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GAO Cites Deregulation Doubts

The Government Accountability Office (GAO) released a report Thursday suggesting that the Federal Communications Commission (FCC) 's deregulation of business-class high-speed data business hasn't led to increased competition and lower prices in many markets.

The new report compares prices offered by incumbents in regions where the FCC has deregulated high-speed data with prices in areas still under price regulation. (See Verizon Asks FCC to Undo Unbundling.)

"In the 16 major metropolitan areas we examined, available data suggest that facilities-based competitive alternatives for dedicated access are not widely available," the report states. "Data on the presence of competitors in commercial buildings suggest that competitors are serving, on average, less than 6 percent of the buildings with demand for dedicated access in these areas."

A lot of money rides on the way the incumbents are regulated in the enterprise data service (also called "dedicated" or "special" access) business. Those services brought in about $16 billion in revenues for the Bells during 2005, and analysts say the market is still growing. (See FCC Helps Verizon's Enterprise Game and Verizon: Make Way for ViOS.)

And one Wall Street analyst thinks the GAO report might affect ongoing negotiations in Washington over the merger of AT&T Inc. (NYSE: T) and BellSouth Corp. (NYSE: BLS) (See AT&T Rages at FCC Delay.)

"While it is unclear if the GAO recommendations will lead to changes in the process of deregulation of special access, we believe that opponents of the AT&T-BellSouth merger will use the results of the study to push for further concessions in the merger," wrote UBS AG analyst John Hodulik in a brief to investors today.

The GAO is recommending that the FCC better define "effective competition" and find ways to gather better data to monitor competition.

Today, the FCC looks at the number of providers that collocate equipment at the wire center level to determine the level of competition in a given market. It does not take a building-by-building look at how many providers -- either using their own facilities or using leased lines -- are actually delivering services inside. Depending on the level of collocation at the wire center, the FCC often removes price controls on the incumbent's service either partially or totally.

As one might expect, the FCC disagrees with the GAO's findings. The report “appears to imply the need for a return to price control policies,” the commission says. The FCC notes that “the cost of price regulation to carriers and the public is still greater than the benefits.” (See FCC's Martin: Markets Rule.)

The entire GAO report is available here.

— Mark Sullivan, Reporter, Light Reading

materialgirl 12/5/2012 | 3:33:21 AM
re: GAO Cites Deregulation Doubts The FCC claims that the cost of regulation is higher than any benefit, without looking at the facts, such as building-based connection counts. Their minds seem made up, and no information is welcome. What facts can they present to us to convince us, or the GAO, that costs of regulation are indeed so high? Finally, after dozens of years of trying to figure out the cost of a UNE, and failing, why are we to believe they know any telecom cost with accuracy?
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