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Telecom Carriers Worlds Apart on Competition in Special Access Market

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Josh LongCompetition in the $40 billion special access market has “steadily grown” since CLECs (competitive local exchange carriers) began entering the market in the mid-1980s, according to the United States Telecom Association (USTelecom).

In a regulatory filing this week, USTelecom indicated the “breadth and depth” of investments over the years shows the Federal Communications Commission should continue to loosen its regulations.

The FCC has collected an unprecedented amount of data in a years-long “special access” proceeding that could affect the prices paid by American businesses for telecommunications services.

Washington, D.C.-based USTelecom, which represents incumbent phone companies that have roots dating back generations, has a starkly different perspective than younger telecom carriers on what the data actually shows and how regulators under FCC Chairman Tom Wheeler should treat the dedicated DS1 and DS3 circuits that connect to many buildings throughout the United States.

Incumbents have argued competition in the special-access market is plentiful and deregulation is warranted in order to incentivize investments in new networks. But in a regulatory filing this week, Level 3 Communications and other competitive carriers proclaimed incumbents such as AT&T still wield extraordinary market power and engage in behavior that harms American businesses.{ad}

The FCC must decide for itself what the data actually shows and how it should regulate or deregulate the local loops that CLECs often lease from the likes of AT&T, CenturyLink and Verizon in order to reach businesses.

The 2013 market data that was collected by the FCC “will show that competitive providers have their own facilities deployed throughout the country and can serve the vast majority of the nation’s business customers,” declared USTelecom in the FCC filing.

What’s more, the 2013 data doesn’t fully reflect the state of competition, according to the trade association. The filing noted cable business service units have invested an estimated $6 billion in capital over the last two years, while competitive fiber carriers have spent an estimated $9 billion.

“The breadth and depth of CLEC and cable investment in business services over the years, and especially since the 2013 data collected by the Commission, demonstrates that the Commission’s longstanding approach of replacing regulatory restraints with competition makes sense and should be continued and expanded,” USTelecom declared. “Commission policies on business broadband should be focused on ensuring that all providers are incented to invest in the modern fiber and IP networks that businesses need.”

CLECs maintained the record shows something drastically different than the one portrayed by USTelecom.

The incumbents “possess substantial and persisting market power in the provision of dedicated services throughout the United States, and they are abusing that market power by setting their rates above competitive levels and by stifling competitive where it might develop,” declared an FCC filing on behalf of Birch Communications, BT Americas, EarthLink and Level 3.

The companies urged the FCC to …

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… analyze the special-access market in reliance on a traditional test that has been routinely used by antitrust agencies. An analysis conducted by a former FCC chief economist, Jonathan Baker, “confirms that the incumbent LECS possess market power in the provision of dedicated services,” the filing said.  

The incumbents’ networks reach nearly every commercial building in their territories, while competitors are connected to just a small portion of buildings, the CLECs said. According to Windstream Communications, Level 3 and XO Communications serve 30,000 and 4,000 commercial buildings, respectively, but that is just a fraction of the estimated 3.5 million business locations nationwide that house more than one business, the FCC noted in an order last year.

“But even where competitive carriers can compete in theory they are often prevented from doing so in practice, because incumbent LECs have used high shortfall and termination penalties in exclusionary tariff plans, contract tariffs and non-tariffed commercial agreements … for special access to increase the costs associated with switching from the incumbent LEC to competitive carriers,” the CLECs’ filing declared.

The FCC is looking into whether such terms are unreasonable as part of an investigation that was launched last year.

The wireless industry also is deeply interested in the FCC’s special access proceeding. Broadband deployments depend on the dedicated services or so-called backhaul that bring cellphone and broadband traffic from handsets to cellular towers via wireline networks, said Charles McKee, Sprint’s vice president of government affairs, during a recent conference call with the media. Backhaul costs represent approximately one-third of the operating costs of bay stations, he explained.

McKee argued the data shows the incumbents still control the market for special-access services.

“The lack of competition in the provision of these bottleneck facilities is acting as a drag on the transition to an all-IP network and deployment of mobile networks,” he said Wednesday in a statement. “As mobile carriers prepare to deploy the next generation of 5G services, densification of wireless networks will substantially increase the need for dedicated backhaul. An economic analysis of the FCC’s data makes clear once and for all that the FCC must act promptly to reform the rules governing the pricing and provision of these facilities, and to foster the development of genuine competition in the special-access market.”

But AT&T recently noted the special-access hubbub largely concerns slow and “antiquated” technologies. Data gathered by the FCC shows the agency made the right decision when it deregulated the market in 1999, according to AT&T’s Bob Quinn, who noted in a blog that facilities-based competitors are serving 95% of all MSA census blocks.

Quinn also said the data demonstrates “that we’ve likely wasted years at the behest of some interests who are looking for a price break on their use of antique technology even if the facts don’t support them.”


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