Divided FCC Proposes Special Access Remake

Proposal could regulate rates where FCC deemed competition was lacking
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A politically divided FCC voted Thursday to propose remaking the business broadband marketplace and potentially regulating rates for cable operators' special access service.

The FCC is phasing out the presumption of regulating the rates of historically "dominant carriers" – the ILECs (incumbent local exchange carriers) – as a way to boost competition from "nondominant" CLECs (competitive local exchange carriers) and from cable competitors and instead regulate the rates of any of them as it deems necessary. That is in the name of boosting price and service competition for the "special-access"—rebranded by the FCC as "broadband data"—services.

The FCC isn't saying incumbents aren't still dominant, but instead that as that changes the framework should accommodate that and be based not in old labels but tech-neutral competitive factors.

FCC chairman Tom Wheeler made it clear that a major reason behind the item was to insure competitive price and availability of the wireless backhaul that is a special access service and that is crucial to the rollout of 5G wireless broadband service.

Special-access lines are dedicated connections used by businesses and institutions to deliver voice and data traffic, including for ATMs and credit card transactions. They also include wireless backhaul services, so the move also ties to the FCC's promotion of wireless broadband.

The regs have been applied to the ILECs — Verizon, AT&T, CenturyLink and Frontier — but the chairman thinks they should apply across the board where more competition is needed.

Wheeler has called that a tech-neutral approach to promote competition. The National Cable & Telecommunications Association has called it an unprecedented move to regulate the rates of a new entrant that will threaten the gains cable operator ISPs have made against the incumbents with the lion's share of the market.

Republican Commission Ajit Pai, who strongly dissented from the chairman's proposal, agreed, colorfully, with NCTA's dour assessment.

In his statement at the public meeting where the item was approved 3-2, he likened the proposal to Alice's trip through the looking glass—Pai is disposed to literary and musical references—saying that "practically nothing" in it makes sense.

"In the world of the looking-glass, everything is backwards," he said. "Incumbents are losing customers and revenues every year—and so they must have market power. The competitive supply of unregulated Ethernet services is taking off—and so those and other next-generation services must now be regulated....I cannot support the Notice’s sentence-first, verdict-afterward nonsense, and I accordingly dissent."

"Our goal should be ubiquitous competition, not universal rate regulation," said Pai.

The FCC is basing its special-access reforms on a major, years-long data-collection effort. FCC commissioner Mignon Clyburn supported the proposal, and regulatory backstop for reasonable pricing, but suggested more study was needed on the implications of that data.

"It should come as no surprise, that our comprehensive data collection shows that where competitive pressures exist in the special access market, prices are reduced," said Clyburn. "But what is less clear, is the number of providers necessary to do so, the appropriate geographic area for the market, and the relevant product markets. These are all issues where further stakeholder engagement, is needed." She said she had concerns about the complexity of the item and said the reforms must be targeted.

She said the chairman had agreed to make the item more "neutral" by moving away from 50 MHz as a benchmark for competition, and his willingness to give stakeholders "sufficient time" to vet the proposal.

Commissioner Jessica Rosenworcel, who also supported the item, said the FCC must make sure that it continues to incentivize providers to build out and invest in networks. "Infrastructure matters—we need to encourage its deployment," she said.

Also on the dissenting side was Republican commissioner Michael O'Rielly. He said that many parts of the FCC proposal are wrong, and seemingly proposed under the theory that it is so crazy it might work. Those include particularly the proposal to eliminate or modify ILEC contract terms, like some short-fall and early termination fees or all-or-nothing provisions, as unlawful on their face.

He said applying rate regs to everyone, rather than just IECLS, is a radical change that threatens cable's increased competitive position. And while it it simply a proposal, he said it is clear that the outcome is the predetermined plan to regulate new competitors, like cable, after encouraging them to build out with not signal they would be penalized by regulation. He says the FCC does not have the authority to do so anyway. Why would cable build out just to get regulated "coming and going."

He says tech-neutral has become whatever the commission says it is, and can actually wind up favoring one technology over another. ILECS will still be regulated under a price-cap regimes that dates from the Bell breakup, while cable under a new competitive benchmark regime.

Wheeler said there was no nefarious plan and that the plan was to create a level playing field based on competition, then ask a lot of questions about how to achieve that. He said the dissenters from the decision had spoken in the past about the need to lead in 5G, “and that that means infrastructure.”

Wheeler said that the broadband business data reform was about the infrastructure undergirding wireless service and the rollout of 5G and that there was a reason why all the wireless carriers save one (AT&T) supported the item. He said he was casting his vote “in favor of competition, consumers and winning the 5G future."

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