Potential BDS Regulation Would Harm Investment, Say Cable, Telco, CWA Speakers

Heavy regulation of business data services would discourage investment by incumbent telcos and upstarts in an increasingly competitive market, said speakers at a USTelecom panel Thursday. Cable and ILEC representatives called potential BDS constraints dangerous, and a union representative voiced concern about proposals for rate cuts, starting with a "flash cut" of 20 percent. "Not good for investment. Not good for jobs," said Debbie Goldman, Communications Workers of America telecom policy director.

Former Sen. Mary Landrieu, D-La., said her hair was "on fire" listening to the panel. Landrieu, who was invited to give introductory remarks and then answered an audience member's question at the end of the discussion, said the FCC's regulatory direction was a departure from its own competition policy and the Obama administration's efforts to close the digital divide. "I'm sitting here wondering what's going on at the FCC," she said. "What are they thinking?" Acknowledging her ILEC bias as a board member of Monroe, Louisiana-based CenturyLink, she questioned the regulatory "rush" and urged the FCC to "slow the train down," understand industry data and figure out an appropriate solution. A moderator said neither Incompas nor Competify was able to send a representative.

"After a decade of delay, this FCC is armed with the most comprehensive data collection in broadband history, and poised to correct market power abuse that has stifled innovation and investment," emailed Incompas. "Unleashing competition and moving beyond duopoly will bring lower prices for business customers, schools and libraries."

The BDS market is working well from a cable perspective, said Steve Morris, NCTA associate general counsel. Morris urged the FCC to be "very cautious" in imposing new regulation that should be targeted where there's "market failure," which he said isn't widespread. CLEC and wireless calls for nationwide BDS regulation are dangerous because they would undermine industry incentives and curtail network investment, including in rural areas, he said.

The FCC should put aside its preconceptions and look at the data, said Wilkinson Barker attorney Russ Hanser, who represents CenturyLink, Frontier Communications, FairPoint Communications and Consolidated Communications. He said there was "a lot of rhetoric" but industry data showed "fairly conclusively" there were at least two BDS competitors almost everywhere, and he said studies showed two is enough in the BDS market to bid down prices. He said the Ethernet market is particularly competitive and called Incompas/Verizon proposals for related regulation "mind boggling and utterly incompatible with the desire to promote deployment." He said even legacy DS1 (1.5 Mbps) and DS3 (45 Mbps) services often faced competition, and where they don't, some regulation could be justified, but the FCC needs to be aware of the dangers of "over-regulating."

"Only a monopoly could define competition as 97% of consumers having only one provider, and if they’re lucky, maybe two. American consumers deserve better," emailed Competify.

Goldman said critics are painting a gloomy BDS market picture of ILEC dominance by defining the market as individual buildings and ignoring nearby fiber deployment by competitors, which could build out "lateral" connections if they win contracts. "It's not that costly if you get the bid," she said. Morris said NCTA has concerns about Incompas/Verizon proposals to create nationwide regulation for some services and a competitive market test for other services that's designed to "fail well over 90 percent of the time."

Regulation could push BDS rates so low that companies won't invest in upgrading to fiber networks, said Goldman. "Why would you build if you can rent something so cheaply?" That would depress the number of jobs, and their quality, she said. The FCC would be "picking winners and losers" if it subsidizes wholesale inputs for competitors that pay low wages, undercutting ILECs with an "80-year history of collective bargaining," she said.

CenturyLink recently said an Incompas/Verizon proposal would cut rates by more than 20 percent over the first two years, followed by 4.4 percent annual reductions (see 1608150032). Morris said others estimated the rate cuts would total 25-40 percent. Even if it's just above 20 percent, he said, that would be a $10 billion "windfall" in a BDS market the FCC has estimated at $45 billion based on 2013 industry data. He acknowledged some competitors and businesses would benefit from BDS rate cuts, but said it would come at the cost of lower network investment and deployment.