FCC Revokes the “Pick-and-Choose” Rule and Implements the “All-or-Nothing” Rule

On July 13, 2004, the FCC issued a ruling revoking the longstanding "pick-and-choose" rule for adopting existing interconnection agreements and replaced it with an "all-or-nothing" rule. This ruling is a significant victory for the incumbent local exchange carriers ("ILECs"), although its actual long-term impact is uncertain.

Background

Responding to Congress’ directive in the 1996 Telecommunications Act, the FCC has attempted several times in the last seven years to develop a list of unbundled network elements ("UNEs"), that ILECs must make available for Competitive Local Exchange Carriers (“CLECs”). UNEs are offered by means of interconnection agreements, which must be approved by and filed with state regulators.

Section 252(i) of the Act requires that once an ILEC has an approved interconnection agreement with one CLEC, the ILEC has to make the services, UNEs, etc. in that agreement available to any other CLEC on the same terms and conditions. Originally, in its order implementing the 1996 Act, the FCC held that Section 252(i) of the Communications Act required that the ILEC make each service, UNE, etc. individually available to other CLECs. That is, the second CLEC could "pick and choose" what parts of an approved interconnection agreement it wanted to adopt. ILECs complained that the “pick and choose” rule complicated negotiations for individualized deals with CLECs. ILECs found trade-offs in the negotiation process difficult because CLECs chose to reject the parts of an approved agreement that contained concessions to the ILEC, while picking the parts that contained concessions the ILEC had made to the first CLEC.

The FCC eventually initiated a rulemaking proceeding to consider replacing the "pick-and-choose" rule with an "all-or-nothing" rule.

Tuesday's FCC action

Last Tuesday, the FCC released its order adopting the "all-or-nothing" rule. Under the new rule, a CLEC entering into an existing interconnection agreement must adopt the entire agreement; it can no longer “pick and choose” parts of the agreement. The FCC's hope is that this will permit more creative and fruitful negotiations between ILECs and CLECs.

Impact

Although in political terms this ruling is a significant victory for the ILECs, it is not immediately clear how detrimental in practical terms it will be for CLECs. The case record shows, and our own experience representing CLECs suggests, that even with the pick-and-choose rule in place, it was very common for CLECs to simply adopt entire agreements rather than exploit the rule. In addition, under the old rule ILECs could and did object to efforts to adopt particular provisions of interconnection agreements. Thus, the old rule’s supposed benefits were often more on paper than in practice. Also, the new rule may (as the FCC hopes) indeed create an environment in which ILECs are more willing to make significant, individualized concessions to meet the needs of individual CLECs.

In this regard, the FCC emphasized that the main purpose of Section 252(i), as well as the pick-and-choose rule, was to prevent the ILEC from discriminating against CLECs. The FCC correctly pointed out that the provisions of the Telecommunications Act imposing substantive duties on ILECs (interconnection, unbundling, resale, and collocation) all contain express language forbidding discrimination. Accordingly, even without the pick and choose rule, if ILECs unreasonably refuse to make particular arrangements available in agreements, CLECs should still be able to obtain individual provisions by arbitrating at the state level under Section 252 of the Act, or (in some circumstances) by filing a complaint against the ILEC at the FCC under Section 208 of the Act.

For more information on the new ruling, you can access it directly from the FCC’s website: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-04-164A1.pdf. Please feel free to contact us if you have any questions about this ruling or would like to discuss the potential impact this ruling might have on your operations or planning.