The FCC is Finally Undoing its Unbundling Regulation

On August 2, the FCC released its order granting forbearance relief from legacy telephone "unbundling" regulation. The order puts an end to requirements that certain legacy telephone companies provide their competitors analog voice-grade copper loops on an unbundled basis at government-set rates. Free State Foundation scholars, including President Randolph May, have long pointed to the disincentive for network investment that results from forced sharing mandates tied to rate regulation, and also have long called for the end of unbundling regulation. 

To the FCC's credit, its order recognizes that market changes have rendered legacy copper-based telephone networks increasingly obsolete. Its order also recognizes that there is no warrant for prolonging the life of unnecessary and costly unbundling regulation. As the order points out, in 1996, Time Division Multiplexing (TDM) using traditional copper wires was the dominant technology for providing voice services, and incumbent local exchange carriers (LECs) were the dominate providers of local voice service. But dramatic market changes, including the rise of interconnected VoIP services offered by traditional cable companies, as well mobile and fixed wireless services, have dramatically altered the voice services market. Residential and business consumers have a number of choices that didn't exist in 1996. According to the order: 

Commission data reflect that between December 2008 and June 2017, the TDM share of all wireline voice telephone connections, including both switched access lines (POTS) and interconnected VoIP, fell from 82% to 37%, while the number of interconnected VoIP connections increased by almost 300% over the same period. Further, residential reliance on traditional switched access services fell by 71%, while residential interconnected VoIP subscriptions increased by 104%. Similarly, over this same time period, business reliance on traditional switched access services fell by 49%, while business interconnected VoIP subscriptions increased by over 1,062%. This is due to a number of factors, including a shift in both consumer and supplier choice to migrate to other types of communications networks such as fiber or wireless.

The order sets a timetable for ending its unbundling mandates, enabling competing providers and those customers still using the older analog copper wire technologies to transition to newer alternatives. Additionally, the order forbears from enforcing against certain legacy telephone providers so-called Avoided-Cost Resale obligations. Under those obligations, legacy providers must resell their retail services at wholesale, and at regulated rates, to their competitors. As the order observes, those obligations largely benefit competitors serving business customers. 

The costs of maintaining analog telephone networks and complying with legacy regulation such as unbundling mandates divert market provider resources away from investment in next-generation networks. At long last, this forbearance decision by the FCC will enable market providers to direct more of their resources to higher quality services for retail and business customers in the Digital Age.