AT&T Proposes Light-Touch BDS Regime; FCC Drafting Deregulatory Order, Some Say

AT&T said business data services are very competitive and need minimal regulation, as it proposed the FCC adopt a new BDS framework that "would be supported by the record." The proposal, detailed in two filings Tuesday, would add no regulation to Ethernet services, free legacy "transport" services from pricing regulation, and establish a competitive market test in metropolitan statistical areas (MSAs) for legacy "channel terminations" (circuits to business customers akin to loops). The FCC didn't comment.

The agency is looking to address BDS issues relatively soon in a deregulatory manner, industry sources told us this week. "They’re working hard on this, and they're drafting. I think they’re trying to get ready for April, but I’m not sure they know if they’ll be ready. It’s certainly deregulatory in direction," said an industry representative. "I think this is an order, that's clear. They’re focusing on what's in the record and what can be justified, and the only reason you do that is if you’re drafting an order." Others offered similar assessments.

AT&T said the Ethernet services "are highly competitive nationwide" -- something it said the FCC had already determined -- and should face no new regulatory burdens. The record also shows that "legacy special access services that are at issue are highly competitive," the telco said in a filing posted in docket 16-143 on a meeting with Wireline Bureau officials that summarized its proposal. "The Commission likely has before it a record that would support eliminating rate regulation for these services altogether."

Competitors deployed "transport networks in more than 95% of census blocks with special access demand" as of 2013, AT&T said, in reference to industry data collected by the FCC. "Transport should be subject to Phase II regulatory treatment nationwide," the telco said, which basically would give incumbent telco “DSn” -- DS1 and DS3 (1.5 Mbps and 44 Mbps) -- inter-office transport price deregulation.

AT&T said DSn channel terminations are also highly competitive, with the FCC's own independent consultant in 2016 finding alternative facilities have an impact on incumbent services at distances as far as half a mile away. "Commission, DOJ, and DC Circuit precedent have all found that for services like the ones at issue here, with high sunk costs, a single facilities-based competitor is enough to introduce permanent competition into the marketplace," said the filing. "A reasonable Competitive Market Test [CMT] would be: An MSA will be considered competitive if 80% of the buildings with special access demand within the MSA are within 2,000 feet of at least one competitor.”

Continuing to use MSAs as the geographic market makes sense, the company said. "The CMT described above is different from the pricing flexibility tests because it does not rely on collocator or revenue-based proxies. Instead, it is a measure of actual competition within the geographical area and confirms the vast majority of DSn demand within a ‘competitive’ MSA will be subject to competition." AT&T said it would be costly and time-consuming for both incumbents and resellers to transition away from existing MSA-based billing and ordering systems. Rivals say a more granular test is needed. AT&T provided more details in a filing.

Incompas CEO Chip Pickering derided the proposal. “Another day, another competition killing idea from AT&T," he said in a statement. "While President [Donald] Trump has made MORE competition, not LESS competition, the centerpiece of proposals to reform healthcare, insurance, prescription medication and schools, AT&T seems to believe monopoly policy will fly at the FCC. To grow the economy and create jobs, our buildings need more broadband connections, not less. Protecting monopolies and duopolies only rigs the system for broadband giants and raises prices for small business customers across the nation.”

FCC Chairman Ajit Pai wants to move forward on BDS, said another industry official. "I don’t think it’s going to be April -- I think it’s possible, but I think they want to do something before summer. I think they’re shooting for May,” the official said. "I hear they’re going to use the record already compiled for rolling back regulation.”

“Something is likely to happen soon on BDS," said a telecom lawyer, who didn't know the precise timing but believes the FCC has enough of a record to act: "They’ve got the data and a 2016 [Further] NPRM, even though it proposed to go in a different direction on some things." It helped that the FCC under Chairman Tom Wheeler last fall proposed not regulating Ethernet services, the attorney said, but cable will want the agency "to walk back" proposed common carrier treatment of its services. Treatment of DS1 and DS3 lines, which Wheeler had proposed to regulate, will need "more than just finessing," the expert said: "It’s probably not just tweaking the draft; it’s probably some substantial redrafting.”

Comcast said cable BDS entrants shouldn't be regulated. There's "no serious dispute that Comcast and other cable BDS providers lack market power, thus undermining any purported justification for imposing rate regulation and other common-carrier-style mandates," said a company filing on a meeting with a Pai aide and Wireline Bureau staffers. Responding to FCC questions about how it can use its hybrid fiber/coaxial network to compete further in BDS, Comcast said the existing "facilities can facilitate" its "ability to construct new fiber connections to customer locations more rapidly and at lower cost." U.S. TelePacific said the FCC should "balance the hardship of a customer losing access to existing broadband with pricing flexibility intended to encourage fiber deployment," in a filing on the company's meeting with bureau officials on a previous Comcast filing. "It would be a step backward for customers that have broadband today to lose that service because an ILEC increases, rather than decreases its rates after being prematurely granted pricing flexibility.”