Tuesday, July 22, 2014

FCC Should Finally Grant CenturyLink Forbearance on Broadband Enterprise Services

Amidst overseeing the transition from legacy telephone services to all-IP networks, why would the FCC put competitive broadband services back under legacy telephone regulations? Or rather, why would it single out one provider of broadband services for legacy regulations? Regrettably, that’s exactly what the FCC is doing when it comes to CenturyLink’s broadband enterprise services.

Just this month the FCC took public comments on a proposal to keep those services under the thumb of last-century telephone regulations. But forward-looking communications policy should reflect technological advancements and competitive market realities. And just administration of those policies should scrupulously avoid disparate treatment of market participants. The FCC’s proposal fails on both accounts.  

The enterprise broadband market is highly competitive. There are no dominant carriers. CenturyLink’s rivals have long since been granted forbearance from dominant carrier rate regulations and Computer Inquiry tariff requirements. Straightforward application of FCC precedents calls for forbearance relief from dominant carrier regulations for CenturyLink. At long last, the FCC should grant CenturyLink forbearance from those outdated regulations, and stop singling it out for disfavored regulatory status.

Enterprise broadband services offer high data speed and capacity capabilities through Ethernet and other IP-enabled technologies. Such services are highly sought after by enterprise customers with unique communications and information technology needs. Enterprise broadband customers are typically sophisticated and informed, soliciting customized offerings and bargaining with providers. Nationwide, the broadband enterprise services market has numerous competing providers, including AT&T, Cox, Charter, Frontier, Verizon, Comcast, and Level 3.

Through its Enterprise Broadband Orders (2006-08) the FCC expressly concluded that the market for packet-switched broadband services was "highly competitive." The FCC likewise recognized that the demand for such services is sufficient to incentivize deployment and entry by competitors absent such regulation. The Enterprise Broadband Orders granted Section 10 forbearance relief to several incumbent local exchange carriers (ILECs), including AT&T, Embarq, Qwest, and Verizon.

The U.S. Court of Appeals for the District of Columbia Circuit expressly upheld the FCC's analytical approach and granting of forbearance relief in Ad Hoc Telecommunications v. FCC (2009). As the D.C. Circuit wrote: "Perhaps an obvious point, but a decision that gives owners of telecommunications lines more control over access to those lines tends to increase the incentive for competitors to build competing lines."

Inexplicably, some of CenturyLink's Ethernet and other broadband enterprise offerings are still subject to dominant carrier and Computer Inquiry tariff obligations. Those regulations are a vestige of last-century copper-based local telephone monopoly conditions. Subjection to dominant carrier regulations hampers Century Link’s ability to offer nationwide flat-rate pricing options to potential enterprise customers. Corresponding tariff obligations require CenturyLink to give its competitors advance notice of its price offerings. This gives competitors a jump in luring away potential enterprise customers.

With CenturyLink’s marketplace rivals operating free from dominant carrier constraints, the regulatory disparity is obvious. For that matter, the FCC’s disparate treatment of CenturyLink’s broadband enterprise services constitutes an administrative form of unequal treatment under the law. Court precedents applying the Administrative Procedures Act's "arbitrary and capricious" standard hold that federal agencies cannot treat like cases differently. The same criteria must be applied in an equal manner to all parties petitioning for regulatory exemptions.
Disconcertingly, the FCC has taken public comments on its proposal to change the rules on CenturyLink. In particular, the FCC has proposed to jettison its dynamic, forward-looking analytical framework from its Broadband Enterprise Orders. Instead, the FCC would subject CenturyLink’s petition to the same type of telephone monopoly-style framework set out in the Qwest Phoenix MSA Order (2010). The FCC plans on issuing an additional data collection request to coincide with its new approach to enterprise broadband services.

By over-relying on static market indicators, narrow market definitions, and misconceptions regarding pricing in networked services that are highly regulated, Qwest Phoenix MSA Order imposed unjustifiably high hurdles to forbearance relief. Acknowledging it offered no quantitative analysis, the Order stacked the deck against forbearance relief by adopting a burden-shifting analytical framework. That is, the Order demanded forbearance petitioners put forth evidence conclusively proving a negative; namely, that they did not exercise market power sufficient to keep prices above what the Commission deemed competitive levels. In that instance, the Order ignored petitioner Qwest’s steep losses in market share to rivals and excluded any competitive effects from wireless alternatives.

Significantly, the FCC now appears set to disregard the fact that the Qwest Phoenix MSA Order's framework applied specifically to legacy voice services, not to broadband services. According to paragraph 39 of the Order:
Indeed, a different analysis may apply when the Commission addresses advanced services, like broadband services, instead of a petition addressing legacy facilities, such as Qwest’s petition in this proceeding. For advanced services, not only must we take into consideration the direction of section 706, but we must take into consideration that this newer market continues to evolve and develop in the absence of Title II regulation.
Whatever the Qwest Phoenix MSA Order's shortcomings, the FCC had good reason for recognizing regulatory distinction between legacy voice services and broadband services. The D.C. Circuit wrote in Ad Hoc Telecommunications: "Broadband services do not correspond to the old telephone-cable regulatory divide," and credited both Congress and the FCC for recognizing that "regulation of broadband can pose different issues and challenges than regulation of local telephony."

The Broadband Enterprise Orders recognized that forbearing from these regulations incentivizes additional investment in broadband infrastructure and enhances competition in the broadband enterprise services market. Those precedents better reflects technological advances of the last decade and today’s marketplace realities. Legacy telephone regulations are ill-suited to advanced information technologies in dynamic markets. For such markets, the burden should be on the regulators or pro-regulation parties to offer evidence of market power and likely consumer harm before government imposes restrictions.

Since the Enterprise Broadband Orders, those services have been further deployed and the market has become even more competitive. There is no evidence that CenturyLink has market power. Discarding agency precedents set in its Enterprise Broadband Orders and continuing to single out CenturyLink for disparate treatment would be the epitomize arbitrariness and capriciousness.