Phone Companies Abusing Special Access Market, Study Claims

Josh LongLarge incumbent phone companies have reaped an estimated windfall of approximately $75 billion in overcharges for special-access services over the last five years, according to a study by the Consumer Federation of America (CFA).

CFA released its study amid the Federal Communications Commission’s years-long review of competition in the $40 billion-a-year special access market ahead of possible revisions to its regulations.

Economist Inc.'s Hal SingerThe FCC prematurely deregulated the special access market and incumbents have abused their power, yielding juicy profits by setting prices far above the costs of service, according to CFA, an association of nonprofit organizations that was established in 1968. The FCC has described special access as “a wholesale data service widely purchased by businesses and institutions that provides dedicated, guaranteed transmission of high volumes of critical data.”

“The anticompetitive, anti-consumer conduct of the large incumbent telephone providers is a shocking reminder of the immense market power held by these organizations and the consequences this kind of concentration can have on both the individual consumer and the American economy,” said Mark Cooper, the author of the study and director of research with the Consumer Federation of America, in a written statement.

CFA also reported in a press release that its analysis showed large incumbent carriers’ dominance of the special-access market “is at least three times the threshold of highly concentrated,” as measured by an index (Hirschmann-Herfindahl Index, or HHI) used by the U.S. Department of Justice and Federal Trade Commission.{ad}

Hal Singer, a principal at Economics Incorporated and senior fellow at the George Washington Institute for Public Policy, disagreed with Cooper’s findings.

“Of course, he [Cooper] cannot measure the true incremental costs of providing business broadband,” Singer told Channel Partners. “And even if he could, there is no reason to expect broadband prices to fall to incremental costs in an industry with high fixed costs. Moreover, his market share estimates are based on a fictitious market (special access), which ignores Ethernet services.”

A spokesman for the FCC, which has collected an unprecedented amount of …


… data on the special-access market, did not immediately respond Tuesday to a request for comment on the study.

“The FCC data that Dr. Cooper touts are now more than two years old,” said Patrick Brogan, vice president of industry analysis with USTelecom, a trade association whose members include AT&T, CenturyLink and Verizon. “Yet, even these stale data demonstrate the widespread deployment of competitive facilities. In fact, USTelecom has submitted data showing that investment in competing facilities, including cable business networks, continues to accelerate.”

“Unfortunately, a handful of large telecom companies and their allies, including Dr. Cooper’s Consumer Federation, are pushing the FCC to backslide on facilities-based competition,” Brogan continued, “and revert to superficial resale competition, which allows them to avoid building their own network facilities, but stymies innovation.”

Others maintain incumbents still control the special-access market.

“The incumbents make the absurd argument that if a competitor has a facility in an area (such as a zip code or census block), regardless of the extent of connections to locations, there is competition,” INCOMPAS, a trade association for competitive networks, noted in an FCC filing earlier this year. “This is a definition of competition only an incumbent could conjure up, as it has little or nothing to do with whether or not a consumer has a choice in providers.”

In a statement emailed Tuesday to Channel Partners, INCOMPAS CEO Chip Pickering said, “Market power is both abusive and expensive. Overcharging for broadband access takes money away from schools, hospitals and small business. The FCC should act immediately to end wasteful overcharges and free up investment in education, health care and new network growth.”

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