The FCC is seeking to extend “special access” regulations formerly applicable only to legacy copper-based services to new fiber-based services in geographic locations the agency deems to be uncompetitive. The author suggests that the data the FCC is using to support its proposed regulations is “deeply flawed and badly outdated” and urges Congress to take a close look at the proposed regulations and to tell the FCC not to act on stale data.
The Federal Communications Commission (FCC) is in the midst of a continuous proceeding to develop new rules for the nation’s $45 billion “business data services” market. These are the broadband links and services provided to business customers of all sizes across the country.
Why is it controversial?
Existing FCC regulations effectively necessitate that telephone companies maintain two networks—one that is modern and fiber-based offering fast Ethernet services and the old one based on copper technology. New fiber networks are currently unregulated, while the FCC mandates that competitive local exchange carriers (CLECs) be given access to incumbent telephone company copper links at deeply discounted rates.
The FCC now seeks not only to keep existing regulations on the old copper-based services, but also extend government-mandated access and price regulation to new fiber-based services in geographic locations the agency deems to be uncompetitive.
The FCC’s plan, however, relies on deeply flawed and badly outdated data used to determine whether markets are competitive.
The market has transformed dramatically as cable companies now offer competitive business data services. Their reliable high speed cable/video systems now pass a huge number of the nation’s businesses, and entry into this market makes obvious sense for them as they face increasing competition for their traditional video services.
But for the FCC, this evidence of real competition is not enough. Specifically, the FCC notes, with a tsk-tsk sound, that cable isn’t a meaningful competitor. The agency claims that cable offers an unreliable “best efforts” service rather than the continuous fast speeds businesses require.
This response makes the agency appear seriously out of step with marketplace realities. The FCC used 2013 data to launch its 2016 rulemaking, and used these same data for an FCC investigation in 2015. Apparently the agency fails to realize that the business data services market is transforming at Internet speed, and that stale 2013 data is simply irrelevant to determining market conditions in 2016.
Fortunately, cable has made clear that it can provide more than “best efforts” service. Today’s cable companies can offer Ethernet capability delivered over hybrid fiber networks to virtually all locations of significant business demand. This revised and compelling data further undermines the FCC’s recent argument for price regulation based on a presumed lack of business data service competition.
For example, Charter notes that per FCC guidance, it originally “excluded locations that were connected only via best-efforts Internet lines” from its list of locations it can serve with business data services, and it has now refiled with a list of all locations connected to a Metro-Ethernet-capable headend. Time-Warner affirmed that “all of TWC’s headends throughout its entire service footprint were Metro-Ethernet-capable by 2013.”
For his part, Comcast’s David Cohen states that Comcast “has invested over $5 billion since 2010 to enter the business services market as a new competitor offering highly innovative products that appeal to business customers of all sizes.”
Cohen also remarks with even greater force that despite FCC Chairman Tom Wheeler’s earlier pledge not to impose rate regulation and to give network operators the opportunity (in Wheeler’s words) to “provide returns necessary to construct competitive networks,” now “a divided FCC is proposing a regulatory regime which penalizes non-dominant, competitive providers with prescriptive rate regulation.” Rigorous regulation of the new Ethernet investments would directly translate into less investment and would diminish cable’s presence in the market.
Reliance by the FCC on today’s data would show the enormous amount of new competition that recent cable entry into the market has created.
And it’s hard to escape the reality that this type of innovation we see from cable happens best—really, happens only—when markets are free to work without the hand of government on the scale.
Competition works, and this market is competitive. It’s time for Congress to take a close look at the proposed business data services regulations and tell the FCC not to act on stale data. When Members go home this summer, they might even discover that competitive cable can now offer their district offices another choice on data services.
Originally published at Bloomberg BNA