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).
Seth L. Cooper, "FCC
Should Finally Grant CenturyLink Forbearance on Broadband Enterprise Services,"
FSF Blog (July 22, 2014).
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).
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