Thursday, March 30, 2017

Five Reasons Why the FCC Should End Its BDS Rate-Control Proceeding

The FCC's rate regulation proceeding for business data services (BDS), a source of special interest pleading for a decade, already has caused significant harm by its seemingly unending life. The BDS market is fast changing and now competitive. New rate controls on these broadband services would harm the development of further competition and undermine investment in new technologies.
The Commission should at long last close its wayward BDS proceeding.
BDS services – also called special access services – use dedicated broadband network facilities to deliver high volumes of data, usually with performance quality guarantees. Such services are typically used by business enterprises, not residential consumers. Often, BDS providers and business customers negotiate over prices and other terms of service.
Here are five reasons why new FCC rate controls on BDS providers would be bad policy and why the Commission should close its BDS proceeding:
1. Competition in the BDS market makes new rate controls unjustifiable. Encouraged by a series of FCC forbearance orders that exempted advanced BDS technologies like Ethernet from legacy regulations, incumbent BDS providers have made significant investments in BDS network upgrades. Cable operators have entered the market, gained significant market share, and compete effectively with incumbent BDS providers. Non-cable competitors also provide BDS services. Not surprisingly, the Commission has made no findings of market power abuse that would provide analytic support for rate controls—a particularly intrusive form of regulation. And while certain specific locations may be less competitive than others, as competition continues to develop more ubiquitously, it would be inordinately costly and administratively infeasible to regulate rates on a building-by-building basis.               
2. The BDS proceeding is mired in special interest pleading. Continuous lobbying by certain mostly non-facilities-based BDS competitors spurred and sustains the Commission's ongoing dalliance with possible new rate controls. Special interest pleaders seek regulation-induced price cuts on wholesale access to their market rivals' network facilities for resale to business customers. The Commission, if it values competitive neutrality and institutional integrity, should not needlessly give special pleaders opportunity to obtain rent-seeking privileges at the expense of their market rivals. 
3. New rate controls will discourage competitors from investing in their own networks. When BDS competitors are able to lease access to their rivals' facilities at below-market rates mandated by regulators, such competitors are discouraged from investing in their own networks. Rate controls thus threaten to induce scarcities in the supply of advanced network infrastructure and create artificially high prices. 
4. New rate controls will reduce BDS provider investment in fiber broadband network upgrades.  By requiring BDS providers to give market rivals access to their network facilities at artificially low prices, rate-regulated providers will have reduced ability to recover costs. With lower returns, such BDS providers will have fewer resources to invest in fiber and other network upgrades that would better serve customers and provide critical backhaul support for 5G wireless deployments. 
5. The BDS competitive landscape is advancing too quickly for the FCC even to gather and assess up-to-date relevant data. With new entrants, new technologies, and new deployments, the BDS market has changed significantly over the decade-plus lifespan of the Commission's proceeding.  And the BDS market will continue to change. The Commission will be unable to maintain up-to-date comprehensive BDS data that reflects actual competitive realities. Its prior massive burdensome data collection effort required incumbent and competing cable BDS providers to submit enormous amounts of specific proprietary data concerning facilities, locations, and the like – for 2013. That data is already becoming outdated, and will surely become more so even if the Commission decides to impose new rate controls. 
The Commission should not pursue new rate controls for BDS providers. Instead, it should let market competition, innovation, and investment continue unimpeded. The BDS proceeding has dragged on far too long. It's time for the Commission to end it.

Prior FSF publications on the FCC's BDS rate-control proceeding:
Seth L. Cooper, "FCC Should Finally Close its Proceeding on Business Data Services," FSF Blog (March 22, 2017).
Seth L. Cooper, "Proposed BDS Rate Controls Are Anti-Investment, Arbitrary, and Fact-Challenged, "Perspectives from FSF Scholars, Vol. 11, No. 40 (November 14, 2016).
Reply Comments of the Free State Foundation, Regarding Business Data Services in an Internet Protocol Environment (August 9, 2016).
Randolph J. May and Seth L. Cooper, "The FCC's Special Access Proposal Is Infected With Special Pleading," Perspectives from FSF Scholars, Vol. 11, No. 26 (July 15, 2016).
Seth L. Cooper, “FCC's New Regulations Threaten Broadband Investment,” The Hill (October 17, 2016).
Comments of the Free State Foundation, Regarding Business Data Services in an Internet Protocol Environment (June 28, 2016).
Michael J. Horney, "The FCC Cannot Proceed in the BDS Proceeding with a Flawed Analysis," Perspectives from FSF Scholars, Vol. 11, No. 17 (June 6, 2016). 
Randolph J. May, "The FCC's Flawed Understanding of Competition," Real Clear Markets (March 11, 2016).
Randolph J. May, "Special Access: A Special FCC Debacle in the Making," FSF Blog (December 17, 2013).
Seth L. Cooper, "FCC Inviting An Especially Big Mess On Special Access," FSF Blog (October 31, 2012).