Trade association INCOMPAS, which represents competitive local exchange carriers (CLECs), and Verizon have been working together to “negotiate” a deal with the Federal Communications Commission. Although the terms may make perfect sense for them, they’re bad for the actual deployment and adoption of broadband infrastructure and, namely, the future of business data services (BDS).
Some are currently trying to sell this as a “compromise” plan — it’s not; a compromise typically requires there to be opposite sides at the table. Verizon is in the midst of transformation where it has sold off much of its wired telephone footprint across the nation in recent years and, as a result, now finds itself more and more a buyer of BDS in much of the country.
Good for Verizon if it thinks that this transformation benefits its company and shareholders, and quite logical for the company to lobby regulators on its new position. The FCC, however, retains the duty to investigate what’s really at stake in the purported “compromise” and to spot and call a shell game when they see one. Unsurprisingly, it all comes down to price and profit.
The “compromise” proposal favors Verizon and INCOMPAS members while undermining everyone else in two clear ways. First and foremost, Verizon is increasingly looking to lease investments made by others, rather than invest in wired infrastructure itself. As a buyer rather than a seller, they now favor government price controls.
But, in addition, the “compromise” proposes that, for incumbents (which Verizon remains in some markets), the rate for the 1.54 megabit DS1 service that it offers would be used as the price benchmark for the slowest Ethernet it provides, whatever speed that may be, and the benchmark prices would rise from there.
This is all terribly convenient for the incumbent parts of Verizon that, unlike other incumbents, have maintained high DS1 prices in recent years. Thus, under the compromise plan, Verizon’s existing high DS1 rates (starting at $460) would translate into a higher pricing ceiling for Ethernet services compared to other incumbents in the market.
Companies that still invest in wired infrastructure but charge significantly lower DS-1 prices than Verizon appear to be the compromise plan’s clear target. Along with lower average DS1 rates, AT&T, for example, offers businesses an Ethernet pricing schedule that charges more for faster speeds but that encourages its customers to move up the speed chart quickly, providing greater benefits for the BDS institutional customers, which can benefit from faster speeds.
In this politically-charged year, some might be tempted to view the BDS debate as a mere battle between two indistinguishable big corporations… the Hatfields vs. the McCoys of the NYSE. Don’t.
INCOMPAS is now threatening competition from all providers, as well as the very idea of competition itself in these markets. If the Verizon/INCOMPAS proposal is adopted, it would punish the companies that have maintained lower rates in response to significant competition and new entry, not least from cable, as well as those offering pricing schedules designed to encourage Ethernet adoption.
Can it really be that the FCC wants to reward robust competition by penalizing those who have invested and competed, including on price, rather than those getting out of the business of investing in more robust wireline exchanges?
I thought the FCC was concerned about market power in DS1, DS3, and Ethernet markets. I thought the Commission wanted competition. I thought the Commission wanted the quickest possible deployment of faster Ethernet BDS.
If those assumptions are correct, the commission has only one rational choice: to reject this self-serving “compromise” and to adopt a policy that promotes investment and strengthens true competition.
But if the Commission adopts the proposed “compromise,” Verizon gets an unfair, government-dictated rate advantage while AT&T and others are forced into rate structures that discourage investment in fiber facilities and the rapid migration to Ethernet services. That’s called picking winners. It’s not government’s role, and it would work inimically to the very policy goals the FCC is required to promote.
Originally published at Investor’s Business Daily