FCC Says it Had Enough Data to Suspend Price Flex Rules, Despite ILEC Complaints

The mandatory data collection order will be issued within 60 days, but will only become effective when the FCC receives final approval from the Office of Management and Budget in accordance with the Paperwork Reduction Act, the Wednesday order said. The commission said it anticipates the approval process and data collection will take “several months.” Then the commission will need to analyze the data. “Thus we will aim for final conclusions on the need for overall reform of the special access marketplace to occur in 2013,” the order said.

"We do not agree with commenters that it is necessary to collect additional data prior to suspending the rules,” the order said. “The existing record contains sufficient evidence to call the continued viability of the collocation-based competitive showing rules into question. We therefore will not allow the inefficiencies resulting from those rules to go unaddressed until we are able to obtain a more extensive data set. ... Although we do not have sufficient data to fully resolve this proceeding by adopting new or revised permanent rules governing Phase I and/or Phase II pricing flexibility areas, the record supports our action today, and it is appropriate for us to rely on the data we have available to make incremental progress on this complicated issue."

Commenters have told the commission “that ILEC DS1 and DS3 prices are oftentimes higher than CLEC prices to the same physical location,” the special access order said. “They have also told us that, in many instances, prices in Phase II areas are higher than prices in other areas. They also allege that the terms and conditions associated with the sale of ILEC services are anticompetitive and inhibit competitors’ ability to attract new customers and build new facilities. Though we acknowledge the need to obtain more specific data to evaluate these allegations fully, it is highly likely that these factors, rather than others, reflect and have contributed to the low level of facilities-based competition for channel terminations."

The commission said it would suspend its competitive showing rules for both channel terminations, and non-channel termination special access services. “Staff analysis of specific data highlighting problems with the MSA was restricted to channel terminations to end users,” the order said of metropolitan statistical areas. “Nonetheless, the record also indicates a lack of ‘reasonably similar’ competitive conditions within an MSA for dedicated transport."

The order doesn’t go into extensive detail on what kinds of data will be requested to facilitate its “robust market analysis.” The forward-looking market analysis will consider various sources of competition, including “sources of intermodal and intramodal competition, potential market entrants, uncommitted entrants, carriers that self-supply their own special access, and non-facilities-based competitors,” the commission said. The nuanced analysis will allow rigorous, factually specific inquiries into potential competition, and will “allow us to better balance the potential costs of regulating too heavily against the potential harms of failing to undertake appropriate regulation where it is needed,” it said.

The agency hopes its market analysis will let it determine how to “best assess the presence of actual and potential competition for special access that is sufficient to discipline prices,” the order said. It said the analysis may identify “reliable proxies” for competition for special access services, and evidence that the commission should change its regulatory approach “in particular geographic areas.” The analysis will likely be a “one-time assessment” of the competitive conditions, although “further analyses may be needed in the future,” the commission said. The market analysis will also “foster broadband deployment and competition” by leading to reduced cost for special access circuits, which are “a particularly important input for carriers’ broadband service offerings,” the order said.

The big ILECs criticized the order for suspending the current rules without sufficient data. Verizon Vice President Donna Epps said the FCC “should have collected the data it repeatedly has said it needs” before taking any action. “Any efforts to impose new pricing regulation are unjustified and will depress investment in these networks so critical to our economy,” she said. USTelecom President Walter McCormick said he was “disappointed” the commission has taken this action “despite its recent repeated admissions that it does not have adequate information. ... It is surprising that the majority has chosen to move forward without even issuing such a data request -- let alone without evaluating the results.” Senior Vice President Bob Quinn said AT&T was pleased about the impending mandatory data request would draw information out of those who have refused to provide it in the past. “However, the FCC is placing the cart before the horse by suspending the existing special access rules before receiving and analyzing the data submissions,” he said (http://xrl.us/bnmxee). Quinn also warned of a “mountain of work designed to set the price for a relatively low-speed business service that does not even meet the National Broadband Plan’s definition of broadband in the consumer market.”

House Commerce Committee and Communications Subcommittee chairmen said the decision “violates good process” and justifies the need for FCC reform legislation. “The FCC told the D.C. Circuit Court in an October 2011 filing that the commission lacked ‘an evidentiary record that is sufficient to evaluate current conditions in the special access market,’ in part because of ’the failure of some parties to produce information clearly documenting their claims that special access rates are unreasonable,'” said Reps. Fred Upton, R-Mich., and Greg Walden, R-Ore. “As a result, members urged Chairman Genachowski at the July Communications and Technology Subcommittee hearing to engage in a mandatory data collection and to refrain from taking any action before then. The Chairman acknowledged that the FCC did not have all the information it needed and said that he would move forward expeditiously with a data collection. He made no mention of his plans to suspend the regime and propose changes before gathering the additional material. The FCC has a responsibility as an expert agency to justify its actions with data before intervening in the status quo.”

House Democrats were supportive of the FCC’s decision. Commerce Committee Ranking Member Henry Waxman, D-Calif., said he was pleased that the commission temporarily suspended the current rules. “It is undisputed that the 13-year-old rules suspended today are not working as intended and may actually harm consumers, competitors, and incumbents,” he said. “By temporarily suspending new grants of pricing flexibility as it develops a new path for such flexibility in the future, the Commission demonstrates the sensible and reasoned decision making we expect of an expert agency.” House Communications Subcommittee Ranking Member Anna Eshoo, D-Calif., said the FCC’s action provides a “path forward toward meaningful reform, ensuring that in the process, the agency collects the necessary data to support a robust, competitive marketplace.” Rep. Ed Markey, D-Mass., commended the “welcome step” in reforming the commission’s outdated special access rules that have “limited flexibility and hindered competition” in the communications market “for far too long.” Rep. Mike Doyle, D-Pa., wants commissioners to issue a mandatory data request as soon as possible, he said. “The sooner the FCC can collect the data, the sooner it will be able to figure out the best way to fix its special access rules.”

Anna-Maria Kovacs, visiting senior policy scholar at Georgetown University, told us there seemed to be an “enormous disconnect” between the FCC’s Section 706 report issued Tuesday (CD Aug 22 p1) and this order. “In the 706 Report, the FCC refused to accept less than a 4/1 Mbps broadband standard in even the most rural areas for consumers and decried the low consumer broadband-adoption rate,” she said by email. “Yet the key assumption of the Special Access Order is that it is acceptable for America’s largest enterprises to rely heavily and in perpetuity on 1.5 Mbps connections. ... The FCC can’t have it both ways. If it is serious about broadband deployment and adoption -- as I am sure it is -- it should be appalled that our leading corporations are making 1.5 Mbps connections the building blocks of their services. Broadband adoption can’t just be about senior citizens on fixed incomes. It has to start by bringing our oil companies, banks, auto manufacturers, insurance companies, and the rest of corporate America into the multi-megabit age."

Free State Foundation President Randolph May, said the FCC Democrats have “given lie to the claim that the FCC is a ‘data-driven’ agency,” first by ignoring existing data about the reasonable and timely deployment of broadband in its Section 706 report, and now by suspending pricing flexibility rules without sufficient data. Fred Campbell, director of the Communications Liberty and Innovation Project, said the order “would flunk an introductory college course in logic” (http://xrl.us/bnmxec).

Purchasers of special access services commended the commission. The Ad Hoc Telecommunications Users Committee, a group of high-volume corporate customers, said the decision was proper given “massive factual record assembled to date in its special access docket” showing that the current pricing flexibility rules block regulatory relief in competitive areas while removing regulatory protections in areas with little competition. President Larissa Herda of tw telecom said it has been clear for years that the pricing flexibility rules did not accurately measure the extent to which ILECs control “critical last mile facilities."

CompTel called the order an “important step in developing pro-competitive policies for the broadband market.” The Rural Cellular Association called the suspension of the pricing flexibility rules “long overdue.” The Broadband Coalition said the suspension “is an important acknowledgement” that the current rules are broken, and “a good first step” to real special access reform.

Free Press Policy Director Matt Wood also commended the decision to suspend the “flawed” tests. “For too long, special access has been little more than a special advantage for AT&T and Verizon, and they've used it to choke off competition and keep prices high. This FCC order is a welcome step towards reevaluating the system and preventing the worst abuses by dominant incumbent providers,” he said. Public Knowledge said the agency has “done right by consumers,” who bear the cost of unreasonably high special access rates for competitive carriers.