Special Access Terms, Conditions Coming to a Head

Responding to calls by competitive carriers for an FCC tariff investigation into so-called special access “lock down” plans -- an investigation that an industry source told us Wednesday is anticipated -- Verizon defended the practice in a letter to the agency, calling the plans “pro-customer voluntary discount[s].” At issue are plans that offer discounted services in return for commitments by competitors to buy the access service for certain lengths of time or at certain volumes.

The plans have come under attack from competitors, and agency officials have made noise about taking action on the practice. Competitors, including Comptel and Level 3, have argued high special access fees force competitors into the longer-term commitments to get the discounted prices. Locking into the discounts inhibits competition by limiting competitors’ ability to go to other special access providers. With competitors committed to an incumbent, other providers are discouraged from trying to compete with the incumbent to provide competitors the special access service they need to reach customers.

Quick agency action is expected, said the industry source involved in the special access debate, given comments by Chairman Tom Wheeler at Comptel’s Grapevine, Texas, conference in October and by Commissioner Mignon Clyburn last month indicating a willingness to take on the issue even before the agency finishes analyzing recently collected special access data -- a process that Clyburn had said at the Comptel Policy and Innovation Policy Summit last month is expected to take much of the year. Verizon, in its letter Monday, questioned the rush. On the heels of Wheeler’s remarks in Texas, Cbeyond Communications, Integra Telecom, Level 3 Communications and tw telecom last fall urged a tariff investigation. Comptel and several companies also urged in meetings with agency officials that they “promptly take action to address unjust and unreasonable terms and conditions.” The agency declined to comment. Attorneys representing competitive carriers also declined to comment on the potential timing of FCC action.

Speaking at the Comptel summit last month (see 1408190036), Clyburn said that special access terms and conditions is an issue “ripe for action.” She encouraged Wheeler to direct staff to evaluate options on dealing with the plans as the agency reviews special access data it finished collecting from companies in January. Wheeler in Texas said competitive carriers provide “the bulk” of competition to ILECs over the last mile to business customers. The practice of “'lock-up provisions’ … does not serve competition and it does not serve your customers,” Wheeler said.

The “lock up plans” limit competition, “allowing Verizon and other large ILECs to maintain their dominance in the special access market,” Comptel Chief Advocate Angie Kronenberg said in an email to us. “Buyers are limited from choosing an alternative supplier in order to obtain discounts,” she said. It also deters other providers from deploying broadband and offering alternatives to ILECs, Kronenberg said.

In calling for the tariff investigation, Cbeyond, Integra, Level 3 and tw telecom said the plans do not meet the “just and reasonable” standard under Communications Act Section 201(b). The requirement to purchase large volumes to get the discount, for instance, shrinks the market for competitive wholesale special access providers because only a few companies could meet the volumes, and causes special access prices to remain higher than would otherwise be the case, said the companies, which did not comment further Wednesday.

At the same time, incumbents are coming under fire for special access services in the IP transition NPRM approved by the commission in November (see 1411210037). The rulemaking tentatively concluded that incumbents should be required to offer special access services at equivalent rates and conditions when retiring TDM. Clyburn said at Comptel the commission should not “sit idle” and should adopt the tentative conclusion without waiting for agency staff to analyze the special access data. A 2012 Further NPRM also seeks comments about special access rates.

Verizon Vice President-Federal Regulatory Affairs Maggie McCready in a letter to the agency Monday said critics have "mischaracterized” the plans, which she said benefit both sides. “With both term-only and term-and-volume plans, there is a bargain, and both sides give something to receive something. Verizon gives its customers a lower price in exchange for some certainty about its expected revenues and network utilization. Customers, on the other hand, cede some flexibility by committing to certain terms and volume levels in exchange for a lower price for special access service,” McCready wrote. “And both Verizon and its customers benefit from the economic efficiencies associated with fewer individual transactions to buy or sell a specific volume.”

She noted in the letter the discounts can range from 8 percent to 52 percent off Verizon’s tariffed "rack rate," depending on the contract's length. Customers can lower volume commitments after the plan ends and “do not ‘lock in’ amounts previously purchased,” she wrote. McCready also wrote that the agency should not “prejudge the [2012] special access proceeding” by limiting terms and conditions before analyzing the special access data. The analysis will show “no firm in the high-capacity services marketplace has market power,” McCready wrote. “Cable companies, CLECs, and many other providers provide business customers with Ethernet and similar services that they tout as competitive alternatives to special access.”