Level 3 Hails FCC Decision to Investigate Contracts in Special Access Market

Josh LongThe Federal Communications Commission has launched a probe into whether AT&T, CenturyLink, Frontier and Verizon are engaging in anticompetitive behavior in the $40 billion special-access market.

The agency will investigate the phone carriers’ tariff pricing plans for business data services, or so-called special access, to determine whether they are anticompetitive and unreasonable as alleged by telecommunications providers that rely on incumbent special-access circuits to connect the “last mile” and compete with the likes of AT&T and Verizon in the business market.

Incumbent carriers argue the special access market is competitive, and AT&T criticized the FCC’s decision to launch a probe.

“Opening a tariff investigation on special-access services is a step towards rate re-regulation in a space that is highly competitive and getting more so as cable companies and other new entrants aggressively compete,” said Frank Simone, AT&T’s vice president of federal regulatory, in a statement. “The terms the Commission is reviewing are commonplace in most commercial contracts and in fact are being used by our competitors in their own contracts.”

But Level 3 has accused incumbent phone carriers of using their market power to effectively force competitors to rely exclusively on them for special-access services. According to Level 3 in a recent phone interview with Channel Partners and a 2012 FCC filing, the incumbents will offer large discounts on special-access services but only if the wholesale customer commits to buying the majority of circuits from the incumbents and not a competitive provider of special access such as Sprint.

XO and Level 3 also offer special access alternatives to the incumbents in areas where their networks are directly connected to buildings. According to Windstream, Level 3 and XO 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 the order announcing its investigation.

“For years, competitive carriers, wireless providers and U.S. businesses have highlighted the harm from lock-up provisions that block competition, raise prices, slow the adoption of newer communications technologies and solidify the old monopoly telephone companies’ chokehold on the business broadband market,” said Joe Cavender, Level 3’s vice president and assistant general counsel for federal affairs, in a statement. “This inquiry represents a significant step on the part of the FCC toward reforming the broken regulatory framework for special access services.”

The FCC has been investigating special-access services for several years. In September, the agency announced its plans to release data on the state of competition in the special access market as part of its plans for reform. The FCC’s investigation into tariff pricing plans is …

… distinct from the broader special-access proceeding.

Special-access services include such offerings as circuit-based dedicated services including DS1s and DS3s and packet-based dedicated services including Ethernet, according to the FCC. Competitive carriers describe special access as a critical wholesale service that enables them to connect the last portion or “mile” of their networks to businesses via the local, high-capacity connections controlled by AT&T, Verizon and other incumbent telephone companies.

“While competitors continue to expand their market presence by building IP-based facilities or extending purchased TDM-based facilities to additional buildings, preliminary results from the Commission’s data collection show that incumbent LECs remain the sole facilities-based provider of TDM-based special access services to a majority of business locations that demand or are likely to demand business data services nationwide,” the FCC declared in its order.

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