Tuesday, December 17, 2013

Special Access: A Special FCC Debacle in the Making

Two developments last week caused me (regretfully) to refocus on the Federal Communications Commission's ill-begotten special access proceeding. I say "regretfully" because it is one of those never-ending, backward-looking FCC proceedings that make you cringe. But like Ol' Man River, the proceeding just keeps rolling along.

It has been more or less a decade, depending on how you count, since the FCC embarked on a quest to determine whether what the FCC calls "special access" services are priced unreasonably (read: "too high" to the FCC's mind) by what are still called the "incumbent" telephone companies, even in today's competitive telecom environment.

Back during the years of the Clinton Administration's FCC the agency had relaxed its regulation of special access rates after finding the services were subject to competition in certain geographic areas. The FCC's current proceeding is all about whether to re-regulate rates.

Trust me: The years-long quest upon which the FCC has been embarked to determine whether special access rates are "reasonable" makes Don Quixote's quest look like child's play.

And trust me on this too: The special access proceeding is a special debacle in the making – unless the proceeding gets shut down. In a blog published in June 2012 called "Special Pleading for Special Access Is Especially Counter-Productive," I said: "There are other candidates, but if one is looking for an indictment of what is wrong with the FCC's approach to regulation, there is no need to look further than the agency's handling of 'special access' services." Still true today, perhaps more so.

For anyone reading this not steeped in FCC regulatory lingo, you might be wondering what the heck is "special access," anyway. Here's the FCC's official definition:

"Special access services encompass all services that do not use local switches; these include services that employ dedicated facilities that run directly between the end user and an interexchange carrier’s (IXC) point of presence, where an IXC connects its network with the local exchange carrier’s (LEC) network, or between two discrete end user locations."

Translation: Special access services are dedicated circuits not used by ordinary residential consumers, but rather by businesses and carriers other than the telephone companies offering the services. The majority are copper-based TDM circuits with a T-1 (1.5 Mbps) capacity, but they also include TDM T-3 (45 Mbps) capacities as well.

Now back to last week's two developments. The National Cable & Telecommunications Association (NCTA) filed an Application for Review asking the FCC to curtail substantially the proceeding's currently-applicable data collection requirements. NCTA says that, in formulating the data collection mandates, the FCC's staff has "ignored critical concerns regarding the security of network maps and detailed customer proprietary network information (CPNI)." It's hard to believe, but the FCC's data collection mandates require every provider of special access or special access-comparable services to give the Commission all information concerning every circuit in the country. This includes every building location served by every provider.

Here is what NCTA says about the mandate in its application:

"The data collection punishes the very companies that are investing private capital to finally bring widespread competition to the special access marketplace. Cable operators are making significant investments to provide commercial customers with services that are more robust and less expensive than the services offered by incumbent providers, a result that the Commission has long encouraged through its limited regulation of competitive providers. Yet these same companies, which have never been subject to any recordkeeping or reporting obligations with respect to their competitive special access services, are now expected to devote thousands of hours and tens of millions of dollars to gathering virtually every scrap of information about the commercial services they provide (or could provide), the networks they operate, and the customers they serve (including detailed CPNI regarding every business in America that purchases dedicated services)." [My italics.]

There is more along these lines in the NCTA pleading, but the import of NCTA's plea should be clear. First, the prospects for the FCC ever gathering all, or even most, of the requested data are close to nil. It is simply unrealistic to think that all special access or special access-equivalent service providers are going to be able to provide information concerning every customer they serve in every location in America, even if they wanted to – and, let's be honest, they don't want to. They will resist, in ways subtle and not so subtle, disclosing what NCTA, rightly, calls competitively "sensitive information."
This data collection and analysis effort, if it goes forward, almost certainly will end up a huge mess. And, as NCTA correctly points out, even assuming for the sake of argument the FCC "possibly could complete" its data collection and analysis in 2015, "such analysis will be out of date immediately upon its release because the data the Commission is collecting is from 2010 and 2012."

Second, as NCTA's pleading makes clear, cable companies are investing significant amounts of private capital to compete in the special access marketplace, investments they claim will bring widespread competition to this market segment. They should be commended for these investments, and, indeed, the cable operators are by no means alone. All of the other service providers that, along with NCTA, have also protested the breadth of the FCC's data collection requirements are, by self-admission, competitors as well. These other competitors include, for example, established companies such as Level 3, XO, and Cogent, and fiber providers. In addition, Sprint conducted an RFP for backhaul services and received responses from more than 20 different vendors.

Third, and this is a point that the Commission often fails to appreciate: Assuming for the sake of argument the Commission would prefer for the special access market to be more competitive than the agency assumes it is, and assuming, again for the sake of argument, that the agency somehow could complete its data collection quest on a timely basis and conclude the incumbents' special access rates should be reduced by Commission fiat, the effect of this mandated rate reduction actually would be to deter the development of further facilities-based competition – competition that, in any event, already is progressing. This is because, by forcing the incumbents' rates down, it is more difficult for other competitors to compete. If the cable operators and other facilities-based providers conclude the FCC will be forcing down incumbents' rates, it is less likely these competitors will continue, in NCTA's words, "making significant investments to provide commercial customers with services that are more robust and less expensive than the services offered by the incumbent providers."

The reality is this: It is no doubt true that in some locations there is more competition than in others. Certainly there are many particular buildings across the country that, presently, are served by only one provider. But surely this is largely irrelevant unless the FCC proposes to regulate rates on a building-by-building basis. The agency's quest to gather information for all building locations in the country is a fool's errand. What is important is the unmistakable, long-term trend towards more competition and more choices for consumers in most locations – a trend enabled and furthered by the deployment of lower-cost, more efficient digital technologies.

Now, it is the deployment of newer, more efficient IP technologies that brings me to the second of last week's developments. The Commission's staff suspended and set for investigation AT&T special access service tariff filings proposing to eliminate for any new customers or existing customers placing new orders certain discount plans with terms of sixty months or greater. AT&T said the purpose of eliminating such discounts for far-out years (i.e., 2020) is to prepare for the transition to an all-IP network. Recall that the incumbents' special access services are, for the most part, legacy copper-based circuits.

The FCC's action was a mistake, and it leaves one wondering whether the agency has any appreciation at all of the way its actions can adversely affect the transition to all IP networks that enable less costly, more efficient services. After all, here the tariff revisions simply proposed eliminating discounts for new customers and new orders. No one contends – I don't think even the FCC contends this – that AT&T or any other carrier could be ordered, in the first place, to offer specific long-term discount plans.

Without saying more about the Commission's tariff suspension action now, I simply want to commend to you two pieces that contain further analysis and commentary: Scott Cleland's blog, "Perspective on the FCC's Special Access Delay of Its IP Transition," and Fred Campbell's blog, "FCC Tariff Decision Is Not Consistent with the IP Transition, the National Broadband Plan, or the Law."
I'll conclude by repeating yet again what I said in my June 2012 "Special Pleading for Special Access" blog: "There are other candidates, but if one is looking for an indictment of what is wrong with the FCC's approach to regulation, there is no need to look further than the agency's handling of 'special access' services."
The Commission needs to reorient its pro-regulatory mindset in a meaningful way. As I have often urged, and as I did so again recently in an ex parte filing regarding the IP Transition, in today's rapidly changing digital environment, the agency's "default, or presumptive, position should be that, absent clear and convincing evidence to the contrary, legacy economic regulation should not be applied."