FCC Seen Suspending, Investigating AT&T, Verizon Plans to Revise BDS Tariffs
The FCC seems likely to block and probe AT&T and Verizon tariff proposals for business data services, commission watchers told us. The Bells proposed the BDS tariffs in response to an FCC order that found certain telco contract discount conditions unlawful because they unduly restricted choices by telecom rivals. But CLECs and Sprint filed petitions objecting to a "rate hike sneak attack" that continued to "manipulate the market using anti-competitive lock-up sales conditions," and they asked the FCC to reject the tariffs or suspend and investigate them (see 1607110066). The agency must decide by Friday whether to allow the tariffs to take effect Saturday.
CCMI consultant Andrew Regitsky said he believes the petitions raised enough questions to warrant suspension and investigation. "I would be very surprised if the Commission lets the filings become effective," he emailed us. Phoenix Center Chief Economist George Ford said he also doubts the FCC will allow the tariffs to take effect without further investigation, though he called the modified Bell tariffs the "unintended consequences" of FCC actions to help competitors. "They want the discounted rate without the commitments," he said. “This is a squabble over price.”
Former Commissioner Michael Copps took a hard line against the tariffs. "This is such a patent effort to lock in even more exorbitant rates and to muck-up the FCC's decision-making process," emailed Copps, now a Common Cause adviser. "Any rate hikes should be rejected and the Commission should, at long last, end this rip-off and bring some real competition to the BDS/special access market. I trust this is what it will do."
Agency staff likely will suspend the tariffs "but will then be fighting with AT&T/VZ on more than one front," emailed a former senior FCC official, noting an ongoing BDS rulemaking. "The staff won’t be able to just address everything in the rulemaking. They also would have to resolve the tariff investigation, which is more work. And, they have to come up with a legal theory since the DC Circuit says that Bells don’t have to offer any discounts at all."
"CLECs and wireless have the upper hand politically. So ILECs may very well face a suspension and investigation of their tariffs," said another former senior FCC official. "This is the shape of things to come in the IP transport world. [FCC Chairman Tom Wheeler] has already signaled that he's going to side with CLECs in the BDS proceeding. ... The net result will be a wealth transfer from the ILECs to CLECs and wireless. Those savings are likely to go to shareholders and not consumers."
FCC Options
An FCC spokesman laid out the agency's options without commenting on the merits: (1) do nothing, allowing the tariff to go into effect as deemed lawful; (2) suspend for one day and then allow the tariff to take effect without being deemed lawful, which would mean the Bell could still be subject to refunds if the tariff is later found unlawful; (3) suspend for five months while the FCC investigates; or (4) reject the tariff as unlawful. AT&T and Verizon didn't comment.
The tariff order grew out of a probe of the BDS pricing plans of AT&T, CenturyLink, Frontier Communications and Verizon that found some of them harm competition and slow the IP transition. In an order adopted April 28 and released May 2, the agency prospectively prohibited the “all or nothing” discount plans of the four ILECs, which force customers to buy all of their services under one tariff, but it sought comment on how to implement the change for existing plans. It also said AT&T, Frontier and Verizon were charging excessive shortfall penalties to customers not meeting volume commitments, and AT&T and Frontier were charging excessive early termination fees (ETFs) to customers not fulfilling term commitments (see 1604280057 and 1605030001).
The all-or-nothing plans generally work with circuit portability options, which enable customers to avoid ETFs when disconnecting individual circuits early as long as they maintain a high percentage of their initial volume commitments, the FCC said. CLECs usually need portability for some portion of their purchases, requiring them to commit to all-or-nothing plans, which preclude them from selecting other options, it said. "All-or-nothing requirements thus 'lock up' all of a customer's purchases," said the order, which required the telcos to change their tariffs. The ILEC practices are also subject to further comment in the rulemaking.
AT&T and Verizon proposed revised tariffs July 1 that were challenged by competitors last week as ignoring the FCC order. Birch Communications, EarthLink, Incompas, Level 3, Sprint and Windstream said AT&T refused to remove the objectionable portability conditions requiring customers to aggregate all their purchases under one plan, and instead grandfathered the language without offering an adequate substitute for new contracts or renewals. They also said AT&T's proposed reduced ETFs and shortfall penalties were still excessive. EarthLink, Incompas, Sprint and Windstream filed another petition saying Verizon refused to remove the portability conditions and proposed a 2.85 percent increase in DS1 rates in many areas. "Ironically, if allowed, Verizon would be converting its illegitimate and excessive shortfall penalties into recurring revenue from all DS1 customers," they said.
Windstream separately said AT&T's changes would, de facto, be a "huge price increase" for wholesale buyers and retail customers. "By discontinuing renewals of the ... Portability Plans, as well as new subscriptions, AT&T is using the threat of enormous early termination liabilities to conscript wholesale customers into purchasing only on higher priced two- or three-year terms consistent with a wholesale customer’s retail contracts, rather than the five- to seven-year terms utilized with portability," Windstream said. "The transmittals must also be rejected because, by discontinuing portability, they de facto seek to terminate five- and seven-year term offerings, as they attempted to do in 2013." USTelepacific also objected to the proposed ETFs and shortfall penalties.
No New Portability
Phoenix Center's Ford said the proposed new tariffs eliminate the portability option going forward for now. The problem, he said, is the FCC hasn't told the Bells how to fix their plans. Buyers want portability and ILECs want to offer it, but "nobody knows what a legal portability plan looks like," he said.
"So the carriers have responded by saying we'll shelve it for the moment, and we'll file new tariffs later consistent with whatever decision [the FCC] makes," rather than filing new plans now that the FCC may find are illegal, he said. "I think they will come back once there is clarification." But competitors credited Frontier and other ILECs with already providing more flexible plans.
"The tariff filings demonstrate why this market still needs FCC oversight and intervention," emailed Levine Blaszak attorney Colleen Boothby, counsel for the Ad Hoc Telecommunications Users Committee, which represents big business telecom customers. "They prove, once again, that there just isn’t enough competition to discipline carrier prices and practices and keep them reasonable. The filings also demonstrate why the Commission can’t eliminate tariffs, as it proposes to do in the further notice of proposed rulemaking for BDS. Tariffs force the ILECs’ behavior into the open, where the Commission can stop their behavior that undermines or impedes competition."