FCC Workshop Examines Analytical Framework for Special Access
The FCC should look at whether prices are competitive as it examines special access rates, said William Taylor of NERA Economic Consulting at a commission workshop Monday. Economists Taylor and Dennis Carlton of Compass Lexecon represented the incumbent local exchange carrier perspective, while Bridger Mitchell of Charles River Associates and Lee Selwyn of Economics and Technology, Inc., represented the NoChokePoints Coalition viewpoint.
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What constitutes “prices” is another question, Selwyn said. The price of DS1 on a month-to-month contract can’t be compared to DS1 on a five-year contract, he said. When the market has moved from price caps to pricing flexibility, prices have gone up, he said. Selwyn cited AT&T’s increased rates on July 1, after the terms of its acquisition of BellSouth expired (CD June 30 p1). Average revenue per unit might be dropping, but prices haven’t fallen when all attributes of service are held constant, he said. As an analogy, he said airline ticket prices of today can’t be compared to ticket prices of five years ago because today a traveler has to also pay fees for baggage, for food, and other surcharges. AT&T is capable of making calculations if it wished and had calculated down to the dollar what it considered excess earning of competitors, Selwyn said.
The direction of a price change doesn’t say anything about competition, Taylor said. There’s no guarantee that prices under the price cap were competitive market rates, he said. Carlton said there needs to be an “apples to apples” comparison of prices, but the focus should be on transaction cost prices, not list prices.
Mitchell suggested the commission use the Justice Department’s merger guidelines criteria during a market analysis. Carlton said the merger guidelines are designed to determine whether prices will increase after a deal. The FCC, on the other hand, wants to know whether competition is already constraining prices, he said. A benchmarking approach, though difficult, is the most promising analytical method, Carlton said. The mere presence of competition “does not a competitive market make,” Selwyn said. The competition must be robust enough to constrain prices, he said: There’s been talk of potential competition for a long time, but it has yet to emerge.