FCC Consultant, Staff Say Revised Cable Data Don't Alter BDS Analysis; AT&T Cries Foul

An FCC consultant and agency staff stood by their business data service analysis despite additional 2013 cable deployment data that ILECs say show much more competition than believed when the commission proposed a new BDS regulatory framework (see 1604280057). Documents released by the Wireline Bureau Tuesday and posted Wednesday in docket 16-143 -- including a modified BDS white paper by consultant Marc Rysman, a Boston University econometrician -- factored in the recent supplemental cable data and feedback from peer reviews.

The document release now was despite what some considered a promise to issue the peer reviews earlier. It also came as initial comments poured into the FCC docket, with ILECs saying BDS competition was robust and didn't merit further regulation; cable voicing concern about being subjected to regulation; and competitors and others saying FCC action is needed to fix a broken market.

Telcos recently asked the FCC to strike the "flawed" cable data and the paper, and rescind those portions of a Further NPRM that relied on them (see 1606170038). But the FCC documents issued this week show the commission "plans on continuing with the proceeding as scheduled," emailed CCMI broadband consultant Andrew Regitsky. "ILECs still have a valid court case because of the different competitive conditions between 2013 and today." AT&T said the FCC is abusing procedural safeguards and "seems determined to once again put its thumb on the scale, picking winners and losers in the market based on their own arbitrary predetermined interests." Other telco and cable officials didn't comment.

Rysman and staff memos provided dense market analysis responding to two peer reviews of his white paper. In the FNPRM it issued May 2, the commission said it would release the peer reviews "when they are completed in the near future," but the reviews released Tuesday were dated April 26 and 28. "It is standard practice to release the peer reviews simultaneously with the bureau responses," said an FCC spokeswoman.

AT&T said the FCC continues to "push aside" due process, which is "especially troubling when the policies the agency seems to be pursuing will have such a devastating impact on the incentives of all companies to invest in fiber" networks. Senior Vice President Bob Quinn said in a statement that reviews of Rysman's paper -- "the analytical core" of FCC proposals -- should have been released two months ago when they were completed, as promised. The agency released an FNPRM it knew "was based on a study that peer review had determined was flawed. It then required the industry to file comments on that flawed study. And once comments were filed, the Commission performed a huge data dump on the industry (which we will now have to unpack and comment upon)," he said. "Over and over, the Commission has modified and updated data that are supposed to be the foundation of its analysis without allowing parties sufficient time to adjust to the constantly moving target."

Rysman's original paper found evidence of incumbent telco market power in the initial 2013 BDS data. After the paper was finalized in April, large cable companies "corrected their filings to report additional locations, or in some cases census blocks with locations, connected to, or considered serviceable by hybrid fiber coaxial cable (HFC) network that is linked to, Metro Ethernet (MetroE) capable headends," Rysman said in his modified paper. "Previously, these large cable companies had only reported locations they were directly making sales to, or to which they had a fiber connection. My analysis, which was primarily focused on facility-based fiber competition ... is essentially unaffected by these updated submissions." He made virtually no changes to his conclusions, including that ILECs serve "many more locations with facilities-based service" than competitors. "The location data tell a similar overall story" to revenue data that showed ILECs "are an outsized presence in the industry" and "dominate the market for facilities based services in their regions," he wrote.

FCC staff also played down the significance of the updated cable BDS data from Comcast, Charter Communications, Cox and Time Warner Cable, focusing in particular on the question of whether potential cable competition constrained ILEC prices. "This analysis demonstrates that, at least in 2013, potential cable competition from BDS-comparable HFC infrastructure did not constrain ILEC prices in areas where there was evidence that facilities-based competition was doing so," staff said in a memo focused on cable competitive effects that modified Rysman's regression analysis specifications. "Inclusion of potential cable competition is not necessary to properly model these markets at this time. As cable competition grows it may become an important component but in 2013, it was not."

Building on Rysman's analysis, FCC staff released another memo analyzing the extent to which the effects of facilities-based competition vary across the agency's current three regulatory categories for DS1 (1.5 Mbps) and DS3 (45 Mbps) services: price-cap rate regulation (where competition is deemed lacking), "Phase I" pricing flexibility (where there's some competition) and increased "Phase II" pricing flexibility (where there's more competition). "Whether through the use of interaction terms or separate regressions, it appears that DS-1 and DS-3 prices are consistently lower when facing competition in Phase II areas than when facing competition in price cap and Phase I areas," staff wrote. "These conclusions further demonstrate the robustness of the Rysman Paper’s findings of ILEC market power, and reinforce the likelihood that the Rysman Paper, where it does not account for the regulatory regime ... understates the impact of competition on reducing ILEC prices."

USTelecom said in comments it fears the FCC "is headed in the wrong direction," prioritizing facilities sharing over building and subsidized leasing over investment, even though competitive benefits were flowering. "Where competition is working, less regulation should be the goal, not more -- right?" the ILEC group commented: But the commission "is giving new life to relics of the past" -- such as the X-factor, which pushes rates down by assuming productivity gains -- "rather than embrace forward-looking approaches" that recognize a "thriving" market and encourage innovation and investment in 5G and other cutting-edge systems. CenturyLink, Consolidated Communications, FairPoint Communications and Frontier Communications jointly commented on "the immense threat to their continued ability to invest in next-generation networks and services, particularly in rural communities."

"Cable operators have invested billions of dollars of risk capital to provide a competitive alternative for business customers of all sizes," NCTA commented. "The Commission’s reward to the cable industry for these efforts: a rulemaking suggesting that cable companies may become subject to rate regulation, including potentially sharp price cuts, and forced sharing of their network facilities with well-financed competitors. The direction signaled in the Further Notice puts the Commission on a collision course with its own precedent, threatens to undermine the Commission’s key goal of fostering facilities-based competition, and sidesteps the mechanisms established in the Communications Act for enhancing competition." Cable companies made other filings.

ILEC competitors and consumer advocates urged the FCC to press on with its rulemaking. Sprint said the FNPRM "recognizes the critical need to repair the broken" BDS marketplace quickly. "The importance of rapid action continues to grow," it commented. "Wireless carriers are preparing their networks to support 5G mobile broadband, but, as Chairman [Tom] Wheeler recently stated, their success depends on access to BDS-enabled backhaul connections at just, reasonable, and non-discriminatory rates. Wireline broadband customers also continue to suffer with each passing day, as anticompetitive behavior handicaps businesses, schools, hospitals, and governments as they undergo the transition from TDM to IP. More broadly, delays in reforming the BDS marketplace continue to weigh down the U.S. economy at a rate of billions of dollars each year. Given these high stakes, and after a decade of agency deliberation, the time has come to act."

Incompas and Verizon also separately plugged (here and here) their joint proposal to establish a new BDS framework (see 1606270058).