USTelecom, which represents major telco ISPs, was rooting on FCC chair Ajit Pai's business data services (BDS) proposal, which deregulates rates for incumbent providers like USTelecom members AT&T and Verizon where there is competition.

Pai has said he thinks that comprises a lot of places. But the association was pushing even further, saying the item could have been even more deregulatory.

Pai has scheduled a vote on his proposal for April 20.

USTelecom execs, including group president, Jonathan Spalter, told Paiin an April 10 meeting that the proposal to "reduce" the FCC's "price setting role" was "relatively constrained," and pointed to the benefits of more broad price relief, including a finding that incumbent telecoms are no longer de facto dominant, according to an ex parte filing on the meeting.

USTelecom argued that the FCC data on BDS understates the current level of competition and that its competitive market test -- for price deregulation -- may be too conservative.

Critics of the BDS proposal argue that it is overestimating the competition and have called on the FCC to release the data on which markets meet the test or delay the vote.

Washington — Federal Communications Commission chairman Ajit Pai is proposing major deregulation of broadband business data services (BDS) — such as credit card readers, ATMs and institutional hookups — and that’s good news for cable ISPs looking to get a bigger piece of that business without government restrictions.

While former FCC chairman Tom Wheeler’s proposal initially imposed potential new rate regulations on cable Internet-service providers and reimposed them on incumbent providers, Pai mostly sees a booming, competitive business in business broadband.

“The extensive record compiled by the commission’s excellent staff shows substantial and growing competition in many areas of the country, thanks to new market entrants like cable companies,” Pai said in a blog post.

Pai is extending his deregulatory view to that marketplace with a proposed report and order he plans to vote on at the April meeting.

‘VIGOROUS’ MARKET
Generally, the new takeaway from that proposal is that competition for most business broadband services is “robust and vigorous” and legacy regulations are “more likely to impede the introduction of new services and raise prices than to benefit consumers.”

That’s in contrast to the Wheeler proposal, which was predicated on the assumption that incumbent providers were levying “artificially high prices being charged to small businesses, schools, libraries and, ultimately, consumers.”

Scott Cleland, chairman of the ISP-backed NetCompetition, said, “Everything the Pai FCC has signaled so far is much less regulation of the BDS market not more, and that is very good news for more competitive infrastructure investment.”

Cable is recognized as a major force in the order, a dramatic change in the market over the past decade. “Cable providers have emerged as formidable competitors in this market,” citing stats from MoffettNathanson principal and senior analyst Craig Moffett that cable’s annual BDS growth rate has been 20% over the past few years, as it takes on the incumbents and competitive local-exchange carriers.

That translated to a $12 billion piece of the BDS market in 2015, said the FCC, with a projection for that share to double by 2019.

Cable operators, including NCTA: The Internet & Television Association, had pushed the FCC this time around to clarify that some broadband business services are private carriage not subject to the requirements of Title II of the Communications Act, such as “just and reasonable” rate regulation.

The order delivers that clarification, or at least it proposes to do so, confirming that cable operators can offer BDS service as a private carriage service not subject to Title II regulations. That would allow smaller operators that might not typically offer BDS to provide one-off offerings for specific customers.

Cable operators had sought that flexibility under the Wheeler proposal, but the idea did not get traction.

The FCC also concluded that having a competitor “nearby” is sufficient to qualify a market as competitive or, as the order puts it: “Traditional and nontraditional providers of business data services constrain an incumbent’s pricing outside of immediate geographies used to describe market concentration” in the Wheeler proposal.

The order cites cable as such a competitor, using as an example a cable company with “nearby” fiber nodes and the ability to provide Ethernet service over either fiber or hybrid fiber coax.

While the thrust of the order is to deregulate the price cap on incumbent carriers such as AT&T and Verizon Communications, a deregulatory tide lifts all boats.

At first blush, it might appear to be an advantage to have your competitors reregulated. A cable executive speaking on background, though, said that subjecting competitors to rate regulation is frequently “not a good thing.”

For instance, he suggested, were the FCC to cap rates at cost for an MSO’s ILEC competitor, cable operators would be forced to compete at that capped price. Thus, the free market of rates Pai is aiming for is preferable to self-regulating at a competitor’s level.

Being able to provide BDS as a non-common carrier service is one advantage, as is not subjecting cable operators to a new category of rate regulations should they invest to compete against the ILECs.

CLEC PUSHBACK
INCOMPAS, which represents the competitive telecoms that backed Wheeler’s regulatory approach to ILECs, was pushing back last week, looking for proof of the FCC’s assertion that most markets (92%) were sufficiently competitive to preclude price regulations to prevent monopoly and duopoly pricing.

Invoking the transparency chairman Pai has been pushing, INCOMPAS called on the FCC to release that information before the April 20 vote.

“It is critical to a thoughtful and reasoned consideration of this order to be able to assess exactly what that means, and how many small and medium-sized businesses and critical community institutions could face dramatic price hikes,” INCOMPAS said.

SIDEBAR: Tale of the Tape
According to an FCC summary, the agency’s new business data order, scheduled for a vote April 20, would:
■ “Confirm that certain competitive offerings constitute private carriage.”
■ ”Find that competition for lower-speed services (DS1s and DS3s) is robust in some, but not all, counties, and apply a competitive market test to determine where actual and potential competition is likely to constrain prices and lead to additional investment.”
■ “In areas with sufficient competition, modernize rules to facilitate additional infrastructure investment and next-generation services by ending tariffing and other legacy pricing regulations.”
■ “In areas without sufficient competition, maintain price caps …”
■ “Grant carriers additional flexibility to offer discounts in such areas to schools, libraries, r ural healthcare clinics, and other special access customers.”
■ “Ensure continued Commission oversight by prohibiting the use of agreements that would bar disclosure of contract terms to the FCC going forward.”
— John Eggerton

FCC chairman Tom Wheeler has apparently acceded to Republican requests and has pulled votes on four controversial items -- at least in the sense of not having Republican backing -- including the business data services revamp.

Also off the agenda for the Nov. 17 public meeting, according to a "deletion of agenda items" notice, was a vote on classifying LTE VoIP, rules for the second phase of its USF mobility fund allocations, and boosting the amount of video described programming for the bind and vision-impaired.

The items remain on circulation, which means they could theoretically still be voted, but that is unlikely.

Republican legislators, citing precedent when Dems took over the White House in 2008, this week asked Wheeler to ramp down his regulatory agenda.

“We are disappointed that the FCC will not act on the previously announced November agenda," said Harold Feld, SVP of Public Knowledge. "While respecting the tradition that the FCC should generally wait for the new administration before acting on any new initiatives, these items were essentially completed and ready to move. It seems absurd that if Chairman Wheeler had scheduled the meeting on election day, we would have already resolved the decade-old proceeding on legacy business data services pricing.

 “More importantly, the agenda items address real and pressing problems in the broadband marketplace. These problems do not simply go away due to an administration change. When Republicans take over, they will need to address the same competitive problems, or explain to the American people why they plan to perpetuate our broadband duopoly.”

The FCC had heard from both sides of the Hill, at least Republicans on both sides, that it should focus on wrapping up current project, with consensus support, rather than vote any new controversial regulatory proposals-among the most prominent of the latter are business data services (BDS) revamps -- which had been scheduled for that vote Nov. 17 -- and a set-top box "unlocking" proposal that is currently on circulation but has shown no signs of being voted as yet.

Sen. John Thune (R-S.D.), chair of the Senate Commerce Committee, Tuesday (Nov. 15) wrote Wheeler to send that message. He did not suggest canceling the Nov. 17 public meeting and even said there were some items the FCC could deal with. He didn't say which those were, though he did say "consensus items," which would exclude the BDS item, which is opposed by the Republican commissioners.

"Leadership of the Federal Communications Commission (FCC) will soon change," Thune wrote. "Congressional oversight of the execution of our nation's communications policies will continue. Any action taken by the FCC following November 8, 2016, will receive particular scrutiny. I strongly urge the FCC to avoid directing its attention and resources in the coming months to complex, partisan, or otherwise controversial items that the new Congress and new Administration will have an interest in reviewing.

There are certainly many consensus and administrative matters on which the Commission can instead focus its energies to conclude, including several items currently on the agenda for the Open Meeting scheduled to occur on November 17, 2016."

The chairs of the House Commerce Committee and Communications Subcommittee also sent a letter cautioning against action on controversial items.

That was fine with the Republican commissioners.

"“During the last presidential transition, the Commission Chairman wisely heeded the will of Congress in setting aside any remaining controversial agenda items for the next Congress and Administration to consider," said Republican FCC Commissioner Michael O'Rielly of the letters from both House and Senate Republicans. "I thank the current leadership of both Senate and House Commerce Committees for calling this precedent to everyone’s attention today, and expect that Chairman Wheeler will honor their request.”

"I welcome the letter from Chairman Fred Upton of the House Energy and Commerce Committee and Chairman Greg Walden of the House Subcommittee on Communications and Technology and the letter from Chairman John Thune of the Senate Commerce, Science, and Transportation Committee calling on the FCC to halt further action on controversial items during the transition period," said FCC Commissioner Ajit Pai, who is likely to be at least interim chairman once Donald Trump takes the oath of office. He had also called for pulling the four major items.

"Eight years ago, then-Senator John Rockefeller and then-Representative Henry Waxman called on the FCC not to consider “complex and controversial items that the new Congress and new Administration will have an interest in reviewing.” Then-Chairman Kevin Martin abided by their request. I hope Chairman Wheeler follows his example and honors the wishes of our congressional leaders, including by withdrawing the four major items on the November meeting agenda."

The Schools, Health & Libraries Broadband Coalition (SHLB), which lobbies for broadband deployment to anchor institutions in local comunities, has launched a campaign trying to get the FCC to reverse course on its new approach to business data services (BDS), saying with that approach "our kids will suffer from buffer brains rather than developing into the next generation of entrepreneurs and leaders."

FCC chairman Tom Wheeler was initially going to impose rate regs on both the Ethernet BDS service used by new competitive entrants like cable ISPs and the traditional TDM (time-division multiplexing)-based service provided by the incumbent telcos, but he subsequently switched to a case-by-case, market-by-market, complaint-driven appoach to Ethernet service price regs, saying that a balance between targeted regulation for legacy services, where evidence of market power is strongest, and lighter-touch regulation of packet-based services (cable ISPs, for example), where there has been new entry and competition may be emerging.".

SHLB doesn't see it that way. It wants the FCC to regulate both TDM and Ethernet below 50 Mbps in an "equivalent manner," saying not to do so excludes schools and libraries from the BDS revamp. It points out that 71% of E-rate funds (broadband subsidies for schools and libraries) go to Ethernet service.

SHLB wants the FCC to apply rate cuts across the board, not just to TDM, and rather than the 11% over three years price cut for TDM the FCC has proposed, they want 17%-20% cuts for both TDM and Ethernet.

It would prefer that the price regs apply to higher speeds than 50 Mbps, anything up to 1 gig, but say they are trying to be realistic given the FCC proposal not to regulate the higher speeds, where the FCC has suggested there is more competition for BDS than at the lower speeds.

The campaign, which launched with a YouTube video and press conference Thursday (Nov. 3), is called #NoBufferBrains and it wants the FCC to make "emergency improvements" to the proposal. "Emergency" because FCC Chairman Tom Wheeler has scheduled a vote on the latest BDS proposal for the Nov. 17 public meeting after originally circulating it for a vote outside a public meeting.

"Originally, the FCC promised a technology-neutral approach that would have benefited anchor institutions by lowering their costs, providing more choices, and encouraging deployment and availability of high-speed internet connections," said the group. "But at the last minute, the proposal was weakened to focus only on older technologies, or TDM lines, and pass on providing price relief for Ethernet customers."

Cable Ethernet providers don't like either of the FCC's approaches, saying it did not make sense to regulate new entrants after encouraging them to enter the market.

Representatives of the group said they had met with FCC Commissioner Jessica Rosenworcel Thursday (Nov. 3) about the issue. She has made faster and cheaper high-speed broadband to schools and libraries a centerpiece issue.

They have also met with FCC Chairman Tom Wheeler, Commissioner Mignon Clyburn and a staffer for commissioner Michael O'Reilly, and are trying to set up a meeting with Commissioner Ajit Pai.

CenturyLink says the FCC's new business data services (BDS) proposal could mean crippling rate cuts while ignoring evidence of competition.

The company accused the FCC of a flawed and dangerous approach that lacked transparency.

The FCC last Thursday (Oct. 27) scheduled a vote for the November 17 public meeting on FCC Chairman Tom Wheeler's BDS revamp.

RELATED: It's official, CenturyLink is buying Level 3 Communications in a deal valued at about $34 billion.

The chairman is proposing what is billed as a tech-neutral approach to regulating business broadband--credit card transactions and ATM connections, for example--regulating it wherever the FCC finds markets are not competitive, maintaining price caps on incumbent/independent local exchange carriers (ILECs) and regulating new competitive local exchange carriers (CLECS), including cable broadband providers on a case-by-case basis. Initially the proposal was to impose ex ante (before the fact) price regulation on incumbents according to a geographic approach, but that was changed to the case-by-case model.

On Friday, Oc. 28, CenturyLink, which was no fan of the initial proposal, slammed the latest proposal and its ILEC price caps, saying there was no basis for cuts in ILEC rates, period, and that the FCC was lowballing the cuts it was proposing.

The FCC based its new approach to business broadband (formerly called "special access) on several years of data-collection, but CenturyLink says the commission's new proposal "suggests an intent to ignore" evidence of competition and impose not only a phased-in rate reduction but in some cases an additional, initial, rate reduction.

"The layering of these reductions on top of one another is buried within the proposal, and has the potential to seriously damage providers’ ability to recover from lost income," the company told the FCC. "This drastic rate cut would cripple many providers’ ability to continue providing quality service, much less have money left to invest in broadband innovation for the future.

Hardly had the FCC voted to approach one contentious item -- the broadband privacy order -- when FCC chairman Tom Wheeler had scheduled a vote on another -- the business data services (BDS) proposal.

The BDS item had been circulated for a vote by the commissioners, which meant it could have been voted out of the public eye.

But according to the tentative agenda for the agency's Nov. 17 public meeting (which can change if recent past is prologue), a vote has now been scheduled.

It is billed as light-touch regulation for competitive business broadband providers -- like cable ISPs -- and updated price cap regs for the incumbent telcos.

Not on the agenda was a public vote on the set-top rules revamp. That, too, was circulated for a vote among the commissioners, but given all the attention from stakeholders and the Hill and calls for transparency, it would likely be scheduled for a meeting vote,

Wheeler told reporters Thursday (Oct. 27) that he was still hoping to vote out the set-top item by the end of the year.

Also on the November agenda is a Report and Order on requirements for video-described programming.

FOR MORE:News on the FCC's set-top box plan

At press time midday Thursday (Oct. 18), no one but FCC chairman Tom Wheeler had voted to approve either the set-top box order or business data services (BDS) combination order and Second Further Notice of Proposed Rulemaking, according to an FCC source speaking on background.

Both items were circulated for commissioner votes, and more work in the case of set-tops after not making it onto public meeting final agendas. Set-tops was circulated back on Sept. 29, BDS on Oct. 6. The chairman's "aye" is implicit in his circulating the items for others' approval, so each needs two more votes, likely only from the two Democrats on the panel.

Both the BDS and set-top items got makeovers after pushback from numerous quarters, and both were billed as more in line with alternative proposals offered up by NCTA - The Internet & Television Association and others. But in neither case were critics assuaged, arguing the items' apparent pivots -- toward app-based and more protective of content and contracts in the case of set-tops, less of an opt-in mandate for privacy in the case of broadband -- were deceiving.

The chairman could still add either item to the Oct. 27 meeting for a public vote, or push set-tops to the November meeting if it still needs work. The October meeting already has a planned vote on the chairman's proposal on a broadband privacy regulatory framework, another item that has drawn a lot of heat from industry and the Hill.

With many Hill Democrats calling for more transparency on the set-top item, holding a public vote on set-tops would be the more politic course if and when the chairman lines up two more votes for that item

A group of Democratic senators have told the FCC that Chairman Tom Wheeler's business data services (BDS) proposal could have an "outsized" negative impact on rural telecoms, including small towns and small businesses in their states.

In a letter to the chairman after he circulated his new proposal last week, the senators said that they wanted to make sure that any effort to regulate non-competitive markets (as determined by the FCC), should take into account the "real cost" and "unique challenges" of providing service to rural and small towns.

They were not exactly carrying torches and pitchforks into the debate. More like flashing yellow lights and caution flags.

They praised FCC efforts to promote broadband infrastructure, and gently cautioned that the FCC "not undercut incentives that would allow them to access these critical economic resources."

Signing on to the letter were Sens. Heidi Heitkamp (D-N.D.), Mazie Hirono (D-Hawaii), Jeffrey Merkley (D-Ore.), Jeanne Shaheen (D-N.H.) and Debbie Stabenow (D-Mich.).

In a separate letter, Democratic Texas Reps. Gene Green and Bill Flores said they were concerned that the proposal will slow investment and harm services that rely on the critical infrastructure.

Nearly four dozen comments -- overwhelmingly condemning the FCC's plans to regulate rates for Business Data Services (BDS) -- poured into the commission this week, as organizations and individuals replied to suggestions on how to remake the business broadband marketplace. 

In April, the FCC proposed new rules on BDS "in an Internet Protocol environment" in which services or providers would potentially face regulation regardless of whether or not a carrier is considered an incumbent or a competitor. That raises the prospect for the first time of price-cap regulation for cable operators' business services, in the category now called BDS that used to be called special access. Cable providers, still stung by the commission's imposition of Title II regulations to broadband service, are defending the past approach of encouraging competition by light-tough regulatory oversight.

This week's reply comments and "ex parte" disclosures of recent briefings to FCC staff members included warnings about investment disincentives and threats to "technology neutrality" along with observations about the impact on emerging wireless broadband services. Many of the organizations trotted out new research reports from economists and financial analysts as well as familiar complaints about the FCC's over-reach.

The National Cable and Telecommunications Association's brief ran to more than 150 pages, including addenda documenting "the significant flaws in the various proposals for rate regulation" and "the particularly harmful effects such regulation would have in rural areas." NCTA insisted that "there is absolutely no basis for regulating the rates charged by cable operators and other competitive providers" of BDS.

"Competitive providers have been investing billions of dollars to extend facilities to business customers all over the country, and the record is clear that these investments and the additional competitive options they offer are ... reducing the prices that customers pay for these services," NCTA said. "The commission should focus on taking steps to promote more of this beneficial competition, not regulating rates in a manner that discourages entry and investment."

The NCTA urged the FCC  to "take a far narrower approach to regulation" than advocated by competitive local exchange carriers and wireless carriers.

"If the commission is to go down the highly inadvisable road of expanding rate regulation of BDS, it must at least limit that regulation to providers that exercise market power, which under the traditional and economically cognizable definition, means providers that can control price," NCTA said. "Moreover, in light of the cost and uncertainties of regulation, it should make every effort to identify appropriately limited product and geographic markets that demonstrably exhibit  market failure."

In an analysis embedded within the NCTA filing, Michael Katz,a former FCC chief economist, and Bryan G.M. Keating contended that the FCC's proposed "price regulation schemes would suppress investment and entry incentives and can be expected to distort the prices of services." They concluded that the FCC's plan "can be expected to discourage competition and prolong regulation; violate technological neutrality; create barriers to the adoption of more efficient technologies; and discourage new facilities-based entry."

The American Cable Association also stressed the need to "promote competitive investment in lieu of regulation."

"The record shows there is no economic rationale to regulate these providers and the cost of regulating non-incumbents would far outweigh any benefits, undermining the FCC's goal of spurring competition," ACA said in its comments that urged the FCC to keep a "light touch" on BDS rules.  It said that new FCC rules "would put at risk about $300 million annually that non-dominant providers invest in BDS facilities."  It claimed that BDS providers have decreased their prices by 50% on average across all geographic areas and all customer segments, with some prices decreasing more than 70%.

In a separate analysis, Scott Anderson. Chief Legal Officer at Midcontinent Communications -- a provider of voice, video and data services to 199 rural markets in North Dakota and South Dakota -- explained that "BDS is one of the fastest growing segments of Midco’s business."  He said that "rate regulation may make a number of future BDS projects simply beyond the reach of Midco and potential customers."

Anderson emphasized that Midco's rural communities already have two competitors, which he said "has created a competitive environment for the pricing and provision of BDS services."

"The market is working," he concluded. "Requiring more than two competitors in a given market to meet the definition of competitive is not necessary for BDS customers to continue to enjoy a competitive pricing environment."

Sizeable segments of the NCTA's supplemental reports were heavily redacted because they contained "highly confidential information" from companies, although the NCTA explained that the full reports were delivered to specific FCC officials who required such details.

MSOs Condemn Rate Regulation Proposals

In its filing, Charter Communications  explained that it continues "to face significant obstacles in competing with incumbent LECs and entering new markets."

"Price regulation would only further tip the scale against additional expansion and entry by cable providers, undercutting the very competition the Commission seeks to encourage," Charter claimed. "Cable providers lack any market power that could conceivably justify the imposition of price regulation on their services ... [and] if the Commission does decide to price regulate cable providers, it cannot lawfully regulate the large universe of BDS provided on a private-carriage basis."

Mediacom Communications, which also met with members of the FCC's Wireline Competition Bureau, explained "the unique challenges facing cable providers operating in rural and less densely populated areas."  Mediacom said its representatives argued that the "imposition of any form of price cap regulation on such providers is likely to create disincentives for further investment in such areas which will, in turn, undermine competition in the BDS market."

Incumbent Telcos Denounce the FCC Plan

The USTelecom Association offered findings from a new study of customer preferences that showed "more and more business customers using and expressing a willingness to use cable broadband services" for Business Internet Access (BI) and Data Networking (DN) services."

"Most business customers surveyed expressed a willingness to switch to cable-provided BI and DN services, contrary to suggestions in the record that cable services in general, and cable 'best efforts' services specifically, are not regarded as adequate substitutes for BDS," USTelecom said. "These findings contradict claims in the record suggesting that business customers feel 'locked in' by a lack of competitive choices." 

AT&T contended that compared to 2013 data "competition is now even more pervasive, particularly given that cable companies are now prioritizing the BDS marketplace to grow their revenues in the face of more intense competition for their core video offerings."

"CLECs predictably attempt to downplay this competition, mostly by twisting the data to focus on areas where there is no BDS demand and by dismissing years of commission and Department of Justice precedent under which it was recognized that the presence of sunk facilities constrain BDS prices," AT&T said. "Over-regulating the BDS market will have a predictable and very concerning result – disincentivizing investment in broadband infrastructure."

AT&T also fretted that rate regulation would "curb incentives to build the infrastructure necessary for future broadband-intensive 5G wireless services in these areas" which it said "flies directly in the face of this Administration’s efforts to expand broadband access to everyone and its bold steps to speed us toward a 5G future."

Verizon and the telecom trade group INCOMPAS offered more details on the BDS "framework" that Verizon had proposed in June, which supports both Time Division Multiplexing and packet-based services. They said that  addition information in their filing "continue to reflect a middle ground and would result in an administratively simple framework that can help guide the commission towards pro-competitive reform."    

Among other things, the Verizon/INCOMPAS plan suggests that after lowest-speed benchmarks are established, the benchmarks for higher Ethernet speeds would be derived by applying the price-cap carrier’s respective relationship of rates"

The companies concluded that their "framework should result in actual price reductions from current levels (i.e., not merely "paper gains") for TDM and Ethernet services" and they suggested that "the commission should make clear that Ethernet services provided to wireless providers are subject to this framework, including the benchmarks."

In a research paper submitted on behalf of the Invest in Broadband for America Coalition -- which consists of CenturyLink, Cincinnati Bell, Consolidated Communications, FairPoint and Frontier Communications -- James E. Prieger, an economics and public policy professor at Pepperdine University and former FCC senior economist, calculated that that the impact of the FCC’s proposed price regulation for business broadband in rural markets will reach $1.4 billion or more.

Prieger's analysis, “Investment in Business Broadband in Rural Areas: The Impact of Price Regulation and the FCC’s Blind Spot,” concluded that, "The lost opportunities for revenue will lead to less broadband investment for the communities that need it most – slowing deployment and hurting economies that need help competing," Prieger said. "Each dollar of investment discouraged by regulation costs the economy up to three dollars in lost output. Each job lost from the lack of investment costs the economy 1.4 to 3.6 jobs, half of which would have come from small business."

"The FCC is rushing to push through new regulation without giving adequate time to study the likely effects," he said. "The FCC should pause long enough to consider the consequences of the proposed regulation, allow industry and other interested parties sufficient time to investigate newly updated data and associated repercussions."

NTCA: The Rural Broadband Association argued that "a permanent regulatory framework can and should distinguish between levels of competition in markets in right-sizing regulation." It recommended that "regulatory frameworks should specifically be designed ... to achieve other important public policy objectives."

"Moreover, any regulatory framework adopted in this proceeding should address and mitigate regulatory burdens on small businesses," NTCA said. "Smaller competing firms should not be burdened with significant new ... regulations."  It claimed that the FCC's experience "reaffirms the broader need to adopt a different way of approaching regulation in a world where networks and services are no longer inextricably intertwined, and to cease in particular in giving 'free (or reduced) passes' ” without careful forethought and disciplined analysis of the public policy consequences ... solely because the transmission involved may be a 'channel termination' or 'last mile' or 'middle mile' or 'backbone,' or the technology involved may be 'IP-enabled' or 'legacy.'”

Crown Castle, the country’s largest independent tower owner and operator (more than 40,000 towers for shared wireless infrastructure),  argued that commenters who supported rate regulation "completely ignore or merely pay lip service to this critical investment dynamic."

"As the record makes clear, rate regulation would be antithetical to the commission’s goal of promoting network investment by competing providers and thereby increasing competitive alternatives for BDS," the Crown Castle filing contended.  It gave a shout-out to Comcast's earlier comments, that "that rate regulation would deter investment....[a] "well established ... matter of economic theory and market reality."

The Free State Foundation contended that rate controls "will curb financial returns on investment for business data facilities."

"This necessarily will discourage infrastructure deployment by both incumbents and by new facilities-based entrants like the cable operators," FSF continued. "Rate regulation also discourages facilities-deployment and market entry by competitors who, given a choice, prefer regulatory arbitrage to facilities-based competition."

Sprint, which generally backed the Verizon/INCOMPAS filing, characterized their agreement as one which can "fix the long broken business data services market."

"As the need for more backhaul increases with the advancement of next generation 5G networks, access to high-capacity BDS at reasonable prices will be critical to mobile networks," Sprint said. It lamented that the current  "broken market for BDS ... has left 97% of this market controlled by one -- and sometimes two -- providers."

Taking a Contrarian Stance: "FCC as Wizard of Oz"

Among those supporting the FCC plan were the Consumer Federation of America and the New Networks Institute, whose filing including an elaborate denunciation of the Verizon/INCOMPAS proposal as a being "like the story of The Wizard of Oz." In this version, "Verizon would like to set the FCC up as the Wizard – lots of smoke and mirrors, but ultimately a weak little man manipulating dials that are powerless to do anything meaningful," their filing explained.

CFA and NNI urged the FCC to take aggressive steps "to establish the legal basis for concluding that rates, terms and conditions in the BDS market are just and reasonable." It sought to link the BDS proceeding to the FCC's recent final order on the IP Transition.

"It is simply impossible not to take note of the connection between the two,"  their comments insist. "Since the IP transition is about the transition to a fully digital network, the commission should not be surprised to find that the link between Business Data Services and the recently released IP transition order actually raises the importance of the BDS docket to an even higher level."

CFA and NNI also urged that the commission "must open a cost docket to determine the appropriate level of rates and the productivity factor. The cost analysis must be updated on a triennial basis."

Competify, a coalition of competitive telecommunications, information processing and public advocacy groups and companies, acknowledged the need to "heal this long-broken marketplace." It claimed that "incumbent providers continue to obscure the facts" and encouraged the FCC to  "complete a comprehensive review of the robust data in the record and reach a pro-competitive, pro-consumer result."

"Those hardest hit are rural communities and those that rely on mobile broadband, where incumbent market power could threaten U.S. leadership in 5G and further the digital divide," said Competify, which was established last year.  Its members include the Ad Hoc Telecommunications Users Committee, Broadband Coalition, BT, Competitive Carriers Association (CCA), Computer & Communications Industry Association (CCIA), Engine, INCOMPAS, Institute for Local Self-Reliance (ILSR), Level 3, Open Technology Institute at New America, Public Knowledge, Schools, Health and Libraries Broadband Coalition (SHLB), and Sprint.

The cable industry’s regulatory environment has heated up in the past year, with potential new set-top-box rules and the Federal Communications Commission’s decision to back off on retransmission-consent reform just the latest in a long list of cable-centric rules that could place undue burdens on operators large and small. While limited resources would make it hard for small, independent operators to fight lengthy regulatory battles, they have the American Cable Association to do it for them.

As The Independent Show in Orlando, Fla., drew near, ACA president and CEO Matt Polka spoke with Multichannel News senior finance editor Mike Farrell about how small operators can deal with the changing climate. An edited transcript follows.

MCN Independent Operators of the Year:WideOpenWest Covers Its Bases | Buckeye: Building on Broadband

MCN:What are the biggest issues for small operators going into the show?

Matt Polka: The theme of the show is, “Refocus and Reconnect.” I think that is appropriate in many ways. I would also say recommit. We’ve never had a year like this where we are under such enormous regulatory strain, where the types of important rulemakings that are moving at the commission, each on their own, could have a significant impact on our members’ ability to deploy more broadband service. We’re telling our members to refocus, reconnect and recommit, so you can be strong in the face of this storm.

As part of that recommitting, we’re saying, “Recommit with us at ACA so your voice can increasingly be heard.” We’re also telling our members to look at their customer service as a key differentiator that will help them maintain a strong positon and will also keep them from scrutiny.

A couple of weeks ago, Sen. [Claire] McCaskill (DMo.) and Sen. [Rob] Portman (R-Ohio) had a hearing regarding customer service for primarily the larger MVPDs. And while that hearing wasn’t focused on our members, it’s a good lesson to never ever take anything from a customer-service perspective for granted, [to] ensure that we as cable operators are presenting the best cable customer service we can provide and demonstrating that value that we are a vital connection to the community.

There are four primary issues from a rulemaking perspective: The set-top box rulemaking; the rulemaking on business data services, otherwise known as special access; the broadband privacy rulemaking at the FCC; and then just the implementation of Title II. Each one of these is a specific regulatory effort — although [with] Title II, the FCC hasn’t said what it might do yet — each one of those areas are crucial because of the cost impact to comply with the regulation, man hours, paperwork hours, the diversion of resources from deployment of broadband service to what we see as needless regulatory compliance.

MCN:It seemed like all of the indications pointed to the FCC finally doing something on the retransmission-consent reform front. How will inaction affect the industry going forward?

MP: Based on even as late as late last week [July 15] meetings with the bureau and other commission staff indicated there was going to be an order. For [FCC chairman Tom Wheeler] to say, “Nah, I don’t think so,” we’re shocked by that. I think what it’s going to mean — this isn’t the year when most agreements come up, it’s next year — unless something changes at the FCC or at the Hill, we’re going to see the impact of basically an unfettered broadcast industry that has carte blanche to do whatever it wants. That’s not a result that anybody wants.

Related >It’s a Small World After All: A Q&A With the NCTC's Rick Fickle

MCN:This year is an election year. Does that mean even more change is in store for the industry?

MP: We’re looking ahead to what’s going to happen in 2017. Heavens knows what is going to happen in the presidential elections. We’re going to have to deal with a new administration, most likely an interim FCC chair and then a new FCC chair. There will be a new head of the Energy & Commerce committee in the House because of term limits there; it’s unknown whether the Senate is going to flip from Republican to Democratic and whether [Democratic] Sen. [Bill] Nelson from Florida will be the chairman or [Republican] Sen. [John] Thune from South Dakota will remain the chairman.

We’re telling our members regardless of all of this uncertainty in the political environment, we at ACA are well-positioned because we’ve done the homework, we’ve done the grassroots, we’ve done the groundwork, so regardless of these possible changes we can stay focused on our policy objective moving forward.

One of the big issues that remains is whether [FCC Democrat Jessica] Rosenworcel is renominated and how that could affect the commission, and whether chairman Wheeler, as is tradition, steps down. There could be some bills on the Hill passed during the lameduck session, like an enhanced transparency exemption extension bill.

The Senate not too long ago passed a small-business broadband bill that increased the number of subscribers that subscribe to an ISP from 100,000 to 250,000 to comply with the FCC enhanced transparency requirements. That bill is likely to get passed at year-end. The rest of the Hill agenda for this year is kind of cloudy.

MCN:Small operators have been very outspoken over the years on a lot of regulatory issues. Could consolidation change that?

MP: It remains to be seen what impact consolidation will have on our segment of the industry. I do see some strategic combinations of our members that help to provide maybe better operational control within a particular area. It really remains to be seen whether some of the large interests have any interest in acquiring our members.

The truth of it is, I don’t care who you are, Mediacom, Cable One, WideOpenWest, that’s still really small. Even if you combine some of the larger smaller ops, you’re still tiny compared to Charter and AT&T and Comcast. If there is any consolidation, I tend to think we’ll still be fighting for the same issues.

MCN:One issue that small operators have been especially vocal about over the years has been forced bundling by programmers. Now that larger operators have taken up the skinny-bundle mantle, do you think we’ll see some traction there soon?

MP: I do. We’ve always comically but also seriously at the ACA called ourselves the canary in the coal mine. What has happened is whether it is retransmission consent or problems of cable programming choice or lack thereof, or other issues, is that larger MVPDs have gravitated toward us as they have seen in their own companies with much greater scale the need for relief and reform.

As those companies bring their greater influence to bear, it complements what we at ACA have been doing for years quite well because we compare and contrast on the same track to say the market has changed; the regulations that were once needed aren’t needed anymore with the dynamic, changing marketplace; and that government should release the straps of regulation and let the market decide.

WASHINGTON — The National Cable & Telecommunications Association says it has risked billions of dollars to get into the business data services (BDS) market — a market the Federal Communications Commission has said is key to the rollout of 5G — and its reward from the agency is the potential of rate regulations and unbundling that will hurt its chances of reaping any gains from that investment.

In its comments on the FCC's proposal to institute a technology-neutral framework — which means regulating competitors and new entrants, as well as incumbents, based on an as-yet undefined definition of market competitiveness — the NCTA said the FCC's proposal, which was approved along party lines in April, threatens the key goal of fostering facilities-based competition.

The NCTA has said the key issue is what providers of BDS service, and the answer should be the dominant carriers, but not their competitors. “The commission has long understood that there is never a need to regulate a new entrant because it has no ability to charge unjust and unreasonable prices,” the trade group told the FCC.

The NCTA said the FCC's reason for the regulatory remake — “technology neutrality” — has no basis in statute and “never has been the basis for imposing rate regulation on companies that do not possess market power.”

The NCTA does not buy the FCC's tentative conclusion that the enterprise data marketplace is broken. “Worse, the commission appears set on a course that will decrease investment and harm competition by not only imposing significant rate reductions on incumbent providers, but also seeking to require competitive providers to share their networks [unbundling] at those newly regulated rates.

“In a stark departure from sound economic and regulatory policy, the commission proposes to regulate a market that exhibits all of the hallmarks of a well-functioning, highly competitive market,” the NCTA said.

The trade group said that some 500 companies report providing this service as of 2013, and that is probably an underestimation.

The National Cable & Telecommunications Association has taken aim at FCC chairman Tom Wheeler's support for a proposal by Verizon and INCOMPAS that the FCC potentially regulate cable special access (business broadband) rates.

In meetings with FCC officials, according to an ex parte filing, NCTA executives said they had significant concern with "the possibility that the rates charged by cable operators and other facilities-based competitors in the market for business data services could be subject to 'ex ante rate regulation.'"

Rather than considering the incumbent telcos (LECs) as the de facto dominant carriers and regulating them, the proposal, which Wheeler has echoed in his own special access reforms proposed last week, would potentially regulate ILECs or their telco competitors (CLECS) or cable operators in the interests of competition.

Wheeler has called that a tech-neutral approach. The NCTA called it off base.

"[A]ny finding that competitive entry has been insufficient to affect the prices offered to consumers (e.g., because competitors do not offer the same range of services or their networks have limited geographic reach) necessarily means that the incumbent LEC remains dominant and should be regulated accordingly."

Verizon, INCOMPAS and Wheeler all propose moving away from a dominant/nondominant model of determining where regs are appropriate.

The NCTA said it is not endorsing routine rate regs on anyone, saying the market for business broadband had never been more competitive, thanks in part to cable, whose share has grown "substantially." But it said that where prices are not responding to completive pressures, it makes more sense to continue regulating incumbent rates rather than impose rate regs on new entrants.

Wheeler recently defended the "tech-neutral" approach as a way to spur 5G build-outs, but the NCTA said that theory is "backwards."

"If 5G services will need denser and more robust backhaul starting a few years from now," NCTA told the FCC officials, "the Commission should be taking steps now to encourage the construction of those facilities. But what provider is going to pursue this market opportunity if the 'reward' for taking the risk of building new fiber facilities is an obligation to provide access to wireless carriers at rates established by the Commission?"

The FCC is basing its special access reforms on a major, years-long data-collection effort. The NCTA, which has had issues with that collection in the past, said, "[I]t would be wholly inappropriate for the commission to reach any tentative conclusions about the state of the marketplace or the appropriate course for regulation based on a non-public analysis prepared by a single entity."