FCC Poised to Re-Regulate Wholesale Access

As expected, the FCC today adopted new rules for how network operators can resell last-mile connections for business data services, striking down some previously common aspects of contract terms incumbents have used with business customers and promising to deliver a new competitive framework that will apply to anyone connecting networks to businesses.

Over the vociferous objections of two Republican commissioners, one of whom said the federal agency had followed Alice down the rabbit hole into a backwards Wonderland, the three Democrats accepted immediate restrictions on some contract terms and agreed to gather industry comment on a new competitive industry framework. That framework would re-regulate pricing in the $45 billion market now known as "special access" in areas where the Federal Communications Commission (FCC) decides there isn't enough competition to for the market to control pricing.

Even in approving that move, however, two of the Democrats admitted it's going to be important and hard to get the details right for any new regulatory regime. Getting it wrong carries the potential of discouraging investment in broadband.

As it is, the United States Telecom Association (USTelecom) is claiming any new pricing rules will impede the rollout of 5G wireless by slowing the buildout of local loop fiber networks needed to connect all the additional tower sites 5G will need.

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The contract restrictions, called a tariff investigation order, follow the FCC's examination of 22 different tariff pricing plans for special access from AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ) and CenturyLink Inc. (NYSE: CTL), the three largest incumbent operators. That probe turned up three practices deemed unreasonable by the wireline bureau staff. Those include all-or-nothing pricing plans that put all services under a single tariff, and excessive penalties for early termination of a contract or a shortfall in volume.

In each case, the FCC found the provisions limited a business's ability to adopt newer IP-based services essentially locking them into a legacy service contract. Commissioner Michael O'Rielly ridiculed the idea that large businesses such as banks and multi-million-dollar network operators, who are negotiating contract terms, need the FCC's protection or to benefit from lower rates. Most often, he says, these businesses have chosen the contract terms because they offer flexibility or volume pricing discounts.

The framework for future potential re-regulation of pricing in what are deemed non-competitive markets will now be open to industry comment. And while one incumbent, Verizon, has already developed its own framework in cooperation with Incompas , the association which represents the competitive telecom industry, other incumbents and their organizations are already lined up against any re-regulation of pricing. (See Industry Ignites Over Special Access Regs.)

Cable fury
The cable industry, in particular, is incensed by the idea of having its burgeoning business services brought under a regulatory framework that would force resale to competitors at FCC-dictated prices. What FCC Chairman Tom Wheeler is proposing is a technology neutral approach that would set up what he considers to be a level playing field for everyone.

"Cable’s entry into the market for business data services over the last few years has resulted in improved services and lower prices for businesses all across America," the National Cable & Telecommunications Association (NCTA) said in a statement. "It is disappointing that Chairman Wheeler is responding to this unquestionably positive development by asking the Commission to consider imposing onerous new rate regulation on these competitive services. We are confident that this proceeding will expose the obvious harm to investment created by such an approach and that the Commission will reject the Chairman’s proposal to abandon four decades of bipartisan pro-competitive policy."

Commissioner Ajit Pai agreed with the NCTA in colorful terms, making his second literary reference. The commissioner, who had already established the Alice in Wonderland motif, said the FCC was guilty of encouraging cable to build out its networks and then punishing them, likening that to another Lewis Carroll work, the Walrus and the Carpenter, in which oysters are invited on a walk and then eaten.

"Like in the poem, what a dismal thing to do," he commented.

By contrast, the competitive telecom industry sees this as a good thing, as noted by BT in its statement: "Today, the Federal Communications Commission took a major step forward in its commitment to bring real reform to the critical market for business data services. For over a decade, American consumers, businesses and the US economy have paid the price for the enduring lack of competition in this market. The FCC is now poised to usher in a new competitive and sustainable business data services framework to the benefit of the entire broadband economy. We thank the FCC for its action today and look forward to continuing our work together to ensure that competition governs this critical input to innovation."

— Carol Wilson, Editor-at-Large, Light Reading

Director25336 5/10/2016 | 3:44:08 PM
Re: non comprende Carole..Looks to me like "I am the Walrus" was actually referring to a line from "The Big Lebowski". Bottom line where Donny wanders into a discussion between The Dude and Walter about Lenin (Vladimir) and thinks it is about Lennon (John) So Wheeler is commenting on Pai's similarity to Lenin.... And we know where that went....
cnwedit 4/30/2016 | 2:40:56 PM
Re: non comprende Exaxtly -  that's why Verizon agreed to the framework deal with Incompas, and why cable is objecting so heavily.
brooks7 4/30/2016 | 1:35:02 AM
Re: non comprende This is the WHOLESALE market and Cable has not provided WHOLESALE access to their networks.  So, cable has built out business services but this is different.  Now they have to rent to CLECs.


cnwedit 4/29/2016 | 7:34:58 PM
Re: non comprende How "competitive" a market might be is totally in the eyes of the beholder. And please note, I didn't say the Wonderland reference was "inapposite" or inappropriate or anything. I just noted that he made the reference. Actually, what was weird was that Pai basically ripped Wheeler's plan six ways from Sunday and the second he was done, Wheeler jumped in to ask why he didn't make an "I am the Walrus" Beatle reference and they both laughed. 

jbtombes 4/29/2016 | 6:09:21 PM
non comprende A non-competitive market? I thought the entry of new players, e.g. cable MSOs, into business services over the past decade increased competition. So it's ok to constrain these market entrants; but on the residential side, best to give the upstarts a leg up. What was so inapposite of the Alice in Wonderland reference?
Duh! 4/29/2016 | 11:51:24 AM
Re: The battle has just begun I like the idea of regulating non-competitive markets and de-regulating competitive ones. Regulatory discipline as a proxy for market discipline.  If I were king and got to re-write the Communications Act, that would be the core principle.
inkstainedwretch 4/28/2016 | 3:19:25 PM
Re: The battle has just begun Pai, O'Rielly and the NCTA's Michael Powell are all laissez-faire absolutists, so even when they might have a point, it's hard to credit extremists. When you've got this many people upset, there's a good chance you're doing something right. It's great that Wheeler is asking the question. It will be both instructive and entertaining to see the comments that roll in.

--Brian Santo
cnwedit 4/28/2016 | 2:34:27 PM
The battle has just begun I think we are in for an interesting fight, with both sides throwing around numbers and citing precedents for either re-regulating special access services or keeping the current regime. 

Oh, and we're not supposed to call it special access anymore - it's now business data services. 

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