On February 20, 2003 the FCC adopted new rules which may ultimately increase telecommunications costs for enterprises that use services offered by competitors of incumbent telephone companies. When the Telecommunications Act of 1996 was enacted, Congress felt that it was not economically feasible for rivals to build all of their own local facilities. They therefore mandated that incumbents like SBC make their local facilities available at discounts to competitors such as AT&T. A summary of sections of the new rules affecting medium and large enterprise customers follows.

State-by-state rules on discounts
Individual states public utility commissions will set UNE-P (unbundled network element platform) rates and availability. UNE-P refers to "bundles” of incumbent's facilities such as cabling out to the customer as well as equipment in the central office and connections between central offices. The FCC currently sets guidelines for these rates.

The impact of the UNE-P rules
The impact of these rules is unclear and will vary from state to state and even within states. Utility commissions must decide if elimination of discounts will materially impair availability of competitive telephone service. Incumbents have stated that they may appeal this ruling.

Upgraded fiber optic and high speed technology
Incumbents are no longer required to lease access to upgraded facilities such as voice over packet technology and new fiber installed closer to customers. These upgrades will increase the availability of DSL and high capacity converged services. This will improve incumbents' network capabilities without giving advantages to competitors. For example, converging voice and data over a single network structure will in the long run decrease incumbents' costs and enable them to add new services at lower costs.

Ruling that may raise rates on resellers' T-1s
The February decision may raise rates for resellers who don't own switches. If a state finds that eliminating these discounts will not impair competition, discounts on switching for services such as T-1, T-3 and dark fiber serving medium and large business customers would be eliminated. (T-3 carries 672 voice or data channels. Dark fiber has no electronics connected to it.) State utility commissions have three months from the FCC's final report, expected shortly, to decide on elimination of these discounts. The discounts would be phased out over a three-year period.

Long run impact
Because the UNE-P rates are still in place, the initial impact of the FCC's preliminary rulings is to retain competitors' price advantage in commercial markets. In the long run, resellers who mainly use the former Bells' equipment may lose their advantage. In addition, the ruling increases the probability of more widely available data services. However, incumbent telephone companies will continue to face growing competition from cable and wireless providers as well as landline based providers such as Sprint, WorldCom and AT&T who use a combination of resale and their own facilities to reach local customers.