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FCC's Wheeler Circulates BDS Remake - Broadcasting & Cable

FCC's Wheeler Circulates BDS Remake

Will use complaint process to address new entrant competitiveness
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Billed as an effort to promote fairness, competition and investment in a $45 billion marketplace, FCC chairman Tom Wheeler has circulated the order on business data services (BDS) to the other commissioners for a vote.

The chairman's office calls it "a new framework for this market that strikes a balance between targeted regulation for legacy services, where evidence of market power is strongest, and lighter-touch regulation of packet-based services [cable ISPs, for example], where there has been new entry and competition may be emerging."

The order also reaffirms that both traditional and ethernet BDS are subject to Title II. 

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That means, like the incumbent big telcos, cable ISPs are telecoms potentially subject to rate regs if found not to be providing their service on "reasonable and nondiscriminatory terms," though no price caps or other ex ante (before the fact) rate regs, say FCC officials. The item does not mandate network unbundling or wholesale rate discounts, they added in outlining the order to reporters.

But a senior official pointed out that the process is a complaint driven process.

Initially the FCC was contemplating regulating all BDS service based on geographic determinations—this census block is competitive, this one isn't—but is coming up with a different approach to legacy services—still price capped—from new entrants, which will be scrutinized on a case-by-case basis.

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The FCC will have a "robust" complaint process to deal with pricing and competition issues, with wholesale rates considered "presumptively unreasonable if they exceed retail rates for like services."  The FCC will also look at rates from the same provider that are materially higher than charged by the same provider for the same circuit in a nearby building with competition.

The item also seeks comment in a further notice on "how best to collect accurate data on market developments and what administrable means can be developed, if necessary, to deal with any concerns that may emerge with respect to pricing for packet-based BDS."

In a politically divided vote April 28, the FCC approved a Notice of Proposed Rulemaking on BDS.

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The item was not on the agenda for the Oct. 27 meeting, as many had been anticipating, but can now be approved any time it gets three votes and without being voted in a public meeting.

Broadcast data services include carrying voice and data from cell towers (backhaul) to businesses and from ATMs and credit card readers.

FCC chairman Tom Wheeler has said that competition in the BDS space is essential to the rollout of 5G, which is an Obama Administration priority.

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To that end, he proposed an approach to revamping BDS (formerly "special access") regulations that can apply to either the historically rate-regulated incumbents like AT&T and Verizon or to competitive carriers and new entrants like cable broadband providers.

Wheeler has billed it as a tech-neutral remake of the old dominant vs. nondominant regime to spur competition wherever the FCC finds it insufficient.

The goal is to promote more competition, competition, competition (the chairman's mantra) for business services, which could include price regulation on cable service where the FCC concludes it does not face competition.

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Not surprisingly, cable ISPs weren't hot on the idea that having encouraged them to enter markets to compete with incumbents, they might now be rewarded with new rate regs.

The FCC proposal is rooted in a compromise offering from ILEC Verizon and CLEC group INCOMPAS. Wheeler has argued that a BDS revamp is needed for the competitive backhaul pricing for 5G and thus is a key to the universal wireless coverage that is an Obama Administration priority.

Sprint was fine with the proposal. "For well over a decade, the high-capacity broadband marketplace has suffered from a lack of competition, costing the American economy billions and slowing investments in next generation broadband technologies," it said in a statement. "Today Chairman Wheeler took an important step to reform this broken market.  We look forward to learning more about the item and continuing our work with the FCC to promote competition and ensure just and reasonable prices for all parts of the BDS marketplace."

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Verizon was all upbeat as well.

"Verizon is pleased the FCC is moving forward with an order that includes aspects of Verizon and INCOMPAS’s joint proposal, including creating a consistent framework that applies to all competing providers and services," said Will Johnson, Verizon SVP of federal regulatory and legal affairs. "We believe the Verizon/INCOMPAS compromise proposal was a significant step in that direction. We will continue to work with the FCC and the industry on ways to reach a balanced solution."

AT&T, by contrast, was hardly happy with the decision to continue ex ante regulation of incumbents while taking a case-by-case approach to new entrants.

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“This proposal is little more than a wealth transfer to companies that have chosen not to invest in last mile fiber infrastructure. It will result in less fiber investment and contribute to mounting job losses at a time when our country needs just the opposite.

“Like its privacy and set-top box counterparts (which may or may not also be voted upon in three weeks), the special access proceeding seems designed to pick winners and losers rather than being an even-handed analysis based on facts and sound economics.

“While the Commission has correctly determined (for the time being) not to re-regulate the Ethernet market, there is no evidence in the record to support the Commission’s proposal to re-regulate all legacy TDM-based service without regard to the number of competitors operating in a markets. To reach such a preposterous conclusion, the Commission had to ignore facts and virtually all of the economic analysis submitted by its own ‘independent’ economist as well as all of the other economists who provided analysis in this proceeding.”

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