,” says Sam Vogel, chief marketing officer and senior vice president of interconnection for MetTel. “What we see in 2008 is really a continuation of the business model that we’ve followed.”

• Of the 28.7 million CLEC end-user switched access lines, 6.8 million lines were provided over coaxial cable connections. The 6.8 million lines represent about 61 percent of the 11.2 million end-user switched access lines that CLECs reported providing over their own local loop facilities.
• There was at least one CLEC serving customers in 82 percent of the nation’s zip codes at the end of December 2006. About 98 percent of United States households lived in those zip codes.
• The 28.7 million lines reported by CLECs is about 17 percent of the 167.5 million total end-user switched access lines reported for the end of December 2006.

FCC www.fcc.gov

Metropolitan Telecommunications www.mettel.net

New Paradigm Resources Group www.nprg.com

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