Big Customers, Competitors Want Special Access Prices Reined In

“Special access markets simply are not competitive,” said the AdHoc Telecommunications Users Committee, which represents high-volume customers of telecom services. AdHoc’s members obviously benefit from competitively priced services and have “no commercial self-interest in imposing unnecessary regulatory constraints” on the Bells, AdHoc’s filing said. But they haven’t seen the expected competition and low prices develop, AdHoc said. The FCC needs to “update” price cap regulation and “re-initialize” rates so the Bells earn no more than 11.25 percent on special access, the filing said. “The Commission’s failed experiment with pricing flexibility rules is a sobering reminder that such initiatives must be grounded in marketplace facts.”

The American Petroleum Institute recommended: (1) Requiring that incumbents roll back rates to the level before they took advantage of the “phase II pricing flexibility” which let the Bells offer some services free of pricing limits. (2) Reinstating price-cap regulation for special access services, including the “x-factor” part of the formula that reflects productivity and can set limits on rate levels. (3) Allowing pricing flexibility only if there’s “substantial” facilities-based competition and limit the Bells to lowering, not raising, prices under the flexibility grant.

It doesn’t make sense to “re-regulate,” AT&T told the FCC. Special access prices keep falling and the number of competitive suppliers of special access services has grown, the company said. Broadband wireless and cable providers are targeting DS1 and DS3 facilities that provide special access at cell towers and other remote locations, it said. And “the scores of traditional CLEC suppliers of competitive special access services have significantly expanded,” AT&T said. The telco urged the FCC not to"readopt the equivalent of rate of return regulation” by “reinitializing” price caps, which “would turn sixteen years of regulatory policy on its head.”

“Re-regulation would be particularly arbitrary and capricious” given that competitors and large customers have “refused to provide the Commission with any real data about the true extent” of competitive facilities and services being offered and used, AT&T said. “The Commission plainly could not defend an order that reduced rates by regulatory fiat on a record that fails to include full information on the availability of alternative facilities.”

The comments responded to an FCC effort to “refresh” a two-year-old special access proceeding that stemmed from an AT&T petition seeking a revamp of special access prices. The petition was filed before AT&T, then an independent long distance company that used Bell special access, merged with SBC. The irony wasn’t lost on competitors filing with the FCC. “AT&T Corp. in its initial petition showed that, despite its ownership of one of the most extensive national networks, its large traffic volumes, superior resources and bargaining power, it was dependent on the BOCs for access to customer locations,” said a filing by 12 competitive local exchange companies. The CLECs, including Cavalier Telephone, Deltacom, Integra, McLeod and others, said the FCC should “reinitialize special access prices at cost-based, forward-looking levels using state approved UNE rates as proxies.” The FCC should beef up the price cap regime for high-capacity facilities used for special access, they said.

The FCC’s regulatory framework gives the Bells “virtually a free hand to exploit their control over bottleneck facilities,” said Time Warner Telecom and One Communications in a joint filing. The Bells and other incumbent local exchange companies charge “outrageously high prices” and “no amount of ‘refreshing the record’ in this proceeding will change these facts,” they said. The FCC has to “mandate lower ILEC special access prices” and “the most practical approach” is to eliminate phase II pricing flexibility and change the price cap formula, they said. Current special access regulation is “fundamentally flawed” because it permits elimination of price cap regulation throughout an MSA based on competition found in a small part of that area, said Time Warner Telecom and One Communications.

The FCC already has a lot of data relevant to this issue, collected when it was considering recent mergers involving the Bells, and should include the information in this proceeding, CompTel said. The FCC needs to act quickly to stem further harm, by bringing prices down -- possibly patterning rates on prices charged by competitive special access carriers or developing rates using the old TELRIC rate model set during the development of unbundled network element regulation in the late 1990s, CompTel said.

The Independent Telephone and Telecommunications Alliance said it’s true that pricing flexibility has been based on “predictive judgments” that competition in one area of a market would spread and “in the experience of ITTA member companies, those predictions have proven correct.” ITTA, which represents midsized telecom providers, said its members are facing competition from the Bells, cable providers, groups of smaller carriers, “and, in one instance, a state-funded entity that provides special access services to schools, hospitals and government entities.” This isn’t “simply a policy dispute between the RBOCs on one side and wireless and competitive local exchange carriers on the other,” ITTA said. “Rather, regulation of special access would be contrary to public policy and would affect adversely mid-sized carriers whose operations are characterized by meeting competition with reasonable market-based rates.”

Embarq said there’s not enough data from competitive providers to know for sure but “what evidence exists demonstrates that price caps, and where available, pricing flexibility, are working as intended -- competition has developed and is growing and rates are approximating cost.”