AT&T Makes Case for Special Access Relief, Responds to FCC Staff Queries

AT&T said the FCC should ease, not toughen, special access regulation, and it responded to various commission queries in a meeting with staffers last week. There's no reason for the FCC to roll back past pricing deregulation of ILEC special access (dedicated circuit) services in the broadband business market, the company said. There is every reason to provide further "Phase II" relief where telcos are subject to facilities-based competition, such as in Chicago and Dallas, where AT&T faces intense competitive pressures, AT&T said in a filing posted Tuesday in docket 05-25 summarizing the Thursday meeting.

NCTA urged the FCC not to impose rate regulation that would undermine incentives to invest in new facilities in areas where cable and others had invested, or are likely to invest, in systems to serve business customers, in a filing summarizing its meeting with FCC staffers. The FCC in April or May could issue a Further NPRM in its broad special access rulemaking and an order in its ILEC tariff investigation (see 1603210048).

AT&T summarized its case for maintaining and deepening ILEC special access relief in a 25-page PowerPoint presentation it used at the FCC. The telco said 2013 industry data collected by the commission under confidentiality safeguards showed competitors, in areas where ILECs gained Phase II pricing-flexibility relief, have deployed fiber to almost every census block with special access demand, covering "virtually every business establishment," and the same is true in areas with lesser Phase I relief or "no relief." AT&T said the FCC thus has no basis to revisit past ILEC pricing flexibility and should extend Phase II relief to many other incumbent areas while revising related competitive triggers. Analyses submitted by CLEC economists "are fundamentally flawed because, among other things, they: (1) ignore nearby fiber facilities; (2) ignore cable competition (including all HFC [hybrid fiber-coaxial] competition; (3) are based on incomplete data; and (4) produce clearly absurd results," the ILEC said.

AT&T also included a 16-page letter providing detailed answers to FCC questions, often about arguments made by CLECs. AT&T said it disagreed with commission staffers who believe AT&T lacks "headroom" under remaining special access price caps in Phase I and "no relief" areas, and who asked whether the lack of headroom indicated the carrier has market power because it wasn't reducing prices below the price caps in response to competition. AT&T said it didn't have any headroom, and even if it did, it wouldn't raise competitive concerns because the price caps were presumptively set at "just and reasonable" levels. There isn't any evidence the current price caps are too high, and there are reasons to believe they're set "considerably below competitive levels," it said.

Responding to other FCC queries, AT&T said: (1) both the commission and DOJ found that the existence of one competitor was sufficient to ensure competition for purposes of the special access rules; (2) it views cable HFC-based services as a viable option for purchasing dedicated access outside its footprint, and faces intense competition from cable within its footprint; (3) CLECs routinely compete by deploying "lateral extensions" to reach business customers in areas where they have fiber trunks; (4) ILECs didn't submit an analysis of how special access pricing responds to competition because the data collection doesn't contain data on pricing, just on revenue; and (5) CLECs have regulated access to ILEC conduits. The FCC should provide further ILEC relief in two ways, AT&T said: "It should simply grant relief for the largest [metropolitan statistical areas] immediately ... and it should use the data collection to adjust the triggers to reduce the under-inclusiveness of the Phase II relief."

NCTA said in its meeting that cable operators play a growing role in the business data service market, a segment where they expect "increasing investment and revenue growth." It suggested the 2013 industry data provided only a "snapshot" that would "understate" the level of present and future competition. "We also discussed the significant benefits that business customers derive from facilities-based competition and the importance of preserving incentives for cable operators and other providers to continue investing in new facilities. Where facilities-based competition is possible, encouraging such competition is far superior to policies that encourage competitors to depend on wholesale access at regulated rates," said NCTA. It cited recently reported comments by FCC Chairman Tom Wheeler -- noting the difficulties faced by competitors buying wholesale capacity at "unbundled" discounts -- as supportive of that view.

The FCC "should reject policy proposals that would undermine the incentives for continued investment in new facilities by regulating incumbent LEC special access rates in geographic areas where cable operators and others have invested, or are likely to invest, in facilities to serve business customers," NCTA said. "Proposals from certain competitive LECs to regulate rates in any building with fewer than four facilities-based providers would essentially compel rate regulation of all business services on a nationwide basis, which would result in substantial harm by discouraging all providers (incumbents and competitors) from investing in new facilities."

Incompas CEO Chip Pickering responded to the filing. “AT&T and NCTA are pressing the FCC for a protected monopoly, or duopoly at best, with preservation of sky high monopoly rents," he emailed. "In contrast, we believe robust competition is the answer to lower prices, faster speeds and greater innovation. Wholesale access across all networks for three decades has increased network investment and innovation by both competitors and incumbents alike.” Incompas -- which represents CLECs, Sprint and other ILEC rivals -- recently said the special access market was "broken" -- suffering from ILEC "market power," "supracompetitive prices" and "price squeezes" -- and urged the FCC to take immediate remedial action.