With FCC Set to Release Data on $40 Billion Market, Level 3, USTelecom Offer Opposing Views

By Josh Long

The Federal Communications Commission on Thursday announced plans to release data on the $40 billion special access market, a crucial step in a years-long proceeding that competitive providers of voice, data and Internet services maintain is critical to preserving choices for American businesses.

The likes of Level 3 Communications and Windstream often rely on special access circuits that are owned by incumbent phone companies to serve business customers.

The NORC, a public policy research institution at the University of Chicago, will soon contact members of the public who have been authorized under the terms of a protective order to review the special access data, according to the FCC.

“Special access data is competition data,” said Jeff Sharp, a spokesperson for the Broadband Coalition, an organization representing competitive broadband providers, in a statement commenting on the FCC’s announcement. “Chairman Tom Wheeler and this FCC have shown their willingness to break down every barrier to competition, and the special access data will be an important arrow in their quiver.”

Special access services include such offerings as circuit-based dedicated services including DS1s and DS3s and packet-based dedicated services including Ethernet, according to the FCC. Competitive carriers describe special access as a critical wholesale service that enables them to connect the last portion or “mile” of their networks to businesses via the local, high-capacity connections controlled by AT&T, Verizon and other incumbent telephone companies.

“Special access,” the FCC explains, “is a wholesale data service widely purchased by businesses and institutions that provides dedicated, guaranteed transmission of high volumes of critical data.”

But over the past 20 years since President Bill Clinton signed into law the landmark Telecommunications Act of 1996, competitive local exchange carriers or so-called CLECs have invested billions of dollars developing high-speed networks that traverse the country and connect locally to American companies. Millions of American businesses have ditched the likes of AT&T and Verizon for a competitive alternative, prompting incumbents and federal regulators to examine whether special access services should be deregulated.

“After a comprehensive evaluation of the relevant data, the FCC will look at revising its rules to provide relief from regulations in those geographic areas where a robust and competitive special access market exists,” the agency explains on a webpage that provides an overview regarding the collection of special access data.

According to FCC figures referenced by the United States Telecom Association (USTelecom) in a regulatory filing, competitive carriers served …

… 45 percent of retail business access lines by the end of 2013.

“We think on the whole the business market is pretty competitive,” said Jonathan Banks, senior vice president of law and policy with the United States Telecom Association (USTelecom), in a phone interview earlier this summer with Channel Partners.

Mike Mooney, Level 3’s senior vice president and general counsel for regulatory policy, offered a different perspective.

“What the FCC ultimately needs to do is reevaluate the special access market because it’s broken,” he said in a recent phone interview. “The incumbents are still dominant and still overcharging the industry for … these critical connections that enable communications networks to work that only they can provide.’

Mooney noted roughly three-quarters of the services sold by Level 3 rely in some way on a special access circuit.

Eric Einhorn, Windstream’s senior vice president of government affairs, said it still doesn’t make economic sense for competitive carriers to build the last mile of a network to certain businesses, such as a gas station.

“CLECs have invested billions and billions of dollars in network but in many cases for these small customers it’s not economic to build the last mile,” he said in a phone interview. “The CLEC isn’t going to be able to support business access to that gas station without leasing the last mile to the incumbent.”

But USTelecom President Walter McCormick cited broad competition in the business market, and he referenced wholesale agreements that Comcast announced reaching this week with other cable companies to support a new business unit focused on Fortune 1000 companies.

Comcast’s announcement “is just the latest evidence of competition in this sector, occurring without the need for government to step in,” McCormick said in a statement. “Business customers need modern, robust communications infrastructure now and in the future to compete in global markets. The key issue for the FCC and the country is modernizing policy to get robust investment in new fiber optics and Internet services to replace aging low-capacity special access services.”

Regulators been examining possible reforms to the special access market for at least a decade. In 2005, the FCC initiated a rulemaking to determine whether to repeal rules that had been adopted six years earlier. The 1999 “pricing flexibility” rules authorized incumbents to offer special access services at unregulated rates in areas where they could show competitors had made certain investments in collocation and transport facilities, according to FCC documents.

The FCC used its authority to forbear from regulating IP-based, Ethernet services, granting AT&T, CenturyLink and Verizon relief from many requirements in the 1996 Telecom Act, Mooney said.

Mark Wigfield, an FCC spokesman, said there is no timeline for …

… issuing final rules reforming the special access market.

Tech Transition Order

But Wheeler’s FCC has moved to protect competition during the pendency of the special access proceeding. In an order last month that reflected the industry’s transition from copper and older TDM-based infrastructure to 21st-century technology, the FCC issued regulations that required its approval under Section 214 of the Communications Act before a carrier eliminates a wholesale service if it leads to “the discontinuance, reduction, or impairment of service to a community.”

“If they [incumbents] seek to discontinue TDM special access service in a market or even to a building, they are going to look and see, ‘do they have retail customers who are affected?’” Windstream’s Einhorn explained. “Do they have a CLEC customer that would have retail customers that are impacted? If the answer is yes, they will have to file a 214.” 

The FCC offered another layer of protection that is aimed to preserve competition while the special access proceeding remains pending. Incumbents cannot discontinue services unless they “provide competitive carriers reasonably comparable wholesale access on reasonably comparable rates, terms, and conditions during the pendency of the special access proceeding,” according to the FCC’s order.

The above requirement applies to special access services at DS1 speeds and above and so-called commercial wholesale platform services such as AT&T’s Local Service Complete and Verizon’s Wholesale Advantage.

“We seek to avoid the situation where a competitive LEC may irrevocably lose business as a result of the technology transitions and loss of wholesale inputs even though such wholesale inputs may ultimately be made available as a result of the special access proceeding,” the agency explained.

Windstream welcomed the FCC’s decision. In determining whether an incumbent is providing equivalent wholesale access, the agency adopted factors that Windstream had proposed as part of the FCC’s “totality of the circumstances” analysis.

For instance, the FCC will consider whether the price per Mbps of an IP replacement product will exceed the price of a TDM product that is being discontinued. And among other considerations, the agency will examine whether the replacement product will result in impaired service delivery or quality.

Wheeler’s order also has established an enforcement mechanism by which …

… wholesale customers can disclose to the agency the replacement product’s rates, terms and conditions and file grievances with the FCC, including formal complaints.

Mooney said it was premature to determine whether disputes would arise over whether the incumbents are providing equivalent wholesale access when they offer a replacement service to a CLEC.  

“I think it’s too early to say to be honest,” he said. “It would have been better in our opinion if they said the rates have to be the same because it would have eliminated the gray area.”

In an interview last month with Channel Partners, Neil Ende of telecom specialist Technology Law Group in Washington, D.C. said the FCC’s “reasonable comparable” wholesale standard leaves room for potential disagreements.

“These are relative, not absolute terms,” Ende noted. “If I’m giving you 80 percent of a service that you had before, is that ‘reasonably’ equivalent? I might think it is; you might think it’s not.”

But Banks, the USTelecom executive, said he didn’t expect the FCC’s requirement to lead to an avalanche of litigation.

“Generally these things get negotiated between companies and get worked out by contracts,” he said, referencing negotiations of wholesale contracts. “I guess there is no reason to expect this is going to lead to all sorts of litigation. From our perspective, people work out these wholesale agreements and they get done.”