U.S. corporations heavily rely on dedicated private lines to run their businesses in the same way American consumers have come to depend on high-speed broadband at home.
Sixteen years after major reform in federal telecommunications law, some of these mammoth companies still gripe they have few options when selecting a carrier for their high-speed circuits to connect their offices and other locations.
A fundamental question U.S. regulators in Washington, D.C. face is whether to reverse a course of deregulation in the “special access” market.
The issues have been lingering at the Federal Communications Commission for years and some powerful people on the left are getting antsy.
“We understand that the Commission is planning another round of data requests in the special access rulemaking. We urge you to analyze this data expeditiously and act decisively to reduce rates and reform anticompetitive contracts,” five Democrats in the U.S. House wrote this week in a letter to FCC Chairman Julius Genachowski.
Don’t count on a quick resolution. As Rep. Edward Markey of Massachusetts and other lawmakers who signed the letter pointed out, the FCC has been considering special access for more than seven years.
It started in January 2005 when the FCC opened a rulemaking proceeding that asked whether the agency should maintain or modify its “pricing flexibility rules for special access services.” Years earlier, the agency had established criteria that allowed incumbent carriers like Verizon Communications to provide special access services using more flexible tariffs that gave them leeway to raise their prices. The incumbents had to demonstrate competitors made investments in certain facilities in order to gain such rights.
The pricing flexibility rules weren’t popular with everyone, and AT&T Corp. a decade ago — then a long-distance carrier following the 1984 divestiture of Old Ma Bell — asked the FCC to revoke them over a multitude of concerns. AT&T claimed the rules failed to predict competition and that the Baby Bell phone companies existing at the time (such as SBC Communications and Verizon) were reaping monstrous revenues and returns on special access services. AT&T also complained the BOCs (Bell Operating Companies) had either kept rates the same or raised them in all the metropolitan areas where they were granted pricing flexibility.
AT&T was so peeved it took its case to a federal appeals court in Washington, D.C. to force the FCC to rule on its request.
Then, the FCC opened its “notice of proposed rulemaking” on special access and the U.S. communications market changed dramatically that same year.
SBC bought AT&T in 2005, then Verizon swallowed MCI, the once high-flying company previously known as WorldCom and run by its disgraced chief Bernie Ebbers who is now serving time in prison for one of the biggest accounting frauds in history.
Over the ensuing years, the FCC has issued a few other public notices on special access, though the proceeding continues to linger in what reflects the slow-moving beast of government.
Frustrated by the lack of progress, several organizations last summer including COMPTEL sought a “writ of mandamus” with the U.S. Court of Appeals for the District of Columbia Circuit, requiring the FCC to conclude its rulemaking within six months.
“When faced with a similar mandamus petition over a half-decade ago, the FCC readily conceded that its pricing regime for special access required prompt agency attention,” wrote the organizations in the July 15, 2011 filing. “Yet, despite acknowledging that special access warrants extraordinary treatment, the FCC has refused to address the issue for nearly a decade.”
The petition was withdrawn and the FCC is currently gathering data that companies have volunteered to help regulators assess the state of competition in the special access market. There are currently about 200 metropolitan service areas with pricing flexibility, according to the agency.
A lingering question that regulators are trying to answer is just how competitive the special access market is today. The FCC, for instance, does not have current figures on incumbents’ market share and the agency is expected to ask for even more data in the coming months.
Colleen Boothby, a former FCC official and telecom lawyer who represents Fortune 500 companies, anticipates that the agency will issue a mandatory request for data possibly by the end of the year.
That would mean the FCC won’t rule until at least 2013.
Mark Wigfield, a spokesman for the FCC, declined to comment on a timeline for new rules.
With a presidential election looming, a ruling could be delayed beyond next year. If a Republican moves into the White House, Genachowski would turn over the chairmanship to a member of the GOP. Even if President Obama wins reelection, Genachowski could decide to step down.
Every chairman “basically sets their own agenda and I don’t know if a new chairman would want special access to be on the agenda,” said a telecom executive with a background in regulatory affairs.
Still, the executive believes the current FCC wants to do something soon.
“I would not be surprised if there were final resolution sometime by mid 2013,” said this person, who agreed to speak on background due to the sensitivity of the issues. “I don’t know anybody knows what that something will be but I believe this commission has a desire to put this to bed.”
Meanwhile, a debate continues to rage over whether incumbents like CenturyLink and Verizon exert too much control over the vast majority of private lines that connect business locations and link other critical facilities including cellular towers to fixed networks.
Verizon recently withdrew a plan to raise its special access rates by 6 percent in the face of opposition from some of its competitors.
NoChokePoints Coalition, which includes a group of companies that compete with Verizon, claimed the increase would have been the second in less than a year enacted by the company and would have resulted in a 12 percent increase since the end of last year.
Ed McFadden, a spokesman for Verizon, said the company only attempted to raise its rates for the second time in a decade. Even counting the proposed increases, he said, the inflation-adjusted prices that customers pay have fallen since 2002 on such high-speed circuits as DS1s and DS3s. So why did Verizon withdraw its petition?
“A few parties including competitors in the marketplace chose to use the regulatory process to manipulate the market by asking the FCC to step in and block the change instead of letting the market work as it should. So, Verizon chose to withdraw its tariff filing prior to the filing becoming effective in order to focus our resources and the debate on the broader issues in the special access rulemaking proceeding,” McFadden said. “Those issues include continuing to demonstrate that the high-capacity marketplace is highly competitive and that no additional regulations are necessary.”
Boothby, a former Deputy and Associate Chief of the FCC’s Tariff Division, has a hunch the FCC signaled to Verizon it opposed the new rates and that the telecom titan backed off rather than face an adverse decision from the agency. She said the agency has the power to delay the rate increases and investigate the matter or reject the rates outright, though she explained the latter option is unusual and can only be done under limited circumstances on a finding that a tariff filing is unlawful on its face.