Competify Asks FCC To Limit Bell Special-Access Rates, 'Lock-up' Practices

Wireless companies are paying “monopoly rents” for Bell connections to cell towers, Sprint Vice President Charles McKee said: “It’s difficult to compete when you’re subsidizing your competitors.” Comptel General Counsel Angie Kronenberg said competitors and businesses are “being held hostage” by Bell lock-up provisions that make it more difficult and expensive to switch to cheaper alternatives that do sometimes emerge. “They’re locking up competition,” agreed Level 3 Associate General Counsel Nick Alexander. Kronenberg said she believes the FCC will soon seek more information on such contracts. A commission spokesman had no comment.

Bell and ILEC representatives disputed the Competify arguments. "This coalition is made up of the same players (Level 3, Sprint, XO, BT, etc.) and the same 20 year old message that they can’t possibly invest in their own infrastructure and need regulated access to their competitors' networks in order to stay in business,” emailed AT&T Senior Vice President Bob Quinn. “Places, like the EU, that have established policies like those advocated here, are now trying to dig themselves out of the investment ditch that inevitably occurs when you remove incentives to build infrastructure. Rather than holding press conferences, we are doing what these companies say they cannot do: investing in broadband infrastructure to provide innovative services to America’s consumers and businesses."

Verizon said the FCC should reject calls to "act prematurely" on special access before it digests the industry data and more recent marketplace developments. “The Commission cannot jump the gun,” said a Verizon filing in docket 05-25. Comments on the data are due Nov. 20, replies Dec. 11. USTelecom Senior Vice President Jon Banks told us volume and term contracts aren’t anti-competitive but a common market mechanism. “Bigger discounts go with bigger commitments, for longer terms,” he told us. “Having the FCC intervene on these details seems awfully intrusive, given what’s going on in the market.” CLECs are growing their market share and cable competition is “exploding,” he said.

McKee said Sprint spent $12 billion over the past two years on broadband deployment. Alexander said Level 3 spends $1 billion annually in capital expenditures. Kronenberg said Comptel members spent billions on their networks, with XO last year announcing a $500 million investment. Despite all that, the competitors say they still need access in many areas to Bell legacy DS1 and DS3 special-access connections to serve business customers and transport traffic, including for wireless backhaul. The Bells had a “100-year head start” under a “government-sanctioned monopoly,” they said.

FCC decisions starting in 1999 deregulated many Bell special-services, Competify members said. Bell rates in areas with pricing flexibility are 25 percent higher than they are where they're still subject to price caps, and it takes too long to get service installed or repaired, said Colleen Boothby, counsel to the Ad Hoc Telecommunications Users Committee. “Without the spur of competition, prices are too high and the quality of service suffers," she said. High special-access rates are like “monopoly taxes” on broadband that “lurk” in consumer bills, said Public Knowledge Vice President Chris Lewis. “Just because we can’t see them doesn’t mean we’re not paying for them,” he said. Schools and libraries are also paying for the higher rates, said Schools, Health & Libraries Broadband Coalition Executive Director John Windhausen.

Lock-up contracts have exacerbated the problems, Competify members said. Alexander said Level 3 pays $103 million a year to one incumbent for DS1 connections that would cost only $86 million if it could switch to competitors. But he said Level 3 can’t pursue new alternatives to lower its wholesale costs when it’s locked into contracts. The Bells require competitors and business customers to make large-volume and long-term commitments -- backed by penalties for noncompliance -- to obtain discounts to make service economical, coalition members said. Willkie Farr attorney Thomas Jones said CenturyLink has one plan requiring customers to commit 95 percent of their total special-access expenditures in its former Qwest territory to receive a 22 percent discount.

CenturyLink said it was “extremely disappointed that these CLECs continue to beat the drum about a decades-old plan that was developed at the request of our special access customers as a way to provide them with discounts and the flexibility they need when their end-user customers changed. None of the companies involved in Competify subscribe[s] to this plan. CenturyLink provides a wide range of special access pricing plans in a highly competitive market, even in many instances where we have limited pricing flexibility.”

Kronenberg said she hopes the FCC will “act expeditiously” on the lock-up contracts by preventing the Bells from requiring parties to make such large-volume commitments and by allowing competitors to count their “IP buys” in their total purchases. McKee also suggested “fresh look” requirements to allow competitors to pursue alternatives. Kronenberg said she expects the FCC to act on its broader review within nine months.

Quinn said AT&T faces “ever increasing competition” from cable and other companies like Google building their own networks. "If policymakers truly want more broadband infrastructure and more fiber investment, they would be wise to maintain policies that actually incent investment rather than set the Wayback Machine for 1995," he said.

Banks said the industry data the FCC is reviewing is just from one year, 2013, and is becoming stale, given the cable gains in particular. “That’s troubling,” he said. “If they do something in 2016, the data will be three years old at that point.” McKee called the USTelecom arguments “absurd” because the “basic infrastructure” dynamics haven’t changed.