Federalism Principles ( Draft Principles ) developed by the National Association of Regulatory Utility

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1 Re: NARUC TASK FORCE ON FEDERALISM Introduction XO Communications, LLC ( XO ) 1 appreciates the opportunity to comment on the Draft Federalism Principles ( Draft Principles ) developed by the National Association of Regulatory Utility Commissioners ( NARUC ) Task Force on Federalism and Telecommunications ( the Task Force ), which articulate key roles for states and state utility regulators in overseeing the telecommunications industry and protecting consumers. For the reasons set forth below, XO believes it is critical that any federalism principles ultimately adopted by the Task Force be technology neutral, consistent with the Telecommunications Act of 1996 ( the Telecom Act ), and applauds the Task Force for recognizing this tenet in a number of the Draft Principles. The overarching principle of technological neutrality squares easily with the themes of robust competition, consumer protection, and data-driven decisions/transparency that are woven throughout the Draft Principles. While it is clear that the Telecom Act is technologically neutral, the regulatory regime that has evolved since its passage has, in some cases, become increasingly technologically specific. Not only is it, by and large, inappropriate to establish regulations based on the underlying technologies used to provide services to businesses and consumers, but this practice results in disparate treatment of similar services for customers and creates regulatory uncertainty as technological innovation comes to market. A better policy for both state and federal regulators is to ensure that access to network facilities and interconnection with Incumbent Local Exchange Carriers (ILECs ) networks are available on a just, reasonable, and non-discriminatory basis, regardless of technology, consistent with the Telecom Act. State regulators are in a unique position to inform federal regulators of the harmful consequences that 1 XO is a leading provider of local and long distance telecommunications services, interexchange access services, VoIP services, Internet access services and other information/enhanced services. XO, through its operating subsidiaries, is authorized to provide intrastate telecommunications services in 49 states and the District of Columbia.

2 result from allowing the largest carriers to leverage their inherent market power to squeeze out competitors and new entrants by denying access and/or interconnection on the basis of technology. Left unchecked, however, the exercise of market power by a few especially in the areas of access and interconnection would lead to a balkanization of American telecommunications infrastructure to the detriment of all consumers. State regulators have an important role, in collaboration with federal regulators, to prevent such harm from occurring. XO concurs with the Task Force in highlighting the proximity that state regulators have to state citizens, placing state regulators in a favorable position to monitor developing issues and trends directly affecting consumers and businesses. State regulators should impart wisdom drawn from this proximity and unique perspective while continuing to actively participate in Federal Communications Commission ( FCC ) proceedings that impact both service providers and users within their states. To the extent that regulations and statutes allow, state regulators should also pursue state proceedings, hold workshops and question service providers when practices of one or more carriers threaten the competitive telecommunications marketplace. XO Comments and Proposed Modifications With the foregoing background, XO offers modifications (marked with bold and italics) to, and comments on, the Draft Principles below: A. Consumer Protection Principle Consumer protection: states and state regulators can best ensure that mass market users have state of the art, affordable, and reliable services (including broadband), regardless of technology. Ensure that companies interconnect with each other on a just, reasonable, and non-discriminatory basis irrespective of network protocols

3 XO suggests striking the words mass market in the Consumer Protection heading principle above as it is unnecessarily limiting and proposes the addition of the modifiers just and reasonable in the bullet principle to more closely track the language and interconnection requirements contained in the Telecom Act. Certainly, mass market users benefit from state regulatory focus; however, XO believes state authorities should not limit their scope of oversight to the mass market when business users are equally entitled to affordable and reliable services regardless of technology. In fact, it is important that state regulators ensure that competition, and the innovation it produces, is fostered for all users, including businesses. Affordable and reliable broadband services have the potential to transform the economy by sparking new business opportunities and boosting employment while enabling local businesses to compete effectively on a global scale. Modern economic development in all areas depends on ubiquitous state of the art, reliable communications services which can only be attained through thriving competition undergirded by technology neutral policies. Robust competition results when state regulators can be the cop on the beat protecting customers from the harmful consequences that result when the big, legacy carriers exert their market power to undermine competition. The best way for state regulators to protect competition, and thus consumers, is to ensure that carriers have technology-neutral access to network facilities and interconnection with those legacy networks on a just, reasonable, and nondiscriminatory basis. Minimize user disruption by ensuring that the use of existing network facilities is maximized. XO and other competitors are deeply concerned with the removal of valuable copper facilities from the national telecommunications infrastructure; therefore, XO recommends the addition to the Consumer Protection Principle of the bullet principle immediately above. Although the FCC is charged with overseeing the ILECs copper retirements, state regulators are in a unique position to understand the impact on the local market where copper facilities are needlessly decommissioned. The elimination

4 of last mile copper connections inhibits network competition (since competitive access to fiber is restricted by arbitrary and unclear FCC rules) and also slows the deployment of competitive and innovative broadband services to millions of consumers because of the loss of the existing, ubiquitous copper network. To the extent that state regulators support affordable, innovative and custom-tailored broadband services, elimination of copper facilities should raise red flags about threats to procompetition policies. 2 While a growing base of business customers are demanding Ethernet-level speeds, many are not served by fiber connections. To meet this demand, competitors pioneered the use of Ethernet over Copper (EoC), which leverages the existing copper network to connect businesses at speeds of up to 100 Mbps, with recent announcements of up to 220 Mbps. EoC takes legacy copper connections and creates an IP-based connection allowing for a full suite of IP-enabled services over these existing connections. EoC couples new network equipment with the existing copper facilities rather than tearing up streets and overbuilding a network that took decades to create on the ratepayers dime. In addition, businesses want to have a service medium that allows them to scale bandwidth more flexibly than purchasing more expensive T1 circuits or fiber connections. EoC has a long life ahead of it, but carriers need the copper facilities that are already ubiquitous in the nation s network in order to continue to provide this thriving service. To the extent that the ILECs eliminate copper access facilities, forcing competitors to purchase or deploy more costly fiber facilities, users are denied having state of the art, affordable, and reliable services and a nationwide asset that is not efficiently being used to its full potential. 2 XO urges state regulators to participate in the FCC s proceedings on copper retirement. See the attached Public Notice for WC Docket No ; RM with Comments and replies due March 5, 2013 and March 20, 2013, respectively.

5 In addition to concerns regarding copper retirement, XO is troubled by the neglect of copper infrastructure. In order to maximize the use of existing facilities, they must be maintained in adequate working condition. The California Public Utilities Commission is so concerned about this issue that it recently opened a proceeding to investigate the adequacy of network infrastructure in the state. The Assigned Commissioner s Scoping Memo and Ruling, states that [i]n order to maintain acceptable levels of service quality for California customers, it is necessary to ensure that carriers have access to an adequate network of infrastructure. Without ubiquitous functional infrastructure that is adequately maintained, services provided to customers will degrade. In extreme cases, facilities failures will lead to a complete loss of service, including E911, to customers served by those facilities. As a part of our review of the factors that may affect service quality, Communications Division shall oversee an examination of carriers facilities. 3 XO urges all states to ensure affordable and reliable service quality by following California s lead and investigate the adequacy of imbedded network infrastructure maintenance. B. Competition Principle Competition: States and state regulators are best positioned to judge the actual level of competition in their states. Consumers should have the maximum choice of service providers, as well as products and services regardless of technology XO suggests that service providers be added to the bullet principle above to emphasize that choice of services among a few players does not reflect true competition in the marketplace. State regulators are in the best position to collect the data necessary to judge the actual level of competition within their states. The big, legacy telephone companies have made sweeping public statements about 3 Assigned Commissioner s Scoping Memo and Ruling, Page 12. Rulemaking , Order Instituting Rulemaking to Evaluate Telecommunications Corporations Service Quality Performance and Consider Modification to Service Quality Rules.

6 the scope, quality and availability of their services, but under closer scrutiny, there are many areas of the country, particularly rural areas, that are underserved. XO urges state regulators to continue their diligent data collection to tell the real story of competition in their state. In support of this modification, the Task Force should reflect upon the role state regulators played in the assessment of the sweeping unbundled network element ( UNE ) forbearance petitions filed by Verizon and Qwest. In particular, XO notes the importance of the work done by the Arizona Corporation Commission ( ACC ) in providing relevant market data, which the FCC cited to support its finding in Qwest s Forbearance Petition in Phoenix. 4 The ACC s commendable work and strong leadership supported retention of necessary policies and adoption of a forbearance standard that all serve to promote effective and beneficial competition in the Phoenix market. The granular nature of this analysis can only be done at the state level. C. Interconnection Principle Interconnection: Networks must remain interconnected on a just, reasonable and nondiscriminatory basis to ensure ubiquitous service. Sections 251/252 are technology neutral. As the Task Force recognizes in the interconnection heading and bullet principles above, providers must interconnect their networks in order to exchange traffic and provide ubiquitous service. XO recommends the addition of the modifiers just and reasonable in the bullet principle to more closely track the language and interconnection requirements of the Telecom Act. As the public communications network continues to evolve with Internet Protocol ( IP ) based technology, it is imperative that managed IP voice traffic can be exchanged in its native format. Managed IP voice services typically provide a greater quality of service than over-the-top VoIP services and are distinguished from over-the-top VoIP services, which are transported primarily via the Internet, by the 4 Petition of Qwest Corporation for Forbearance Pursuant to 47 U.S.C. 160(c) in the Phoenix, Arizona Metropolitan Statistical Area, WC Docket (filed March 24, 2009) (Qwest Petition).

7 fact that managed IP voice traffic is exchanged via dedicated interconnection facilities between providers separate from facilities that exchange Internet traffic. The FCC has clarified that Sections 251 and 252 are technology neutral and that ILECs must negotiate in good faith regarding IP interconnection arrangements for the exchange of managed IP voice services traffic ( managed IP interconnection ). However, the ILECs continue to stall negotiations with many competitors, arguing that managed IP interconnection is not governed by Sections 251 and 252. Thus, the ILECs refuse to provide managed IP interconnection under the Telecom Act, even as they deploy IP technology into their networks, and do not support state regulatory approval of managed IP interconnection agreements. XO strongly disagrees with this premise and encourages state regulatory review of any managed IP interconnection arrangements provided by the ILECs. In fact, a group of competitors recently presented the question of state authority over managed IP interconnection agreements squarely before the Massachusetts Department of Telecommunications and Cable ( DTC ). 5 Without state regulatory review of ILEC managed IP interconnection arrangements under Section 252, neither competitors nor state regulators are able to evaluate the terms and conditions of such agreements. Moreover, competitors are unable to exercise their right to "adopt" such agreements under Section 252(i), a process that greatly reduces negotiation costs and facilitates the development of managed IP interconnection agreements more generally. For these reasons, XO eagerly awaits action by the DTC. In summary, XO supports adoption of the Draft Principles, with the revisions recommended above, to guide state regulators as they work in tandem with federal regulators to protect consumers and promote competition. Again, XO greatly appreciates the opportunity to be a part of this process and is happy to provide further information or address any questions that may be helpful to the Task Force as it discusses, and deliberates upon, these critical issues. 5 Petition for a Determination that Verizon IP-to-IP Interconnection Agreements Must Be Filed for Review and Approval and for Associated Relief, DTC 13-, filed on January 31, 2013

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