Incompas, Verizon Propose 3-Tiered BDS Framework Along With Rate Cuts

Incompas and Verizon suggested a new framework for streamlining FCC treatment of business data services (BDS), also called special access services. In a joint letter to the FCC Monday in docket 16-143, Incompas and Verizon proposed creating three tiers of BDS offerings based on their data speeds, with the lowest tier (below no lower than 50 Mbps) deemed noncompetitive and subject to regulation, the highest tier (above 1 Gbps) deemed competitive and not subject to regulation, and the middle tier subject to commission review by census blocks. CenturyLink and NCTA criticized the proposal. Meanwhile, an NCTA blog suggested the BDS proceeding could "backfire and slow the deployment of 5G" unless the commission changes course.

It's time for a new start on BDS, said Incompas and Verizon. "Today's letter contains an outline that reflects a compromise proposal that can move the industry past its decades-long debate, relying first on competition to discipline prices, ensuring a rational pricing structure for Business Data Services where necessary, and encouraging facilities-based competition as the marketplace continues its technology evolution," said Verizon Senior Vice President Kathleen Grillo, in a statement. Incompas CEO Chip Pickering said in a release: "Competition and connection are the key ingredients to deploying a 5G future, and helping all our businesses, schools, government buildings, hospitals and libraries grow.” Incompas and Verizon in April jointly suggested a BDS framework based on technological neutrality and other principles (see 1604070069). The commission issued a Further NPRM citing such principles (see 1604280057).

Incompas and Verizon said they backed a common framework, though they didn't agree on everything needed to implement it. "We support a competitive market test that balances precision with administrability, and accounts for potential competition, by analyzing competition by capacity-based products and census block geographies," they wrote. "Second, recognizing economic challenges to new facilities-based entry at lower speeds, and for administrative ease, we agree that all Business Data Services at or below a specified threshold should be deemed non-competitive in all census blocks. We agree that the specified threshold should be no lower than 50 Mbps. Likewise, recognizing the greater economic incentives to build out very high capacity circuits, and for administrative ease, we agree all services above 1 Gbps would be deemed competitive."

Between the upper and lower thresholds, the FCC should determine whether BDS in a census block is competitive based on the number of facilities-based providers, Incompas and Verizon said. They didn't agree on what constituted such a provider but said ILECs and their affiliates would be deemed a single facilities-based provider within their traditional service areas, and providers that only lease discounted "unbundled network elements" or provide best-efforts services would not be counted. They agreed the FCC periodically should review its framework.

Incompas and Verizon supported regulation for all "non-competitive" BDS services, with price caps applied to traditional TDM-based (time-division multiplexing) services in areas served by price-cap ILECs. They proposed a "one-time adjustment" to those rates (implemented within two years) to account for a freeze adopted in the FCC's 2000 "CALLS" (Coalition for Affordable Local and Long Distance Service) order, and then adjusting rates annually based on an "X-factor of 4.4 percent minus inflation" (putting downward pressure on rates by factoring in productivity gains). They also agreed that prices based on packet-based BDS deemed non-competitive should be reduced, and would support using a "benchmark price approach" if it's applied in a technologically neutral way and doesn't discourage new entrants from entering markets, with benchmarks also subject to annual reductions of 4.4 percent minus inflation.

NCTA knocked the proposal. “For decades the Commission and the courts have recognized that regulation of rates charged by competitive providers is both unnecessary to protect consumers and harmful to investment incentives," it said in an email. The Incompas/Verizon proposal "to abandon this successful policy would seriously undermine the Commission’s goal of expanded deployment of competitive facilities and consequently the proposal should be rejected.”

CenturyLink was also critical. The "so-called business data ‘compromise’ is anything but that and simply not credible," said Senior Vice President John Jones in an email. "Now that Verizon and Sprint, INCOMPAS’ largest member, have sold off vast amounts of their own wireline networks, it is no surprise that they are seeking a free ride on the backs of companies that continue to invest billions of dollars in their fiber networks every year. This proposal should be dismissed for what it is -- a self-serving attempt to ignore the cost of building tomorrow’s infrastructure while seeking below cost rates from the providers who build the nation’s networks.” Level 3 and the Broadband Coalition were more supportive. Other major ILECs and the FCC didn't comment.

With BDS comments to the FCC due Tuesday, the NCTA cited the link to 5G. Next-generation "5G networks will rely on substantially more cell sites than prior generations of wireless service and, as a result, there will be a need for significant new fiber facilities to provide backhaul connecting these cell sites," NCTA's blog said. "The BDS Further Notice seeks comment on a number of proposals that could result in extensive new rate regulation of BDS services, including backhaul, resulting in less, not more, deployment of fiber. On Tuesday, NCTA will be filing comments explaining the deep concerns that we have with key elements of the Further Notice."