FCC Critics Expect ILECs to Hike BDS Prices; Telcos See Market Pressure, Fiber Incentive
Critics of the FCC business data service order expect large telcos to raise prices for telecom rivals and business customers under new deregulation they're due to gain in a couple months. But incumbent telco representatives said that the order recognizes BDS competition is increasingly exerting market pressure and that removing price caps provides industry incentives to deploy cutting-edge fiber networks, including for 5G backhaul. FCC officials said they expect growing BDS competition, including from cable, and noted the Federal Register was scheduled to publish the order Friday, triggering its effective date in 60 days. They spoke at an FCBA panel Wednesday.
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The order expands deregulation for telco BDS offerings still under price caps and relies on existing and potential competition to discipline the incumbents (see 1704200020). The FCC found price regulation inappropriate for packet-based services, and it used a competitive market test to determine counties where additional ILEC legacy TDM-based special-access services can be deregulated and detariffed.
Windstream is "severely disappointed" and expects big telcos to leverage "market power" to raise wholesale and retail prices, leading to fewer competitive choices for smaller and multi-office customers and more consolidation, said Eric Einhorn, senior vice president. He said the FCC "fumbled" the analysis by relying on "debatable" evidence of high-speed competition to deregulate lower-speed ILEC DS1s and DS3s used to serve smaller customers in areas where he said competitors often have no business case for deploying fiber. Windstream and Sprint recently filed a "protective petition" challenging the order in court to address uncertainty about the filing window. The FCC moved to dismiss the petition and said a 60-day filing period would begin upon FR publication. Windstream and Sprint wouldn't oppose the motion based on that understanding.
BT considers the order "deeply disappointing" and also expects price increases, said Sheba Chacko, chief regulatory counsel in the Americas. She said there remains "huge reliance" on the legacy TDM circuits, which still have "a lot of useful life left" for many customers. Combined with the FCC's proposed rollback of net neutrality and copper-to-fiber transition safeguards, BDS relief is a "problematic recipe" for competition and consumers, she said.
Public Knowledge is concerned price increases will be passed along to consumers, said Senior Policy Counsel Phillip Berenbroick. He's "mystified" by the broad deregulation, since more than 70 percent of business locations had only one facilities-based provider and another 20 percent had only two. The FCC effectively said "monopoly is good enough and duopoly is great," he said.
ILEC officials said BDS competition from ILEC rivals justified "light touch" regulation that will encourage industry parties to deploy more fiber. AT&T Vice President Frank Simone said the FCC recognized the "declining role" of traditional TDM services as customers demand higher bandwidth and greater backhaul is needed for 5G wireless network "densification." TDM doesn't "scale" well, requiring new circuits and "line bonding" to increase capacity, he said, citing AT&T as "leading" the telecom move to cloud-based, fiber and software-defined networks. USTelecom Vice President Diane Griffin Holland acknowledged legacy circuits serve some customers, but the DS1s and DS3s are becoming increasingly "obsolete" as the market, "by and large," moves to higher-speed services.
Simone noted only 59 percent of counties were deemed competitive and subject to deregulation. Einhorn said those counties had 90 percent of BDS locations. He said the six-month freeze on newly deregulated BDS was "no transition" because it applied only as long as service is tariffed, and ILECs could begin detariffing in competitive counties once the order takes effect (see 1705010019).
Simone said the "global detariffing" envisioned by the FCC is "not a small undertaking." Asked if AT&T wanted to detariff, he said the telco would study the situation and "pick the time and place" to act over a three-year "permissive detariffing" window before mandatory detariffing. He declined to comment on possible rate increases, but disputed that monopoly ILEC service was being deregulated. Even where business customers or other BDS locations don't have a facilities-based competitor, there often is fiber "close by," which the FCC said exerted competitive discipline on incumbents.
Eric Ralph, Wireline Bureau chief economist, said the FCC took a "long term" view of competition and regulatory costs. He said parties with broad market presence -- such as cable companies -- have the ability to upgrade and expand their networks over the next 3-5 years. The FCC will update its competitive market test in three years, based on industry Form 477 submissions, he said. Holland said fixed wireless and satellite broadband could also add competition. Berenbroick said the FCC is "making a bet" on potential competition, basically "deregulating on a wing and a prayer."