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 ba-sis, choosing either commercial agreements or their own facilities to replace the preferred competitive model of the late ‘90s.

A December 2007 FCC report on local phone competition shows the migration of CLEC lines from resold, UNE-P and facilities-based models, between 1999 and 2006. The FCC report compiled data through December of 2006, nearly nine months after government-mandated UNE-P pricing ended March 11, 2006. 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.

In December 1999, 81 CLECs claimed 8.1 million switched access lines. Seven years later, those numbers had jumped to 396 CLECs and 28.6 million lines. More interest-ingly, 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 competi-tive lines were provisioned on a resale basis. At the same time, 23.9 percent of competi-tive 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 Para-digm 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 unaf-filiated 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 also buys ILEC 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-interconnection. “What we see in 2008 is really a continuation of the business model that we’ve fol-lowed.”