Death Of 'Pick-And-Choose' Hurts CLECs, Helps ILECs

When the FCC acted last week to eliminate the so-called "pick-and-choose" provision of the agency's interconnection rules, a loud, anguished cry arose from competitive local exchange carriers (CLECs) bemoaning the measure. Some CLECs -- mostly the smaller companies -- even went so far as to describe the action as the final nail in telecom competition's coffin.

Under the previous rules, when CLECs and incumbent local exchange carriers (ILECs) reached interconnection agreements with one another, the individual terms of those deals were fair game for any other party wishing to establish an interconnection agreement with the same ILEC.

The "pick-and-choose" provision allowed CLECs to opt into either the full agreement between an ILEC and another CLEC or select individual parts of the agreement for its own use.

In eliminating the "pick-and-choose" provision and replacing it with an "all-or-nothing-at-all" rule, the FCC removes any leveraging opportunity that CLECs formerly had in comparing parts of various agreements with each other.

John Windhausen, president of the Association for Local Telecommunications Services (ALTS), immediately issued a strongly worded prepared statement calling the decision "a gift to the Bell companies." CompTel/ASCENT's chief executive, H. Russell Frisby Jr., was slightly less virulent in his characterization of the measure. He said the FCC's decision "does nothing to promote commercially negotiated agreements between small competitors and the Bells, which continually wield their control over last-mile facilities in an effort to lock alternative providers out of the market."

Both ALTS and CompTel/ASCENT represent CLECs, so it is not terribly difficult to understand why their leaders have been so quick to lash out at the FCC for the decision to kill the "pick-and-choose" rule.

Previous FCC proceedings on the "pick-and-choose" provision have supported the rule. In fact, past FCC enforcement of its "pick-and-choose" rule has withstood various court tests -- all the way to the Supreme Court.

So, why would the FCC decide now is the time to abandon the "pick-and-choose" rule? Basically, the Commission majority wanted to do something that it felt would speed up the interconnection negotiating process between CLECs and the ILECs. In its announcement about the decision, the FCC said it looked at two key factors: (1) whether the current "pick-and-choose" rule is compelled by Section 252(i) of the 1996 Telecom Act; and (2) whether replacing "pick-and-choose" with an "all-or-nothing-at-all" rule might better promote the interconnection negotiating process.

Section 252 (i) says that "a local exchange carrier shall make available any interconnection, service, or network element provided under an agreement approved under this section to which it is a party to any other requesting telecommunications carrier upon the same terms and conditions as those provided in the agreement." It was the Clinton era FCC that further defined that provision to allow CLECs to "pick-and-choose" which previously negotiated interconnection provisions they wanted to incorporate in their own agreements with the ILECs.

ALTS members, which are all facilities-based competitors, "use 'pick-and-choose' a lot," ALTS spokesman Jason Oxman told TPR. "This decision hurts our guys in a big way ... We reject the FCC's position that this will somehow lead to better negotiations. The only thing made better by what the Commission did was the position of the ILECs. This was a big favor to them. Our members aren't going to get access to the sorts of things we used to get access to."

Jonathan Lee, CompTel/ASCENT's senior VP for regulatory affairs, echoed that sentiment, telling TPR that the elimination of the "pick-and-choose" rule especially hurts small CLECs. He said the FCC's action comes at a critical time when many of the interconnection agreements struck between small CLECs and large incumbents are about to expire.

"This could be very expensive for the CLECs," Lee said. "It takes several hundred thousand dollars per CLEC to craft a good interconnection agreement. If you take into consideration that there are between 300 to 500 CLECs operating in each state, you could be looking at the expenditure of some very serious money in the next few months. We could be talking about tens of millions of dollars in each state."

From TPR's perspective, it is difficult to understand the FCC's rationale for eliminating a provision that has stood up to serious judicial challenges. Indeed, the Supreme Court has ruled that the FCC's "pick-and-choose" provision "tracks the pertinent language of the statute almost exactly." Elimination of the "pick-and-choose" provision clearly strengthens the bargaining position of the ILECs. It does virtually nothing for the CLECs. Moreover, the CLECs will now be in a markedly weaker position going into the interconnection negotiation process. In all likelihood, this will prompt interconnection cost increases which will ultimately end up being passed through to consumers.

As observed by FCC Commissioner Michael Copps in his dissenting opinion, the only wholesaler in the wireline marketplace is also the dominant player in retail competition, a reference to the Bell incumbent telcos. "Take-it-or-leave-it bargaining means competitors will walk away without any wholesale alternatives," Copps said. "To understand this difficulty, look no further than the lack of widespread commercial agreements reached during the months since the USTA II decision."

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