Congress Pressuring FCC to Investigate Special Access Prices

The Copps FCC will request special access data “almost without a doubt,” said a wireline industry official. All the eighth-floor offices seem to recognize that there’s a shortage of data, and they would support getting more, the official said. Seeking additional data would be a logical move for the new Democratic-controlled commission, which has emphasized making decision based more on information gathered, another industry source said. Because the commission would acknowledge that it doesn’t have enough data, the final item probably won’t include tentative conclusions, industry officials said.

Acting Chairman Michael Copps has stated a preference for releasing orders by consensus rather than along party lines while he’s chairman, a carrier source said. That goal would jibe with a data request, since all three commissioners have endorsed collecting data about special access, the source said. Last year, when former Chairman Kevin Martin issued an options memo on special access, all members agreed there was not enough data on competitive facilities, and the focus should be on the market as a whole, the person said.

Rep. Anna Eshoo, D-Calif., a senior member of the committee, led the charge on special access during the hearing. Other members, including Mike Doyle, D-Pa., and Jerry McNerney, D-Calif., also raised concerns.

“For wireless carriers the cost of special access carriage is up to a third of the expense of running a wireless tower,” Eshoo said. “Special access is a significant choke point in the telecommunications system since Verizon and AT&T control 80 to 90 percent of the special access market nationwide.” Eshoo said a proceeding has been pending at the FCC since 2005 and a November Government Accountability Office report cited the lack of data available to the agency. Eshoo also said the cost of special access has directly affected her office, since she had examined the cost of a high-speed connection tying together her Washington and Palo Alto offices. “While it was fairly expensive it was really going to do a lot for us and my constituents,” she said. “What we couldn’t afford out of our budget was the monthly cost of the special access lines that were needed -- they were in the range of $2,000 a month.”

“The debate over special access should really be called critical access,” Doyle said. “These special access lines are critical to broadband deployment and competition.”

Congressional pressure could lead to FCC action, said Jessica Zufolo, analyst with Medley Global Advisors and a former lobbyist. “Pressure from Congress always adds another dimension to the ongoing policy debates at the FCC over pricing and provisioning issues,” she said on Monday. “Depending on the outcome of some of the upcoming decisions over forbearance relief of high-capacity network facilities in the D.C. Circuit, the drum beat over special access pricing could get even get louder at the FCC.” But Zufolo conceded “this issue might be difficult for the incoming chairman to address head on in his first few months in office.”

Joshua Seidemann, vice president of regulatory affairs at the Independent Telephone & Telecommunications Alliance, said “it’s tough to say” whether questions from Congress will mean FCC action. “Congress gets interested in things and the FCC may or may not respond. It also depends how interested Congress is in that matter,” Seidemann said. “If you've got an issue that becomes a punching bag for Congress, the chances are that the FCC is going to move on it. It depends on what the tone of the hearing was. It depends on who is kind of driving the issue.” But, he added, “the FCC has got a lot of issues on their plate right now.”

The FCC probably won’t act on special access until Genachowski arrives, but reforms on the issue are “ripe” for inclusion in the FCC’s national broadband plan next year, said Cathy Sloan, government relations vice president of the Computer & Communications Industry Association. The national plan probably wouldn’t include detailed regulations, but likely would lay out the FCC’s intended direction on the special access issue, she said. It’s possible a data request could come sooner, she said.

Data Request Likely

The commission probably won’t order extra data until at least late June, said wireline industry officials. Once an item gets to commissioners, it likely will take them another two weeks to finalize what and to whom questions are asked, the official said. The arrival date of Julius Genachowski could also complicate matters, because, though Copps seems to want to do the data request himself, he might not want to launch the effort “the day before [Genachowski] walks in,” the official said.

Bureau staff may be working on a data request item now, but it likely hasn’t made it to the eighth floor yet, said a carrier executive. Since DTV will dominate the FCC’s agenda in June, a special access item would likely wait until July, the executive said: If Copps is still chairman that month, special access will probably be at “the top of the list.”

Things could get contentious, depending on the questions asked, industry officials said. Incumbents want the FCC to get more data on the location of competitive facilities, while competitors want the regulator to seek information on incumbent price-cost margins. A lawyer for competitive local exchange carriers said “there is a significant chance” the FCC will ask for both.

Competitors have repeatedly refused to supply data on the location of competitive special access facilities for reports by the GAO, National Association of Regulatory Utility Commissioners and others, said USTelecom Vice President Glenn Reynolds in an interview. But the FCC could use its subpoena and data-gathering powers to compel data from those who won’t voluntarily provide it, he said. Commissioner Robert McDowell has called for more data on competitive facilities. In October 2007, he said the commission should only pursue special access reform “after a more granular record has been established through detailed mapping of business broadband facilities.”

However, competitors argue data on competitive facilities isn’t needed to assess the market. Rather, the FCC should collect data comparing incumbent prices to the costs of their facilities, said the CLEC lawyer. Incumbent prices would account for the presence of competition, the lawyer said. Incumbent prices that are close to costs should reflect a competitive market, whereas prices high above costs reflect an uncompetitive one, the attorney said.

Once the FCC collects data, it could take the agency “several months” to review the information, said the CLEC lawyer, predicting a “holy war” between incumbents and competitors. If the agency determines there are problems with the special access market, it will need to determine whether to target certain markets or design a national solution, the lawyer said.

Sprint Nextel welcomes the focus, a spokesman said. The carrier had a witness at the House hearing. “The growth of broadband in the U.S. is jeopardized by the choke point which Verizon and AT&T hold on these middle-mile facilities,” the company said. “Fixing this broken market is a prerequisite to developing a successful national broadband plan. That’s why this is more than a telecom issue, it is also an economic issue facing the country. We are hopeful that the FCC will act to fix this broken market very soon, because doing so will create jobs and lead to expanded broadband coverage throughout the U.S.”