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This entry highlights the consequences of the FCC’s IP Transition orders for business customers and competitive carriers in terms of costs, changes in customer premises equipment (CPE), operational impacts and, for competitive carriers, interconnection agreements.

As noted in our 1st Entry in this two-part series, each ILEC sets its own plans and time lines for implementing its IP transition. There are no FCC mandated deadlines or due dates for initiating or completing the IP transition. Subject to the FCC’s rules and policies, the ILECs may implement their IP transitions locally, state-wide or throughout all of their service territories as they see fit. The same is true for copper loop retirements.

Business Customers

For business customers with locations having relatively modest voice and data requirements, such as many retail outlets, commercial and MDU property managers, and small government offices, the transition to IP voice services is the priority concern. For higher traffic locations, including major enterprise locations, call centers, hospitals, large government facilities and data centers, the transition to IP special access services may prove the most challenging.

Wireline Voice Services

1. The IP transition may disrupt (likely accelerate) enterprise planning for deploying IP-based CPE, including IP-PBXs, to implement VoIP and SIP trunking.

2. VoIP and SIP trunking customers must manage their CPE and business processes so that their end users can complete wireline 9 1 1 calls consistent with FCC rules and comply with state and, possibly, Federal versions of “Kari’s law” that require emergency calls be completed with three-digit “9 1 1” dialing and not “9 + 9 1 1” dialing. Compliance with local wireline “emergency phone service” regulations must also be addressed.

3. Wireline voice service rates should become more competitive for all business customers as VoIP services are not subject to federal or state legacy rate or tariff regulation and as the ILECs roll-out cloud-based VoIP service offerings.

a. Points of origination and termination for wireline voice pricing will be displaced by “all-distance” pricing comparable to mobile voice pricing, encompassing  local, intrastate, interstate and, increasingly, international voice communications.

b. Thus, business customers should become familiar with the pricing for VoIP services and SIP trunking in order to compare the rates for these services to the familiar pricing for circuit-switched voice services and PBX trunks

Special Access Services

1. The vast majority of end users acquire special access services (DS-1, DS-3, OCn and Ethernet equivalents) bundled with interexchange voice or data services provided by wide-area network (WAN) service providers (a/k/a interexchange carriers.)

2. The “reasonably comparable” standard of rates, terms and conditions for replacement Ethernet services adopted in the 2015 IP Transition Report and Order provides a reasonable measure of price stability. And, based on the latest Special Access Further Notice of Proposed Rulemaking, this standard should remain in place throughout the IP transition.

3. Except for very low latency applications, Ethernet special access service should be a functional equivalent to TDM dedicated access circuits.

4. The mechanics of converting to Ethernet service could prove challenging. Copper loops may support lower speed Ethernet services, but fiber or hybrid fiber-coax may be required for higher capacity services.

a. One point of reference as to what users might expect is the transition from one WAN service provider to another. This is probably the best case scenario.

b. The IP transition will be different from WAN service provider transitions (from incumbent to successor WAN service providers) in which customers and services providers share the objective of converting customer locations to the successor provider’s network in a timely manner. In the IP transition, the process will be driven by individual ILECs each transitioning to Ethernet service per its plans and timetable.

c. In theory, customer locations served by an ILEC affiliate of the WAN service provider should have a smoother transition, assuming closer coordination between the two affiliates.

Competitive Service Providers 

In many respects, the FCC’s IP Transition orders limit the ILECs’ discretion to do as they please. At this juncture, the rules governing the IP transition are set and the competitive service providers have limited opportunity to protest or delay the process—assuming the ILECs follow the rules. Competitive service providers must be prepared to act as the ILECs implement the transition to IP-based services.

Wireline Voice Services

1.  CLECs relying on ILEC copper loops and TDM-based wholesale platform services face the challenge of migrating to different facilities and technologies to operate in all-IP environments. The ILECs may transfer/sell their abandoned copper loops to requesting CLECs, but are not required to do so.

2. The status of local service interconnection remains an open question. CLECs will benefit from the FCC’s resolution of whether IP VoIP interconnection arrangements between ILECs and CLECs are voluntary commercial agreements or interconnection agreements subject to the Section 251/252 framework.

Special Access Services

1. WAN service providers (aka “interexchange carriers”) have either implemented or currently operate IP voice and data networks. Customer transitions to these interexchange IP services are ongoing. The IP transition poses the challenge of coordinating deployments of IP special access services to customer locations based on the ILECs’ timetables and schedules.

2. WAN service providers will benefit from the FCC’s requirement that ILECs’ Ethernet special access services be made available under rates, terms and conditions that are “reasonably comparable” to the corresponding ILEC TDM services.

The “reasonably comparable standard” likely will be retained as the FCC adopts its decision in the special access proceeding.

3. Competitive Access Providers that have deployed facilities in metro areas may offer more compelling IP special access services as compared to those of the ILECs.

The ongoing challenge/question is whether competitive access providers do or will extend their networks to an end-user’s location.

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For several years, the major incumbent local exchange carriers (ILECs) have been heralding the benefits of transitioning their networks to IP technology. The FCC has supported this transition. Agreeing that “less is often more” and reviewing related decisions in one entry may be helpful, this entry highlights the FCC’s recent decisions on policies and procedures for implementing the IP transition.

This is the 1st entry in a two part-series. Implications for end users and competitive carriers will be the focus of the 2nd entry.

The rules on copper loop retirements and the IP transition for retail voice services apply to price cap and rural rate-of-return ILECs with minor distinctions. The rules on wholesale services pertain principally to the price cap ILECs as these carriers offer the vast preponderance of special access and wholesale platform voice services. The FCC deserves a “tip-of-the-hat” on these decisions; the agency evaluated the merits of numerous positions and made reasonable decisions on countless issues.

An important caveat is that each ILEC sets its own plans and time lines for implementing its IP transition. There are no deadlines or due dates. Subject to the rules adopted in these FCC decisions, the ILECs may implement their IP transitions locally, state-wide or throughout all of their service territories. The same is true for copper loop retirements.

The procedural paths that include notices to customers or competitors vary.

Copper Loop Retirements. The FCC updated copper retirement rules that had been in effect for years.  Importantly, the copper replacements are subject to notice obligations, but not FCC approval. Two major changes are (1) the agency declined to allow oppositions or objections to notices of copper loop replacements, but imposed a “good faith communication requirement” on ILECs to provide additional information so that interconnecting services providers can implement changes in their networks without service disruptions, and (2) increased the notice period to just over 180 days.

Each ILEC is required to provide notice of a copper loop retirement to the Commission on the same date it provides notice “to each information service provider and telecommunications service provider that directly interconnects” to the ILEC’s network as well as changes in prices, terms or conditions associated with a copper loop retirement. The Commission then issues a Public Notice announcing the filing, effectively starting the 180-day period. Within 90 days of the date of this Public Notice, the ILEC must submit a certification that attests to timely notifications and other matters.

In addition, an ILEC must provide 180 days written notice (via mail or e-mail if authorized by the customer) of copper retirements being replaced by FTTP services to business customers and schools and libraries, and 90 days to residential customers. The FCC declined to require the ILECs to make available retired copper loops to CLECs, but encouraged ILECs to negotiate the sale of abandoned copper loops.

The rules are now in effect. Among others, Verizon and CenturyLink, are implementing copper loop retirements, identifying retirement projects by reference to affected wire centers.

Wholesale Services. In order to discontinue wholesale services (special access services and wholesale voice service platforms), each ILEC must file applications to discontinue service under Section 214 of the Communications Act. In addition, the FCC denied USTelecom’s Petition for Reconsideration of the declaratory ruling in which the FCC concluded that the term “service” in section 214(a) is defined functionally and not solely by service definitions in ILEC tariffs.

Broadly speaking, ILECs must establish that replacement IP wholesale services are “reasonably comparable” to the existing TDM services in terms of capacity, price and quality of service. For example, 100 Mbps Ethernet access service priced at market rates is not a reasonably comparable replacement for DS-1 special access service; substantially more bandwidth priced at a noticeably higher rate is not “reasonably comparable.” Importantly, “price-per-Mbps” and the net cost of the IP replacement special access service cannot be significantly higher than the pricing for the DS-1 or DS-3 service being replaced.

As a Section 214 discontinuance application is filed with the FCC, a copy must be served on the ILEC’s customers—CLECs, IXCs, wireless carriers and end users that acquire special access services directly from ILECs—as well as government offices specified under Section 214. Assuming the ILEC’s application meets the “reasonably comparable” standard, the FCC will “automatically grant” an ILEC’s Section 214 discontinuance application thirty (30) days after the application is placed on Public Notice.

This “reasonably comparable” standard is an interim rule, subject to the outcome of the FCC’s ongoing investigation into the price cap ILECs’ rates, terms and conditions for special access services—particularly DS-1 and DS-3 services. A final decision in the FCC’s multi-year special access investigation is expected this fall.

Rather than move forward under rules that will expire as the IP transition concludes, USTelecom filed a petition for review with the D.C. Circuit. Pet. for Review, United States Telecom Assoc. v. FCC, et al., Case No. 15-1414 (D.C. Cir., Nov. 12, 2015). USTelecom maintains that Section 214 does not require ILECs discontinuing wholesale TDM services to consider the impact on competitive carriers’ customers, the FCC’s Declaratory Ruling is inconsistent with Section 214 and applicable precedent, and the “reasonably comparable standard” should not apply pending the outcome of the FCC’s special access investigation.

Retail Voice Services. The FCC’s decision to facilitate the IP transition for retail wireline voice services also establishes a series of rules for “automatic grants” of ILEC Section 214 applications to discontinue TDM retail voice services. If the requisite showings are made, the ILECs may begin the transition to IP services 31 days after the applications are filed. In addition to customer notices (via mail or e-mail as authorized by a customer), the ILECs must engage in community outreach activities on the IP transition.

In support of this flexible approach, the FCC determined that the market interstate switched access services (which is tied to TDM technology) is competitive, noting the migration to wireless voice services and VoIP services have largely eroded the relevance of ILECs’ switched access services.

In addressing retail customers’ concerns, the FCC requires that replacement IP wireline voice services must (i) have substantially similar network performance metrics (latency of 100 ms or less for 95% of all peak period round trip measurements and data loss not worse than 1% for packet-based networks); (ii) maintain service availability at 99.99%; and (iii) cover the same geographic footprint as the discontinued TDM service. These criteria are intended to be technology neutral; thus, a fixed wireless replacement that meets these criteria is an acceptable replacement technology. Each ILEC must certify that each IP service “platform” meets these requirements; in order to do so, the ILEC must follow the FCC test procedures, except ILECs having 100,000 or fewer subscribers may use other test procedures.

The cost of the replacement IP service cannot be substantially more than the TDM voice service being discontinued. The IP replacement services must support critical applications such as 9 1 1 and access for persons with physical disabilities and must be interoperable with widely adopted low-speed modem devices, such as fax machines and point of sale terminals, through 2025.

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For better or worse, you decide, the FCC is challenged when adopting policies or making decisions that impact enterprise customers.  This is the second of two entries on enterprise customers and the FCC.

IP Transition.  Responding to persistent calls from AT&T, Verizon and CenturyLink, the FCC is in the midst of setting the ground rules for telecom carriers to migrate from copper networks and TDM services to fiber networks and all-IP services, consistent with Section 214 of the Act which requires the FCC to balance carriers’ and end-users’ (residential, SMB and enterprise) interests as carriers seek to discontinue existing services and facilities.

These rules may impact enterprise discretion on planned migrations to Ethernet private line, VoIP offerings and Ethernet special access service, shifting the timing and extent of migrations to the wireline carriers.  There are three major aspects to the FCC’s IP-transition rules.

1.   Wireline telcos retiring copper loops must provide at least six months’-notice to business customers by mail or e-mail (under certain circumstances) when retiring copper loops to the premises, unless the customer previously consented to copper retirements.

2.  The FCC is requiring the rates, terms and conditions for the replacement Ethernet special access services be “reasonably comparable” to the discontinued DS-1 and DS-3 access services.

3.  The FCC is developing principles to govern the discontinuance of TDM voice and private line services.

Recommendation.  Retailers, railroads, financial institutions and other enterprises with several hundred or even several thousand domestic locations should develop IP migration plans, mindful that carriers are not required to implement their IP transitions over a defined period or uniformly throughout their service territories.

USF Contribution Reform Lags—Badly.  The FCC’s most recent effort to implement USF contribution reform started and stalled in 2012.  Despite the numerous thoughtful comments and recommendations, inertia prevailed.  In its 2015 Open Internet Order, the FCC stated that contribution reform is being assessed in a separate proceeding.  Unfortunately, agency action is not eminent even though the USF Contribution Factor has now hit 18.2%.