ILECs 'Aghast' at FCC Draft Price Regulation of Legacy BDS Transport Services
Incumbent telcos are objecting to FCC draft reregulation of their legacy DS1 and DS3 business data services that would be more extensive than they originally believed. A draft order would subject all TDM-based telco BDS with data speeds below 50 Mbps to price caps and cuts, including dedicated inter-office "transport" services between network hubs, industry and FCC officials told us. "We never thought transport was at issue. ... We're all aghast at this," USTelecom Senior Vice President Jonathan Banks told us Tuesday. A commission official told us the proposed BDS legacy rate re-regulation would cover transport and not just loop-like "channel terminations" to end users in office buildings (and to cell towers). Commissioners plan to vote on a BDS order and Further NPRM Nov. 17 (see 1610270054).
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CLECs and Sprint continue to press the agency to subject packet-based BDS below 50 Mbps to price caps or other regulation. The BDS market "at and below 50 Mbps is noncompetitive and reform is needed regardless of the technology," said an Incompas filing posted Tuesday in docket 16-143 on a meeting with an aide to Commissioner Mignon Clyburn. "We urged the Commission to adopt a reform mechanism for packet-based services -- in addition to TDM reform -- to ensure the rates are just and reasonable, especially for BDS at 50 Mbps and below." Chairman Tom Wheeler last month circulated draft proposals, summarized in a "fact sheet," to bifurcate BDS by regulating legacy services below 50 Mbps more heavily than all Ethernet and other packet-based services (see 1610070052).
Banks said ILECs were surprised to learn recently the draft order to reregulate their DS1 and DS3 rates would cover inter-office transport services -- such as to Internet points of presence -- given what he said had been the commission's previous thrust. He noted that a spring NPRM had relied heavily on analysis by FCC consultant Marc Rysman, who wrote: "I focus only on the market for circuits provided to customers (sometimes called the channel termination market), although the transport market may also be interesting to study." Banks said broader reregulation of legacy rates would be a "big deal" because up to two-thirds of price-cap telco wire centers had been granted "Phase II" pricing flexibility for transport, compared with only about one-third of wire centers receiving channel-termination relief. "It would be a massive amount of unrelief ... ginormous," he said. An FCC spokesman had no comment.
CenturyLink said there was so much transport competition that less than half of the circuits carrying traffic outside incumbent wire centers are provided by ILECs. "Even if there were a basis for subjecting channel terminations to the regulation contemplated by the Fact Sheet, there would be no rationale for subjecting the vibrantly competitive transport sector to such mandates," said a CenturyLink filing posted Monday. "Even the most enthusiastic proponents of BDS regulation have recognized the folly of arguing that there is a lack of transport competition." AT&T made similar arguments. "The proposal would result in the sudden re-imposition of price caps on dedicated transport services in the dense business districts of the largest cities in the country, like Chicago and New York, where the data collection shows that typically more than twenty CLECs have deployed their own facilities-based interoffice transport networks," said an AT&T filing posted recently. "There is no conceivable economic or public policy basis" for such regulation, it said.
But Sprint said the commission should "reject the eleventh-hour request of some ILECs to carve-out critical transport service elements from its reform proposal," in a company filing posted Tuesday on discussions with aides to Commissioner Jessica Rosenworcel and Clyburn. Incompas emailed us: "The Commission must reject the unsubstantiated claims of the incumbents regarding transport services. Evidence demonstrates lack of competition for this service which is critical for accessing the last mile to the customer."
Sprint urged the FCC to adopt price caps for all ILEC BDS below 50 Mbps because "all but a tiny percentage of locations are inadequately competitive"; in those few areas that are competitive, incumbents could seek a waiver, its filing said. The company also proposed to compress the draft's three-year 11 percent price cut for TDM service into two years, and it said the FNPRM "should reflect the lack of competition for Ethernet services in the majority of the country, even for higher-capacity services."
Incompas said that if the FCC doesn't subject any packetized services to price caps, it "should strengthen and provide more pricing guidance for the complaint process." It said that without such price reform, the regulator must maintain tech-transition protections "to ensure that reasonably comparable service remains available at reasonable comparable prices" when an ILEC moves to IP-based service. Windstream (here and here) said wholesale BDS should be priced lower than retail service, and urged the FCC to prevent ILEC discrimination that charges more for wholesale last-mile connectivity. Public-interest groups also supported BDS regulatory actions.
USTelecom opposed mandatory BDS wholesale discounts. Competitors already had gained 51 percent of the BDS market in 2013, said a USTelecom filing, citing a revenue figure from Rysman's paper. Verizon said the FCC shouldn't mandate wholesale Ethernet discounts and should apply one-time rate cuts "uniformly to all price-cap ILECs," in a filing on a meeting with a Clyburn aide. ITTA and Frontier Communications (here and here) urged the agency to make rate adjustments for mid-size ILECs.