REPORT TO THE MICHIGAN GOVERNOR
PUBLIC ACT OF 1991 AS AMENDED
REPORT ON LOCAL TELEPHONE INTERCONNECTION
THE MICHIGAN PUBLIC SERVICE COMMISSION
Michigan Department of Consumer and Industry Services
In Compliance With
Public Act 179 of 1991 as Amended by
Public Act 216 of 1995
Section 353 of Public Act 179 of 1991 as amended states:
"The [Michigan Public Service] commission shall issue a report and make recommendations to the legislature and the governor on or before January1, 1998 involving the issues, scope, terms, and conditions of interconnection of telecommunication providers with the basic local exchange service."
MCL 484.2353; MSA 22.1469(353).
Public Act 179 of 1991 as amended by Public Act 216 of 1995 (the "Michigan Telecommunications Act" or "The Act") focuses on the purposes of competition in the telecommunications industry, licensing competitive local exchange carriers (CLECs), dispute resolution, tariff design, price design and protection of special needs.
The onset of competition in the local telecommunications market required a quick means for merging telephone companies' equipment so that competitive local companies could reach the telephone user without the impractical and immensely expensive need for building redundant equipment networks. The most practical solution was to require the incumbent telephone companies to lease their networks in whole or in part to competitive companies. This solution requires interconnection of equipment by the parties. The definition of how that arrangement is designed and what services it includes is negotiated or arbitrated between the incumbent local exchange carriers (ILECs) and competitive local exchange carriers (CLECs). The agreements are called interconnection agreements. The Michigan Public Service Commission mediates, arbitrates and approves agreements made between ILECs and CLECs.
Michigan's Competitive History
Michigan introduced the concept of competition in the local telephone market several years before the federal government passed the Federal Telecommunications Act of 1996 (FTA). This process began with the implementation of The Act in 1992(1). Pursuant to The Act, the MPSC established standards regarding how a competitive local company(2) would interact with the incumbent telephone company in the territory it planned to serve. Between 1992 and 1995, the MPSC continued to refine the process by establishing new procedures, some obviated by the dispute resolution process. There was a small measure of cooperation between the incumbents and competing companies in establishing methods to frame reciprocal compensation and equipment interconnection. The companies relied on tariffs or contracts as defined by state law and MPSC procedures. In November 1995, the state formalized the process with the enactment of Act 216, defining a future path for local telephone competition from Michigan's original beginnings in introducing competition for local telephone service.
A few months later, in February 1996, the FTA was passed, formalizing a different process for achieving interconnection which concentrated on agreements resulting from negotiation, mediation and arbitration. The interconnection requirements were similar to those developed by the state, but the process varied. The MPSC has redirected its operations to attempt to comply with both the federally defined process and existing state law.
Status of Interconnection
At the end of October 1997:
28 CLECs were licensed to provide basic local exchange service
11 CLECs had interconnection agreements
8 LECs had interconnection agreements and approved tariffs
1 Wireless Provider was actively competing in GTE territory (source: GTE)
5 ILECs were licensed to compete with each other
Status of Competition
Sec 101(2)(b) establishes that the purpose of The Act is to "Allow and encourage competition to determine the availability, prices, terms, and other conditions of providing telecommunication services." Further, Sec 101(2)(d) establishes that The Act should "Encourage the introduction of new services, the entry of new providers, the development of new technologies, and increase investment in the telecommunication infrastructure in this state through incentives to providers to offer the most efficient services and products."
As a gauge of the existence of a competitive market for a telecommunications market, Sec 208(3) of The Act identifies five criteria, three of which must be met for a service to be competitive. One criterion is "Competition and end-user usage has been demonstrated and measured by independent and reliable means."(3)
Neither The Act nor the FTA establishes any quantitative benchmark number of competitors or end-user usage to determine the competitiveness of the market. With this in mind, several statistics on local interconnection, and thus the state of local competition, may be noteworthy. In October 1997, Ameritech reported to the Securities and Exchange Commission that it had 5,300,000 access lines in Michigan.(4) In Ameritech Michigan's service area there are approximately 200,000 (approximately 3.77% of total lines) access lines being operated by CLECs. Of that 200,000, roughly 20,000 utilize unbundled network elements purchased from Ameritech. The balance, approximately 180,000, are bundled services purchased by CLECs at wholesale and resold to end-users. Unbundled network elements are being purchased primarily in the Grand Rapids area with some concentration in the Flint and Detroit areas.
GTE and GTE Systems operate approximately 700,000 access lines in Michigan. There are no CLECs operating in GTE Michigan service areas.
In order to provide the best information available regarding the experience companies in Michigan have had obtaining interconnection, the Commission's Communications Division sent questionnaires to the participants of the process requesting information and comments. Following are the results of the inquiries.
The Communications Division sent questionnaires to Ameritech and GTE, the two major ILECs, requesting the following information:
1. The number of CLECs with whom they were interconnected.
2. The number of providers in Q.1. who provided basic local exchange service in their territory.
3. The number of providers in Q.1. with whom they interconnected pursuant to
a) negotiations, b) arbitrations, c) tariffs, and d) other.
5. The scope of interconnection between the ILEC and CLECs.
6. The scope, terms and conditions of interconnection which are relatively the same for most CLECs with whom they interconnect in Michigan. The same information for ILECs with whom they are interconnected.
7. The scope, terms and conditions of interconnection which vary for most CLECs with whom they interconnect in Michigan. The same for ILECs.
8. In which ways are the interconnection requirements of The Act and the FTA a) the same, and b) different.
9. The most problematic issues regarding interconnection between incumbent providers and the CLECs.
10. The recommendations they would make to facilitate interconnection between local exchange carriers in Michigan.
Another questionnaire was sent to each of the CLECs licensed to provide basic local exchange service and with an approved interconnection agreement asking:
1. How their interconnection agreement was accomplished, i.e., negotiated, arbitrated, purchased from tariffs, etc.
2. The scope, terms, and conditions of their agreement.
3. The most problematic issues regarding interconnection between incumbent providers and the CLECs.
4. What recommendations they would make to facilitate interconnection between local exchange carriers in Michigan.
Ten CLECs replied.
Three wireless companies of six responded to Staff's request for the following information. (5)
Competitive Company Comments
Interconnection agreements between CLECs and Ameritech were accomplished in a variety of ways. Five agreements were negotiated and five required arbitration.(6) The remaining company was previously interconnected with Ameritech for extended area service.
The information that follows reflects the experiences CLECs had with Ameritech since there are no CLECs operating in GTE territories in Michigan. The agreements between Ameritech and CLECs are similar, defining the physical interconnection of the companies'
networks, leasing details of bundled or unbundled network elements (UNEs), the resale of Ameritech retail services and reciprocal compensation agreements. When asked to identify the most problematic issues they found regarding interconnection, each respondent mentioned several issues. It must be noted that these comments are those of the competitive companies and not necessarily the opinion of the PSC.
Below is a list of the issues and the number of CLECs which mentioned that particular issue (if more than one).
No CLEC reported the process of obtaining an interconnection agreement or physical interconnection went smoothly. Small companies expressed doubt in their ability to compete because of the uncertainties and difficulty of the process which they often saw as unnecessary and only a means for the ILECs to make competition impossible.
Recommendations offered by the CLECs for facilitating competition were varied. They felt that these ideas, if enacted, would encourage competition in the local telephone market more successfully than the uncertainties they face now. The following is a list of CLEC recommendations. These are CLEC recommendations and not necessarily those of the PSC. They include recommendations for both legislative and PSC action.
Wireless Company Comments
Wireless companies negotiate reciprocal compensation agreements with the incumbent companies. The scope, terms and conditions of reciprocal compensation agreements include rates for transport and termination of traffic originated on their respective networks and physical arrangement associated with exchange of traffic that is eligible for reciprocal compensation. Also included are the rates for elected services, multiparty traffic, and separate trunk groups. Wireless companies are not generally considered CLECs. They are not licensed in Michigan as providers of basic local exchange service.
The problematic issues the wireless companies found in negotiating and implementing interconnection agreements with the incumbent companies are included in the list below. These are the comments of the wireless companies and not necessarily those of the PSC.
Wireless companies offered the following recommendations for facilitating the process of implementing competition. There was quite a bit of similarity between the companies in their comments. These are recommendations of the wireless companies and do not necessarily reflect the views of the PSC. They include recommendations for both legislative and PSC action.
Comments from the two incumbents which represent connections to most of Michigan's telephone customers are reported below. GTE is interconnected with one wireless company, which is the only company that might be considered competing with GTE in its territory. The details of this interconnection were negotiated by the two companies. GTE is negotiating with 16 wireline and four wireless companies. The scope of their agreement with CLECs is for physical interconnection and the rates for reciprocal termination of local/Extended Area Service, intraLATA toll and jointly provided IntraExchange Carrier traffic. GTE identified pricing as the most problematic issue in interconnection, and fair pricing resolution is the one item which would facilitate interconnection. None of the GTE interconnection agreements approved by the Commission has been signed by the parties.
Ameritech reported that 14 companies are actively competing with it in its territory. It has ongoing negotiations with six companies for interconnection. The only ILEC that Ameritech has an agreement with is GTE, but Ameritech expects to have arrangements with all ILECs at some time.
Ameritech's comments in some situations conflict with those of the CLECs. Ameritech responded that it makes available to telecommunications carriers in Michigan each of the interconnection services, unbundled network elements and resold services in the competitive checklist in Section 271(c)(2)(B) of the FTA(9). Ameritech states that most of the problems regarding interconnection have been resolved, agreement problems as well as operational problems. Although few of the problems have required the use of a dispute resolution process, the existence of the Commission's authority to resolve disagreements between providers has provided effective encouragement to carriers to resolve problems in a cooperative fashion. Ameritech offers as proof of the effectiveness of interconnection in Michigan:
Problematic operational issues between Ameritech and the CLECs from Ameritech's point of view are listed below. These are Ameritech's views and do not necessarily reflect the views of the PSC.
Ameritech offered some recommendations which the company felt would facilitate local telephone competition. These recommendations are those of Ameritech and are not necessarily those of the PSC.
The information above shows that CLECs and ILECs have greatly conflicting views on the status of cooperative interconnection of local exchange service providers in Michigan. The transition to sharing the telephone network in place and developing facilities-based competitive alternatives appears to be under way, but the smoothness or ease of entry appears to be suspect.
Based on the Commission's experience in processing cases before it, the Commission's activities related to implementing the interconnection features of The Act and the FTA, and responses to the Staff request for comments, the Commission concludes the following:
The Commission believes the current regulatory process, while quite streamlined and refocused from traditional economic regulation, does not permit the Commission to respond in a timely manner to disputes related to interconnection matters.
1. The Act became effective January 1, 1992.
2. Brooks Fiber Communications, then City Signal in case U-10555 dated October 12, 1994 and U-10647 order dated February 23, 1995.
3. Sec 208(3)(c)
4. MBT Form 10Q (9 months ended 9/10/97).
5. Of the companies that responded, two had substantive comments. The other company said that they had not been involved in the negotiation process long enough to provide significant information.
6. Not all of these companies have approved tariffs.
7. See January 28, 1998 order in cases numbered U-11178, U-11502, U-11522, and
8. Service which provides a trunk side connection with a line side treatment between a cellular provider's mobile switching center and an Ameritech end office.
9. The Commission's June 9,1997 consultation with the FCC found Ameritech complied with 11 of the 14 checklist items. The FCC agreed in its order rejecting Ameritech's application.
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