CIO Briefing

FCC suspends deregulation of special access telecom markets

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The Federal Communications Commission issued an order Wednesday night that suspends the rules under which telecommunications companies can request the deregulation of special access markets, on a 3-2 vote that followed party lines.

Special access refers to the high speed broadband connections that link commercial users like office buildings to main telecommunications lines. Dominant providers typically lease access to rivals who want to provide special access service without shouldering the costs of duplicating broadband infrastructure. The FCC estimates that the market for special access services is between $12 billion and $18 billion a year.

The long-running policy battle over this obscure but lucrative and ubiquitous telecommunications service is complicated in its details, but in broad strokes, it pits the interests of dominant, legacy providers and their Republican allies against a group of smaller telecommunications services, backed by Democrats in Congress, that want regulatory relief from what they see as predatory pricing.

The prices that dominant carriers could charge were capped under old rules, but a 1999 change provided a path for the deregulation of special access markets under certain conditions. However, the criteria adopted by the FCC to determine whether a special access market was competitive became the subject of an ongoing dispute between smaller providers, called competitive local exchange carriers or CLECs in the language of the industry, and the incumbent local exchange carriers or ILECs.

The FCC plans to put out a call for information from participants in special access markets in order to redraw the set of conditions under which these markets can be deregulated. This order is expected to come in 60 days and will be mandatory. Previous requests for data from market participants were not mandatory, and dominant providers held that their competitors were withholding information from regulators in order to secure favorable pricing.

Wednesday's decision was long anticipated. Back in June, the FCC granted requests from AT&T and Windstream to deregulate special access pricing in the San Francisco and San Antonio markets, but it was clear then that this would be the final time deregulation requests would be considered under the current regime.

The political implications of the decision are not evident in the dry language of the ruling, which hinges on issues such as whether the use of "metropolitan statistical areas" as defined by the Office of Management and Budget provide an adequate picture of business density for the purposes of regulating special access services.

At issue is whether the FCC acted precipitously in suspending rules before its mandatory data collection, and more importantly, whether the FCC plans to extend its rules about copper-based networks to the growing market for fiber.

FCC Chairman Julius Genachowski dismissed these worries, writing, "In their many pages, the dissenters have no answer to the harm their approach would cause consumers and businesses of all sizes that depend on competitively provided communications services"

Republican Commissioner Ajit Pai spells out his concerns in a lengthy dissent. He writes that the order, "lays the predicate for the Commission to re-regulate fiber." While the special access order applies to copper-based networks, Pai and many in industry make the case that the copper wire infrastructure are legacy networks, and that forward-looking providers looking to build the fiber optic IP networks of the future will be disinclined to do so as long as the possibility of such regulation looms. Pai writes, "At a time when the private sector needs regulatory certainty and incentives to invest tens of billions of dollars in broadband infrastructure, the Commission takes action today that will have precisely the opposite effect."

AT&T's Bob Quinn echoed these sentiments saying, "If the goal is to encourage new fiber investment and more broadband to transition to an all-IP world, the Commission must establish the conditions necessary to create incentives for all carriers to continue to invest in new IP technology, not further regulate yesterday's technology." Verizon's policy shop put out a similar statement.

Fred Upton, R-Mich., Chairman of the House Energy and Commerce Committee, and Greg Walden, R-Ore., who heads the Communications and Technology Subcommittee issued a statement critical of the move because it suspended the deregulation regime without first collecting and analyzing market data. "The FCC has a responsibility as an expert agency to justify its actions with data before intervening in the status quo. Chairman Genachowski has said that the House-approved FCC Process Reform Act is unwarranted. Actions such as these provide further evidence to the contrary."

Senior Democrats on the House Commerce Committee, including Henry Waxman, D-Calif., Anna Eshoo, D-Calif., Ed Markey, D-Mass., and Doris Matsui, D-Calif, put out statements praising the order. Markey said, "The outdated rules currently governing the special access market need to be reformed so the businesses, competitive carriers, wireless service providers and others who rely on it can take full advantage of robust and competitive broadband services," Markey said.

The competitive telephone and cable companies that provide special access services over leased lines cheered the move as well. Maura Corbett, Executive Director of the NoChokePoints Coalition, which represents Sprint, U.S. Cellular, as well as several consumer watchdog groups in the long-running fight over special access said the decision, "will at least prevent these continually rising, now exorbitant prices, from rising even further while the Commission evaluates this market failure."

Even with the suspension of the current rules, it could be many years before a new regulatory framework based on market data is in place. It's this possibility that haunts the dissent of Republican Commissioner Robert McDowell. "This order purports to be an 'interim' change, but as is often the case with 'interim' FCC orders, the Commission neglects to reveal how long this 'interim' period will last," he writes. "Literally, no end is in sight."

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// April 16