FCC Moves Toward Possible Special-Access Regulation

The FCC is doing what the industry long has anticipated would happen under Chairman Julius Genachowski, asking CLECs, ILECs, wireless and cable operators for data on their high-capacity connections.

Its all part of potential new regulations governing special-access services, which incumbents competitors complain are too expensive. Indeed, AT&T Inc. a few months ago was allowed to ratchet up its special-access prices after conditions from the BellSouth takeover were removed. The NoChokePoints coalition comprised of companies including Covad Communications, Sprint Nextel, T-Mobile USA and Clearwire have asked the FCC to cap the amount AT&T and Verizon can charge. The FCC now is exploring that possibility.

We believe some FCC officials suspect there are problems in the special-access market that require remedies, but they want more granular data to test their preliminary sense,” telecom analysts Rebecca Arbogast and David Kaut at investment bank Stifel Nicolaus wrote in an Oct. 29 client memo.

Right now, the Bells and other incumbents make about $18 billion in special-access revenue each year. And the number is growing. Thus, the FCC wants detailed information on high-capacity connections to buildings and cell sites by Jan. 27, 2011, in 24 mostly large metro markets. The action probably will spur a notice of proposed rulemaking, Kaut and Arbogast said.

While much will depend on what the data show, our sense is the FCC will eventually impose some new constraints on Bell/ILEC special-access prices and practices,” they wrote.

And that will lead to serious lobbying efforts against such a move. The Bells and other incumbents, along with their congressional allies, will vigorously oppose new special-access regulations,” said Arbogast and Kaut. However, the political maneuvering stands to lessen the impact of any rules that do go into effect, especially if Republicans gain as many seats in the House and Senate next week as predicted.

Nonetheless, the FCCs action this week creates overhang for the Bells/ILECs and potential upside for their CLEC/wireline and wireless rivals though the agencys deliberate pace and balanced data-collection efforts are of some comfort to the incumbents,” Kaut and Arbogast wrote.

The markets of most interest to the FCC include Atlanta, Chicago, Detroit, Los Angeles, Miami/Ft. Lauderdale, New York, Phoenix, Seattle and Washington, D.C.

The FCC late last year opened an inquiry into special-access pricing but hasnt done much with the issue since, spending most of 2010 dealing with Net neutrality, wireless consumer complaints and other matters.