FCC Makes BDS Proposals, Findings; Distinctions Remain Above/Below 50 Mbps

The FCC offered proposals and market views in a business data service Further NPRM (see 1605020061) despite jettisoning tentative conclusions from a draft item circulated by Chairman Tom Wheeler. The edits made the item "more neutral, by, for example, moving away from a tentative conclusion that 50 Mbps is the appropriate metric for presuming a market is competitive or not," said Commissioner Mignon Clyburn Thursday as the agency voted 3-2 to adopt the FNPRM and a related order (see 1604280057). But the text shows the FNPRM went beyond asking questions and made findings on business data services (BDS or special access), including apparent distinctions based on data speeds above and below 50 Mbps.

BDS competition is "uneven" across places and products, the FCC said in the 288-page item released Monday, soliciting initial comments on a proposed rulemaking by June 28. "Geographic concentration on any measure is high. Potential competition is important, that is, nearby suppliers can constrain BDS prices. For example, we find that fiber-based competitive supply within at least half a mile generally has a material effect on prices of BDS with bandwidths of 50 Mbps or less," the commission said. "Supply of BDS with a bandwidth in excess of 50 Mbps tends to be more competitive than supply of BDS with lower bandwidths." Level 3 had said 50 Mbps wasn't an appropriate dividing line for making competitive presumptions (see 1604250041). Clyburn, an FCC spokesman and Level 3 had no comment Tuesday.

The BDS geographic market "likely extends beyond an average census block in which there is BDS demand" but is "considerably smaller than a metropolitan statistical area," the FNPRM said. (ILECs have cited fiber data for census blocks while CLECs have focused on individual buildings.) Distances CLECs are generally willing to extend their facilities to reach potential customers "are quite short," the item said.

The commission distinguished between BDS and "best efforts" broadband services, such as AT&T's U-verse or Comcast's Xfinity, in the product market. It said BDS generally offers dedicated, symmetrical services with performance guarantees and usually costs more than mass-market best-efforts service. "Best Efforts services do not appear to be competitive substitutes for BDS," the FNPRM said. "Packet-based BDS, including over [hybrid fiber-coax], is a good substitute" for legacy BDS and could constrain TDM prices, it said. Multi-location customers have different needs, it said.

The FCC didn't express initial views on some issues, such as how many competitors it takes to ensure supply is materially competitive. "No issue raised by the Further Notice is locked in stone; rather the Commission seeks broad comment on the best way to execute its principles, evaluate its proposals and answer its questions," the agency said. Dissenting Commissioner Mike O'Rielly said Thursday the outcome was "precooked" and heading toward "plain old-fashioned rate regulation" despite a "new narrative" and the absence of tentative conclusions. Wheeler said Thursday his goal is to conclude the proceeding this year.

Cable wasn't mollified. “Our initial review of the item does nothing to ease the concerns we expressed previously," NCTA said. "While the item praises cable as a ‘great entry success story’ and states that the Commission plans to ‘listen and learn’ before reaching any decisions, the fact remains that it is soliciting comment on a proposal that could result in totally unwarranted new regulation for cable operators that are competing to deliver significant benefits to businesses all across America.”

The tariff investigation order said certain ILEC pricing practices are unlawful because they harm competition and slow the IP transition. The commission barred the "all-or-nothing" discount plans of AT&T, CenturyLink, Frontier Communications and Verizon, and sought further comment on how to treat existing plans. Level 3 supported and Verizon opposed giving BDS customers a "fresh look," but even Level 3 had concerns about some specifics, the agency said. The order also said AT&T, Frontier and Verizon were charging excessive shortfall penalties to customers with volume commitments, and AT&T and Frontier were charging excessive early termination fees. The telcos were given 60 days to change their tariffs.

The commission said it was "time for a new start" and proposed to end BDS tariffs as traditionally required, and discard "dominant" and "nondominant" distinctions. "That large scale de-regulation goes hand in hand with the use of tailored rules where competition does not exist. Thus, the Commission proposes a new regulatory framework built on four fundamental principles," starting with "competition is best" backed by safeguards where competition is lacking, the FNPRM said. The notice proposes that in noncompetitive markets, wholesale prices relate to retail prices. CLECs complain wholesale prices sometimes exceed retail prices.

TDM service "is still big business," generating about 60 percent of the $45 billion in BDS revenue reported by industry, and ILECs are the primary providers of legacy DS1 (1.5 Mbps) and DS3 (45 Mbps) services, the FCC said. The broader enterprise service market may exceed $75 billion annually, it added.

The future is in IP-based, packet-switched communications, such as Ethernet service, which provides "scalable bandwidth options" from 2 Mbps to 100 Gbps, said the commission. It said CLECs and cable had made inroads, as the top U.S. Ethernet providers in 2015 were, in descending order: AT&T, Level 3, Verizon, CenturyLink, Time Warner Cable, Comcast, Cox Communications, XO Communications and Windstream.

An FCC consultant who studied the data found evidence of ILEC market power. "The revenue data shows ILECs are an outsized presence in this industry" and "dominate the market for facilities based service in their regions," said Boston University econometrician Marc Rysman, whose white paper was included. Location data tell a similar story, though rivals serve almost as many buildings with fiber, he said. "Non-fiber service is still a major part of the industry, but to the extent that the future is with fiber, this finding could bode well for future competition in this industry, at least for high value BDS.”