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AT&T, Verizon Divided on Reform of $40 Billion Special Access Market

Regulation

Josh LongOver the years, AT&T and Verizon have taken similar stances on various issues before the Federal Communications Commission.

In 2015, for instance, the two phone companies, whose roots date back to the Bell monopoly, blasted the FCC’s Net neutrality regulations, which a federal appeals court recently upheld.

But in the heated debate over regulations governing the market for special access or business data services, AT&T and Verizon appear to be a world apart.

While special access – a wholesale data service – is not an electrifying offering, the stakes are high for the U.S. telecom industry. According to the FCC, the special-access market generates annual revenues of around $40 billion.{ad}

How the FCC views competition in the market will influence the prices that incumbents like AT&T, CenturyLink and Verizon can charge wholesale customers for business data services.

“The FCC is looking at whether its current special access regulations for the larger traditional phone companies – the ‘price cap’ incumbent local exchange carriers (ILECs) – should be updated to ensure that the regulations reflect the state of competition today,” the agency has stated on a webpage describing the proceeding.

Verizon is an incumbent itself, having been formed in 2000 through the merger of Bell Atlantic Corp. and GTE Corp. Even so, the New York-based company has teamed up with the trade group INCOMPAS to propose reforms to the special access market. The partnership is aimed at striking a middle ground that the FCC can rally behind.

INCOMPAS, formerly known as COMPTEL, represents competitive network providers or so-called CLECs (competitive local exchange carriers). For two decades, the CLECs have hustled to steal business customers from the likes of AT&T and Verizon, whose local networks are often the subject of regulatory battles — special access being no exception.

According to the CLECs, incumbent phone carriers wield immense power in the special access market, requiring the FCC to step in with reforms to regulate the market including Ethernet services and pave the way for increased competition.

In an Aug. 9 letter to the FCC, INCOMPAS and Verizon laid out further proposals for the agency’s consideration.

“We think these proposals continue to reflect a middle ground and would result in an administratively simple framework that can help …

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… guide the Commission towards pro-competitive reform,” the joint letter declared.

Chip Pickering, CEO of INCOMPAS and a former six-term congressman from Mississippi, described his organization’s agreement with Verizon as “historic and rare.”

“It not only unites a leading incumbent provider and the competitive community, it has garnered support from consumer groups and nearly every corner of the wired, wireless and international broadband economy,” he declared Tuesday.

AT&T, on the other hand, has said such proposals aren’t any more credible simply because Verizon and INCOMPAS have teamed up to reach a purported compromise.

Competition in the market for business data services, an AT&T executive wrote this week, is “thriving.”

“Even as of 2013, competitors had deployed competing facilities in more than 95 percent of MSA [metropolitan statistical area] census blocks with BDS demand, and those blocks contain 97 percent of all BDS connections and 99 percent of business establishments,” said Caroline Van Wie, AT&T Assistant Vice President of Federal Regulatory, in a blog.

Competition is even more prevalent today thanks to offerings by cable operators, according to AT&T.

“The FCC cannot ignore the weight of the evidence and impose an unjustified and burdensome BDS regulatory regime, even a so-called ‘compromise’ solution proposed by other BDS stakeholders, where the facts (and data) do not lead to the conclusion it expected to find,” Van Wie declared. “Instead, it must make a clear-eyed evaluation of the BDS marketplace with all the facts in hand.”

She said the FCC can only reach one conclusion, that “the BDS market overall, and particularly for Ethernet services, is working and working well.”

Meanwhile, the Competitive Carriers Association on Tuesday filed a new study with the FCC that it said shows the detrimental effects of the special access market on competition and innovation in the wireless industry. Raul Katz of Telecom Advisory Services, LLC prepared the study, with a particular focus on rural carriers.

“Dr. Katz demonstrates that the current BDS marketplace dynamics, if allowed to persist, could accentuate the digital divide, leaving rural America behind,” said Steven Berry, president and CEO of the trade group.

The FCC this spring proposed a new “technology-neutral framework” to regulate the market for business data services. Under its proposed framework, the FCC would classify a market as either competitive, in which service providers would be subject to little oversight, or non-competitive. In a non-competitive market, providers would be subject to “one set of tailored rules” that would include “the use of price regulation and the prohibition of certain tying arrangement that harm competition,” according to the FCC’s further notice of proposed rulemaking.

In an April 28 press release, the FCC said data it collected “shows that competition in this essential market is uneven, and that the FCC’s existing rules have failed to identify markets where competition is lacking, even as they have failed to identify competitive markets.”


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